1 00:00:08,670 --> 00:00:10,740 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. I'm Sean 2 00:00:10,740 --> 00:00:13,200 Sean Aylmer: Aylmer and, as always at this time on a Monday 3 00:00:13,200 --> 00:00:16,169 Sean Aylmer: morning, I'm joined by economist Steven Koukoulas. You'll find him 4 00:00:16,170 --> 00:00:18,870 Sean Aylmer: at thekouk. com, T- H- E- K- O- U- K. 5 00:00:19,049 --> 00:00:22,290 Sean Aylmer: com and on Twitter using the handle @ thekouk. Actually it's on 6 00:00:22,290 --> 00:00:24,120 Sean Aylmer: X, isn't it, Steven? Not Twitter. 7 00:00:24,120 --> 00:00:25,980 Steven Koukoulas: It is X now. X marks the spot, as they say. 8 00:00:26,460 --> 00:00:29,880 Sean Aylmer: Yeah. Steven, what a great week last week was for 9 00:00:29,880 --> 00:00:32,339 Sean Aylmer: an economist, so much going on, where do we start? 10 00:00:32,340 --> 00:00:34,289 Sean Aylmer: I suppose we started on interest rates and the Reserve Bank's 11 00:00:34,289 --> 00:00:36,089 Sean Aylmer: decision to not lift interest rates. 12 00:00:36,959 --> 00:00:39,630 Steven Koukoulas: Yes, and they didn't lift interest rates. It was a sort 13 00:00:39,630 --> 00:00:41,340 Steven Koukoulas: of a line ball call, I think, as we discussed 14 00:00:41,340 --> 00:00:45,659 Steven Koukoulas: last week. That there's some reason and about half of 15 00:00:45,659 --> 00:00:48,389 Steven Koukoulas: the market economists that were surveyed thought that they might 16 00:00:48,389 --> 00:00:51,809 Steven Koukoulas: go 25 basis points. And the reason for that was 17 00:00:51,809 --> 00:00:55,470 Steven Koukoulas: basically that while inflation is falling, it's still too high. 18 00:00:55,860 --> 00:00:58,740 Steven Koukoulas: The labor market is still incredibly tight. Your 3. 5% 19 00:00:58,740 --> 00:01:02,280 Steven Koukoulas: unemployment rate is arguably over full employment. So there could 20 00:01:02,280 --> 00:01:06,569 Steven Koukoulas: be some wage and price pressures brewing there. However, the 21 00:01:06,569 --> 00:01:09,359 Steven Koukoulas: Reserve Bank, in their wisdom, including on the Statement on 22 00:01:09,360 --> 00:01:13,380 Steven Koukoulas: Monetary Policy that they put out last Friday, confirmed that 23 00:01:13,500 --> 00:01:17,190 Steven Koukoulas: their view is the economy is definitely slowing. That things 24 00:01:17,190 --> 00:01:21,179 Steven Koukoulas: like the weakness in retail spending are also extremely weak, 25 00:01:21,780 --> 00:01:25,799 Steven Koukoulas: and they've got confidence that inflation's going to be decelerating 26 00:01:25,799 --> 00:01:28,678 Steven Koukoulas: over the more medium term. So look, the Reserve Bank 27 00:01:28,680 --> 00:01:31,110 Steven Koukoulas: still has a bias to increase interest rates so that 28 00:01:31,170 --> 00:01:32,760 Steven Koukoulas: if there is a move in interest rates in the 29 00:01:32,760 --> 00:01:35,309 Steven Koukoulas: near term, it'll be up not down. But I think 30 00:01:35,310 --> 00:01:37,440 Steven Koukoulas: the clear case is that interest rates are on hold for 31 00:01:37,440 --> 00:01:39,870 Steven Koukoulas: the next few months and like all of us, the 32 00:01:39,870 --> 00:01:41,220 Steven Koukoulas: Reserve Bank is watching the data. 33 00:01:42,389 --> 00:01:44,280 Sean Aylmer: It's kind of good news in a way, I suppose. 34 00:01:44,730 --> 00:01:46,859 Steven Koukoulas: It is and I think there's a bit of relief 35 00:01:46,859 --> 00:01:48,750 Steven Koukoulas: from people who are under the pump. I think it's 36 00:01:48,750 --> 00:01:53,640 Steven Koukoulas: the Treasury uses that term terminology to describe those that are suffering from the 400 basis 37 00:01:53,640 --> 00:01:56,309 Steven Koukoulas: points of rate hikes on their mortgage and including small 38 00:01:56,309 --> 00:01:59,940 Steven Koukoulas: businesses in that space, too. Interest rates have been hiked 39 00:01:59,940 --> 00:02:03,929 Steven Koukoulas: really quickly by a large amount, and albeit from an 40 00:02:03,929 --> 00:02:08,250 Steven Koukoulas: artificially low level 15, 16 months ago, but we can see 41 00:02:08,250 --> 00:02:11,609 Steven Koukoulas: it in some of the early indicators of loan arrears, 42 00:02:11,610 --> 00:02:14,578 Steven Koukoulas: they're just starting to pick up. There's anecdotes of investors 43 00:02:14,580 --> 00:02:17,040 Steven Koukoulas: who have been arguably caught out as much as own 44 00:02:17,040 --> 00:02:20,220 Steven Koukoulas: occupiers are now putting their houses on the market. So the RBA 45 00:02:20,790 --> 00:02:22,919 Steven Koukoulas: can see this. These are great leading indicators for the 46 00:02:22,919 --> 00:02:25,169 Steven Koukoulas: economy and it doesn't want to make things worse. 47 00:02:25,530 --> 00:02:27,870 Sean Aylmer: What does the Reserve Bank think will happen to the 48 00:02:27,870 --> 00:02:30,240 Sean Aylmer: economy? They put out their Statement on Monetary Policy on 49 00:02:30,240 --> 00:02:33,539 Sean Aylmer: Friday. They also had retail trade building approvals figures out 50 00:02:33,540 --> 00:02:35,550 Sean Aylmer: last week. Well, what does the bank think is going 51 00:02:35,550 --> 00:02:35,910 Sean Aylmer: to happen? 52 00:02:36,389 --> 00:02:39,390 Steven Koukoulas: Yeah, GDP growth below trend, the forecast they put in there, SOMP, the 53 00:02:40,079 --> 00:02:43,650 Steven Koukoulas: Statement on Monetary Policy. Well, for GDP the growth is somewhere between 54 00:02:43,650 --> 00:02:45,660 Steven Koukoulas: 1 and 2% over the next 18 months so we 55 00:02:45,660 --> 00:02:48,570 Steven Koukoulas: know that that's very weak. The Australian economy, particularly with 56 00:02:48,570 --> 00:02:53,370 Steven Koukoulas: its population growth, should be growing just under 3%, maybe 57 00:02:53,370 --> 00:02:57,330 Steven Koukoulas: 3%. So anything in that 1 to 2% band is 58 00:02:57,750 --> 00:03:00,930 Steven Koukoulas: a materially lower rate of economic growth. And as you 59 00:03:00,930 --> 00:03:04,410 Steven Koukoulas: pointed out, the retail sales numbers on last week were 60 00:03:04,410 --> 00:03:07,169 Steven Koukoulas: very poor. They were showing that in volume terms in 61 00:03:07,169 --> 00:03:09,510 Steven Koukoulas: the June quarter, they were down half a percent. That 62 00:03:09,510 --> 00:03:11,790 Steven Koukoulas: feeds directly into the GDP numbers, which come out in 63 00:03:11,790 --> 00:03:14,070 Steven Koukoulas: a month's time. So the Reserve Bank is sort of 64 00:03:14,070 --> 00:03:17,430 Steven Koukoulas: mulling all of these indicators right now. And in a 65 00:03:17,430 --> 00:03:20,070 Steven Koukoulas: sense, you could say that Dr. Lowe's work and the 66 00:03:20,070 --> 00:03:23,370 Steven Koukoulas: Reserve Bank board's work is having its impact. Growth is 67 00:03:23,370 --> 00:03:27,179 Steven Koukoulas: slowing, inflation's coming down, and we just need to be 68 00:03:27,179 --> 00:03:30,150 Steven Koukoulas: a little bit patient for these rate hikes that have 69 00:03:30,150 --> 00:03:32,430 Steven Koukoulas: been particularly delivered since the start of this year to 70 00:03:32,460 --> 00:03:34,979 Steven Koukoulas: weave their magic, if you like, and have their full 71 00:03:34,980 --> 00:03:36,000 Steven Koukoulas: effect on the economy. 72 00:03:36,540 --> 00:03:38,490 Sean Aylmer: Not a lot on this week compared to last week, 73 00:03:38,490 --> 00:03:41,430 Sean Aylmer: particularly. ANZ job ads, I suppose, will be interesting in 74 00:03:41,430 --> 00:03:43,950 Sean Aylmer: terms of a leading indicator of what's happening to that 75 00:03:43,950 --> 00:03:47,849 Sean Aylmer: market. And, of course, Westpac Consumer Sentiment, everyone's in the 76 00:03:47,849 --> 00:03:51,240 Sean Aylmer: doldrums and even NAB's Business Conditions and Sentiment Survey isn't 77 00:03:51,240 --> 00:03:52,380 Sean Aylmer: quite as strong as it used to be. 78 00:03:53,039 --> 00:03:55,830 Steven Koukoulas: Yes. Not a top tier week, I suppose. Although having 79 00:03:55,830 --> 00:03:57,780 Steven Koukoulas: said that, each of the three indicators that you mentioned 80 00:03:57,780 --> 00:04:00,030 Steven Koukoulas: they are all important in their own way. The job 81 00:04:00,030 --> 00:04:02,309 Steven Koukoulas: ads series, yes, there's a softening in the labor market 82 00:04:02,309 --> 00:04:04,799 Steven Koukoulas: and job ads have eased back a little bit since 83 00:04:04,800 --> 00:04:06,869 Steven Koukoulas: the start of the year. Not a sharp fall, it 84 00:04:06,870 --> 00:04:11,279 Steven Koukoulas: must be noted so there's still decent demand for workers 85 00:04:11,279 --> 00:04:14,040 Steven Koukoulas: out there from the private sector, even though the economy 86 00:04:14,040 --> 00:04:16,620 Steven Koukoulas: is slowing down. So any further dip in job ads 87 00:04:16,620 --> 00:04:20,488 Steven Koukoulas: will be interesting as it feeds into the more immediate 88 00:04:20,490 --> 00:04:23,639 Steven Koukoulas: outlook for employment. Consumer sentiment, yes. As you touched on, 89 00:04:23,639 --> 00:04:25,260 Steven Koukoulas: we're a gloomy mob right now. 90 00:04:25,500 --> 00:04:26,400 Sean Aylmer: We are. Miserable. 91 00:04:26,520 --> 00:04:29,369 Steven Koukoulas: Yeah. I mean, I think linked to the obvious things, rate hikes, 92 00:04:29,430 --> 00:04:33,479 Steven Koukoulas: cost of living pressures, real wages are still falling. And 93 00:04:33,870 --> 00:04:36,330 Steven Koukoulas: arguably, some people are detecting some softness in the labor 94 00:04:36,330 --> 00:04:40,320 Steven Koukoulas: market so consumer sentiment's pretty weak. I think post rates 95 00:04:40,320 --> 00:04:43,380 Steven Koukoulas: on hold, which is when the survey is being conducted, 96 00:04:43,380 --> 00:04:45,270 Steven Koukoulas: it might just show a little bit of an increase. 97 00:04:45,719 --> 00:04:48,089 Steven Koukoulas: The NAB survey, yes, it started off the year in 98 00:04:48,150 --> 00:04:52,589 Steven Koukoulas: really quite upbeat manner, but again, it's reflecting the slower 99 00:04:52,650 --> 00:04:55,650 Steven Koukoulas: rate of economic growth. So even the business sector's now 100 00:04:55,650 --> 00:04:58,649 Steven Koukoulas: starting to look at a softer economy so it'll be 101 00:04:58,650 --> 00:05:00,779 Steven Koukoulas: interesting to see what business conditions are, which is sort 102 00:05:00,779 --> 00:05:04,529 Steven Koukoulas: of like the pulse of where the economy's at, versus business 103 00:05:04,559 --> 00:05:06,839 Steven Koukoulas: confidence, which is sort of the touchy feeling. Well, how 104 00:05:06,839 --> 00:05:09,000 Steven Koukoulas: are you feeling about the economy? There's often a big 105 00:05:09,000 --> 00:05:12,960 Steven Koukoulas: divergence between those two. I daresay actual activity will be 106 00:05:13,290 --> 00:05:16,020 Steven Koukoulas: okay. Confidence will probably be a little bit weaker. 107 00:05:16,440 --> 00:05:17,609 Sean Aylmer: Steven, enjoy your week. 108 00:05:18,178 --> 00:05:18,779 Steven Koukoulas: Thank you, Sean. 109 00:05:19,290 --> 00:05:22,020 Sean Aylmer: That was economist Steven Koukoulas, better known as The Kouk. You can 110 00:05:22,020 --> 00:05:24,269 Sean Aylmer: find him at thekouk. com and follow him on Twitter 111 00:05:24,300 --> 00:05:26,969 Sean Aylmer: using the handle @ TheKouk. I'm Sean Aylmer and this is 112 00:05:26,970 --> 00:05:28,170 Sean Aylmer: Fear and Greed, The Week Ahead.