1 00:00:07,860 --> 00:00:10,110 Sean Aylmer: Welcome to Fear and Greed: The Week Ahead. I'm Sean 2 00:00:10,200 --> 00:00:13,020 Sean Aylmer: Aylmer and as always at this time on a Monday 3 00:00:13,020 --> 00:00:16,139 Sean Aylmer: morning, I'm joined by economist Stephen Koukoulas. You'll find him 4 00:00:16,139 --> 00:00:18,150 Sean Aylmer: at thekouk. com, T H E K O U K. 5 00:00:18,329 --> 00:00:21,870 Sean Aylmer: com, and on Twitter using the handle The Kouk. Stephen, 6 00:00:21,870 --> 00:00:22,650 Sean Aylmer: good morning. 7 00:00:23,130 --> 00:00:25,020 Stephen Koukoulas: Good morning. And what a week ahead we've got. 8 00:00:25,710 --> 00:00:27,120 Sean Aylmer: In fact, I think we're in the middle of a 9 00:00:27,120 --> 00:00:28,590 Sean Aylmer: blockbuster fortnight. 10 00:00:28,950 --> 00:00:32,159 Stephen Koukoulas: We are indeed that there's, well, last week we saw 11 00:00:32,159 --> 00:00:35,519 Stephen Koukoulas: some really key information coming out on the economy, and 12 00:00:35,519 --> 00:00:38,820 Stephen Koukoulas: this week there's well, an array of news that will 13 00:00:38,820 --> 00:00:41,400 Stephen Koukoulas: really sort of put in place just how strong or 14 00:00:41,400 --> 00:00:45,450 Stephen Koukoulas: weak the economy is and whether inflation pressures are subsiding 15 00:00:45,510 --> 00:00:46,080 Stephen Koukoulas: or not. 16 00:00:46,500 --> 00:00:50,098 Sean Aylmer: Okay, so let's quickly look at last week. We had 17 00:00:50,098 --> 00:00:53,369 Sean Aylmer: the Reserve Bank Governor, Phil Lowe, before Senate estimates, we 18 00:00:53,369 --> 00:00:58,200 Sean Aylmer: had monthly CPI figures. We had very weak building approval 19 00:00:58,410 --> 00:01:02,010 Sean Aylmer: data. CapEx is definitely coming off building investments coming off. 20 00:01:02,010 --> 00:01:04,319 Sean Aylmer: We had house price data, which was strong. How do 21 00:01:04,319 --> 00:01:05,100 Sean Aylmer: you wrap all that up? 22 00:01:05,969 --> 00:01:08,128 Stephen Koukoulas: Let's start with what the RBA governor was saying because 23 00:01:08,130 --> 00:01:10,199 Stephen Koukoulas: he's the one who pulls the trigger on interest rates 24 00:01:10,199 --> 00:01:13,290 Stephen Koukoulas: or has the greatest influence on them. And look, he 25 00:01:13,290 --> 00:01:15,870 Stephen Koukoulas: was, I liked what he was saying. I listened to 26 00:01:15,870 --> 00:01:18,390 Stephen Koukoulas: the whole Q& A of a couple of hours in front of 27 00:01:18,390 --> 00:01:21,870 Stephen Koukoulas: the Senate and he really articulated some of the issues 28 00:01:21,870 --> 00:01:24,899 Stephen Koukoulas: that the RBA is confronting a lot better than actually 29 00:01:24,900 --> 00:01:26,549 Stephen Koukoulas: comes in the written word when they put out their 30 00:01:26,549 --> 00:01:29,490 Stephen Koukoulas: press releases each month. So he was able to use 31 00:01:29,490 --> 00:01:33,480 Stephen Koukoulas: the time to just give the underpinnings of what they're 32 00:01:33,480 --> 00:01:36,150 Stephen Koukoulas: thinking. And the bottom line is that inflation is still 33 00:01:36,690 --> 00:01:41,130 Stephen Koukoulas: too high, but the economy is slowing down. They're a 34 00:01:41,130 --> 00:01:44,670 Stephen Koukoulas: little bit worried about wages growth because the labor market's 35 00:01:44,670 --> 00:01:48,059 Stephen Koukoulas: tight, but at this stage, there's no evidence that wages 36 00:01:48,059 --> 00:01:53,190 Stephen Koukoulas: are feeding unwelcomingly into inflation. So it was one of 37 00:01:53,190 --> 00:01:55,410 Stephen Koukoulas: these ones where you ended the session, saying, yep, it's 38 00:01:55,410 --> 00:01:57,270 Stephen Koukoulas: sort of in a way, there was nothing new, but 39 00:01:57,270 --> 00:02:02,370 Stephen Koukoulas: it just emphasized the critical things, slower growth versus, well, 40 00:02:02,370 --> 00:02:04,229 Stephen Koukoulas: somewhat stubbornly high inflation. 41 00:02:04,889 --> 00:02:10,050 Sean Aylmer: Yeah. Okay. What about the data from last week? Because plenty of interest 42 00:02:10,050 --> 00:02:10,590 Sean Aylmer: in that. Well, 43 00:02:10,860 --> 00:02:13,139 Stephen Koukoulas: Again, it was mixed as you touched on. The building 44 00:02:13,139 --> 00:02:17,280 Stephen Koukoulas: approvals numbers were dreadfully weak. We've got this real problem 45 00:02:17,280 --> 00:02:20,429 Stephen Koukoulas: occurring in terms of not many houses being built, and 46 00:02:20,429 --> 00:02:22,079 Stephen Koukoulas: we know that that's a problem when we've got such 47 00:02:22,079 --> 00:02:25,828 Stephen Koukoulas: strong population growth. So when we saw the CoreLogic house price 48 00:02:25,860 --> 00:02:28,890 Stephen Koukoulas: numbers come out, it showed a, well, a very chunky 1. 49 00:02:29,160 --> 00:02:33,450 Stephen Koukoulas: 2% month- on- month increase in Australia wide house prices. 50 00:02:33,450 --> 00:02:36,839 Stephen Koukoulas: Sydney was plus 1. 8 for the month. So supply 51 00:02:36,840 --> 00:02:40,199 Stephen Koukoulas: and demand are actually dominating this interest rate pressure that 52 00:02:40,199 --> 00:02:43,680 Stephen Koukoulas: we've had from 11 consecutive hikes from May last year. 53 00:02:44,550 --> 00:02:46,800 Stephen Koukoulas: That was sort of the mixed news there. And the 54 00:02:46,800 --> 00:02:50,639 Stephen Koukoulas: CapEx numbers were okay. Yes, they sort of showed a 2. 55 00:02:50,880 --> 00:02:53,849 Stephen Koukoulas: 3% increase in business investment in the March quarter, but 56 00:02:53,849 --> 00:02:57,959 Stephen Koukoulas: the outlook, the outlook was a bit soggy. So the 57 00:02:57,960 --> 00:03:02,610 Stephen Koukoulas: story is continuing of, in overarching terms, the economy's moderating, 58 00:03:03,210 --> 00:03:06,540 Stephen Koukoulas: probably not a recession, but things will feel like a 59 00:03:06,540 --> 00:03:10,199 Stephen Koukoulas: recession, particularly if you're in the dwelling construction side or 60 00:03:10,200 --> 00:03:12,630 Stephen Koukoulas: the consumer side of the economy where the weakness is 61 00:03:12,630 --> 00:03:13,319 Stephen Koukoulas: most acute. 62 00:03:13,860 --> 00:03:16,288 Sean Aylmer: Okay. So couple of big ones, well, lots of big 63 00:03:16,288 --> 00:03:18,810 Sean Aylmer: stuff this week, but the two big ones really is 64 00:03:18,810 --> 00:03:21,990 Sean Aylmer: economic growth figures and there is a Reserve Bank board meeting tomorrow of 65 00:03:21,990 --> 00:03:23,820 Sean Aylmer: course. Let's start with interest rates. What do you reckon 66 00:03:23,820 --> 00:03:24,270 Sean Aylmer: they'll do? 67 00:03:24,630 --> 00:03:27,239 Stephen Koukoulas: Oh, well, having been burnt last month, I look think 68 00:03:27,240 --> 00:03:31,199 Stephen Koukoulas: they're on hold even despite what the governor was saying 69 00:03:31,200 --> 00:03:32,909 Stephen Koukoulas: about inflation being a little bit of a worry. And 70 00:03:32,910 --> 00:03:34,979 Stephen Koukoulas: of course the inflation numbers, I should have mentioned, the 71 00:03:35,039 --> 00:03:38,130 Stephen Koukoulas: monthly inflation numbers last week were a little higher than 72 00:03:38,130 --> 00:03:41,070 Stephen Koukoulas: the market was thinking. So that probably feeds into the 73 00:03:41,070 --> 00:03:44,820 Stephen Koukoulas: hawkish scenario. But the slower growth says to me that 74 00:03:44,820 --> 00:03:47,309 Stephen Koukoulas: they can probably sit tight. And after they shocked us 75 00:03:47,309 --> 00:03:50,459 Stephen Koukoulas: all a month ago, since then, apart from that monthly 76 00:03:50,460 --> 00:03:54,150 Stephen Koukoulas: inflation number being a little elevated, we've actually had the 77 00:03:54,150 --> 00:03:59,640 Stephen Koukoulas: unemployment rate ticking up, employment ticking down, retail spending being 78 00:03:59,670 --> 00:04:02,819 Stephen Koukoulas: weak, being flat in nominal terms. And so we've got 79 00:04:02,820 --> 00:04:05,220 Stephen Koukoulas: the news coming from the global economy that it's weak. 80 00:04:05,370 --> 00:04:08,910 Stephen Koukoulas: We saw Germany confirmed in a recession. The US economy's 81 00:04:08,910 --> 00:04:10,830 Stephen Koukoulas: slowing, and there's talk there that they're going to be 82 00:04:10,830 --> 00:04:13,140 Stephen Koukoulas: pausing later this month in terms of the Fed funds 83 00:04:13,140 --> 00:04:17,159 Stephen Koukoulas: rate. So the RBA would be prudent probably to sit 84 00:04:17,160 --> 00:04:19,740 Stephen Koukoulas: tight, then they know the economy's slowing and what they 85 00:04:19,770 --> 00:04:22,678 Stephen Koukoulas: don't want to do is hike too much, too late 86 00:04:22,678 --> 00:04:25,049 Stephen Koukoulas: in the cycle. And if it turns out that inflation's 87 00:04:25,049 --> 00:04:28,230 Stephen Koukoulas: persistent, they can hike again in July, August or September. 88 00:04:28,230 --> 00:04:31,049 Stephen Koukoulas: But for now, just taking that cautious approach might be 89 00:04:31,049 --> 00:04:31,919 Stephen Koukoulas: the wise thing to do. 90 00:04:32,550 --> 00:04:35,370 Sean Aylmer: You said that the economy's moderating. This week, we'll get 91 00:04:35,370 --> 00:04:39,029 Sean Aylmer: figures for the March quarter in terms of economic growth. 92 00:04:39,330 --> 00:04:42,839 Sean Aylmer: What do you think they'll be? And just explain when 93 00:04:42,839 --> 00:04:44,879 Sean Aylmer: you talk about moderating, what you're talking about, but let's 94 00:04:44,880 --> 00:04:45,988 Sean Aylmer: start with the growth figures. 95 00:04:46,320 --> 00:04:51,178 Stephen Koukoulas: Yeah. GDP numbers are out for the March quarter. They're 96 00:04:51,180 --> 00:04:55,320 Stephen Koukoulas: likely to show growth something around about 0.2 or 0. 3%. So that's 97 00:04:55,320 --> 00:04:58,799 Stephen Koukoulas: the amount of goods and services, the growth rate in 98 00:04:58,800 --> 00:05:00,659 Stephen Koukoulas: the amount of goods and services that were produced in 99 00:05:00,660 --> 00:05:03,928 Stephen Koukoulas: Australia in the March quarter compared with the December quarter. 100 00:05:03,928 --> 00:05:07,410 Stephen Koukoulas: And that's things like people buying stuff in the retail 101 00:05:07,410 --> 00:05:11,400 Stephen Koukoulas: sector, it's the mining output, it's business investment side, it's 102 00:05:11,430 --> 00:05:14,849 Stephen Koukoulas: dwelling construction, it's consumption of services, so things like holiday 103 00:05:14,849 --> 00:05:17,969 Stephen Koukoulas: travel. That's all part of GDP. And it's slowing from 104 00:05:17,969 --> 00:05:20,670 Stephen Koukoulas: where we were over the previous three quarters. Now, the 105 00:05:20,670 --> 00:05:23,969 Stephen Koukoulas: previous three quarters can be revised, but as they currently 106 00:05:23,969 --> 00:05:29,940 Stephen Koukoulas: stand, they've gone from 0. 9 to 0.7 to 0.5, so the slowdown's coming. 107 00:05:29,940 --> 00:05:31,229 Stephen Koukoulas: So if we get a 0. 3, that would be a 108 00:05:31,230 --> 00:05:35,190 Stephen Koukoulas: nice arithmetic progression and it'll just confirm that the economy's 109 00:05:35,190 --> 00:05:36,930 Stephen Koukoulas: slowing. So that's what we're looking for in terms of 110 00:05:37,259 --> 00:05:40,169 Stephen Koukoulas: GDP growth, that cooling in the economy that had to 111 00:05:40,170 --> 00:05:42,868 Stephen Koukoulas: happen, frankly, we were growing too strongly. And if we 112 00:05:42,870 --> 00:05:46,320 Stephen Koukoulas: get that sort of softer GDP result, it fits into 113 00:05:46,320 --> 00:05:49,140 Stephen Koukoulas: the narrative that the RBA should be on hold when 114 00:05:49,140 --> 00:05:51,389 Stephen Koukoulas: they meet tomorrow, and it fits with the narrative that 115 00:05:51,389 --> 00:05:53,880 Stephen Koukoulas: inflation will come down because the economy's slowing down. 116 00:05:54,660 --> 00:05:57,000 Sean Aylmer: So where do you think we stand at this point, 117 00:05:57,029 --> 00:05:59,669 Sean Aylmer: not likely to have a recession and not likely to 118 00:05:59,670 --> 00:06:01,680 Sean Aylmer: have too many rate rises? I think that's what comes 119 00:06:01,680 --> 00:06:02,490 Sean Aylmer: out of this discussion. 120 00:06:02,520 --> 00:06:04,409 Stephen Koukoulas: Yes and yes, I think that's right. I don't think 121 00:06:04,410 --> 00:06:06,900 Stephen Koukoulas: we're having a recession because sort of the business side 122 00:06:06,900 --> 00:06:09,719 Stephen Koukoulas: of the economy is a bit more resilient. And while 123 00:06:09,719 --> 00:06:11,878 Stephen Koukoulas: we, consumers are the ones that are clearly the weakest 124 00:06:11,880 --> 00:06:15,029 Stephen Koukoulas: link in terms of retail spending and as we just 125 00:06:15,029 --> 00:06:17,699 Stephen Koukoulas: mentioned, dwelling, construction, these sorts of things, that's where the 126 00:06:18,180 --> 00:06:20,430 Stephen Koukoulas: genuine weakness will be there. We could even be hearing 127 00:06:20,430 --> 00:06:23,159 Stephen Koukoulas: chatter about it, a consumer recession or something like that. 128 00:06:23,730 --> 00:06:25,950 Stephen Koukoulas: But the business side of the economy's doing okay, and 129 00:06:25,950 --> 00:06:28,888 Stephen Koukoulas: while commodity prices are back down, don't forget the Aussie 130 00:06:28,889 --> 00:06:31,739 Stephen Koukoulas: dollar tracking at 65 cents or a little bit lower, 131 00:06:32,099 --> 00:06:34,709 Stephen Koukoulas: is giving our exporters a huge competitive boost. So the 132 00:06:34,709 --> 00:06:36,599 Stephen Koukoulas: export side of the economy is probably going to be 133 00:06:36,960 --> 00:06:39,659 Stephen Koukoulas: more inclined to add to GDP through the course of this year, 134 00:06:39,660 --> 00:06:42,480 Stephen Koukoulas: rather than subtracting from GDP. So you know, you do 135 00:06:42,480 --> 00:06:44,760 Stephen Koukoulas: all your addition to see whether we've got a high 136 00:06:44,760 --> 00:06:47,250 Stephen Koukoulas: probability of recession and the short answer's no. 137 00:06:47,820 --> 00:06:49,349 Sean Aylmer: Steven, enjoy the week. 138 00:06:49,589 --> 00:06:52,680 Stephen Koukoulas: I will indeed. When too much information is never enough. 139 00:06:52,980 --> 00:06:56,430 Sean Aylmer: Exactly. That was economist Stephen Koukoulas, better known as The Kouk. You 140 00:06:56,430 --> 00:06:58,650 Sean Aylmer: can find him at thekouk. com and follow him on 141 00:06:58,650 --> 00:07:01,469 Sean Aylmer: Twitter using the handle The Kouk. I'm Sean Aylmer and 142 00:07:01,470 --> 00:07:03,210 Sean Aylmer: this is Fear and Greed: The Week Ahead.