1 00:00:09,210 --> 00:00:11,700 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. This is 2 00:00:11,700 --> 00:00:13,650 Sean Aylmer: where we take a look at the big events, reports 3 00:00:13,650 --> 00:00:16,170 Sean Aylmer: and releases coming up this week that give insight into 4 00:00:16,170 --> 00:00:18,180 Sean Aylmer: the economy and a look back at what happened last 5 00:00:18,180 --> 00:00:21,630 Sean Aylmer: week too. I'm Sean Aylmer and every Monday I'm joined for The Week Ahead 6 00:00:21,630 --> 00:00:26,040 Sean Aylmer: by economist Stephen Koukoulas. You'll find him at thekouk.com and 7 00:00:26,040 --> 00:00:30,870 Sean Aylmer: on Twitter using the handle @TheKouk. Stephen, good morning. 8 00:00:31,020 --> 00:00:31,950 Stephen Koukoulas: Good morning, Sean. 9 00:00:32,430 --> 00:00:35,129 Sean Aylmer: Well, a bit of a disappointing week last week from 10 00:00:35,130 --> 00:00:37,890 Sean Aylmer: all respects, in an economic sense as well, of course, 11 00:00:37,890 --> 00:00:38,730 Sean Aylmer: with the lockdowns. 12 00:00:39,060 --> 00:00:43,440 Stephen Koukoulas: Yeah, the lockdowns have got the potential to really undermine 13 00:00:43,440 --> 00:00:46,260 Stephen Koukoulas: what was a fabulous start to 2021. The first six 14 00:00:46,260 --> 00:00:49,620 Stephen Koukoulas: months of the year, as people have been regular listeners 15 00:00:49,620 --> 00:00:52,199 Stephen Koukoulas: to Fear and Greed have been seeing from a range 16 00:00:52,200 --> 00:00:54,780 Stephen Koukoulas: of sources, that the economy is doing really well. That 17 00:00:54,780 --> 00:00:57,870 Stephen Koukoulas: we'd had this pick up on economic activity. The near-zero 18 00:00:57,870 --> 00:01:01,500 Stephen Koukoulas: interest rates were working. The earlier fiscal stimulus was working. 19 00:01:01,500 --> 00:01:04,770 Stephen Koukoulas: The boom in our trade with China was certainly helping 20 00:01:05,310 --> 00:01:07,850 Stephen Koukoulas: a lot of the resources companies. And, you know, when 21 00:01:07,860 --> 00:01:09,570 Stephen Koukoulas: we were just looking at the cold, hard data on 22 00:01:09,569 --> 00:01:12,840 Stephen Koukoulas: the economy, we were getting economic growth coming back strongly. 23 00:01:12,840 --> 00:01:16,110 Stephen Koukoulas: CapEx business investment was starting to pick up. Business and 24 00:01:16,110 --> 00:01:19,620 Stephen Koukoulas: consumer sentiment were pretty buoyant. And importantly, we were having 25 00:01:19,620 --> 00:01:22,920 Stephen Koukoulas: a really strong improvement in the labour market. Jobs are 26 00:01:22,920 --> 00:01:25,979 Stephen Koukoulas: being created. And as we saw last week, the unemployment 27 00:01:26,010 --> 00:01:28,410 Stephen Koukoulas: went below five per cent for the first time in about 28 00:01:28,410 --> 00:01:29,179 Stephen Koukoulas: 11 years. 29 00:01:29,430 --> 00:01:31,560 Sean Aylmer: I mean, incredible labour force figures. 30 00:01:32,310 --> 00:01:36,090 Stephen Koukoulas: They were good. There's no denying that they were showing that, again, 31 00:01:36,090 --> 00:01:39,690 Stephen Koukoulas: these were sort of only partly incorporated the Victorian lockdown, 32 00:01:39,690 --> 00:01:42,119 Stephen Koukoulas: the one that was a few weeks ago and of course, 33 00:01:42,120 --> 00:01:44,940 Stephen Koukoulas: had no influence from the New South Wales lockdowns over 34 00:01:44,940 --> 00:01:47,520 Stephen Koukoulas: the month of June. But they were showing another 29,000 35 00:01:48,570 --> 00:01:53,370 Stephen Koukoulas: creation of jobs. Unemployment at 4.9 per cent. The unemployment 36 00:01:53,370 --> 00:01:55,710 Stephen Koukoulas: rate ticked up a bit. That's a very volatile sort 37 00:01:55,710 --> 00:01:58,980 Stephen Koukoulas: of component. But you wouldn't be at all unhappy to 38 00:01:58,980 --> 00:02:00,840 Stephen Koukoulas: see those sorts of numbers coming through. And they were 39 00:02:00,840 --> 00:02:04,530 Stephen Koukoulas: really confirming that, you know, this pickup in economic activity, 40 00:02:04,800 --> 00:02:06,840 Stephen Koukoulas: the closed borders, dare I say, if we get onto 41 00:02:06,840 --> 00:02:10,829 Stephen Koukoulas: that controversial topic, were really generating a lot of demand 42 00:02:10,830 --> 00:02:14,130 Stephen Koukoulas: for jobs for Australians who are here. And we saw 43 00:02:14,130 --> 00:02:16,350 Stephen Koukoulas: that great result. But as we were just sort of saying, 44 00:02:16,800 --> 00:02:19,530 Stephen Koukoulas: the lockdowns occurred through last week and the end of 45 00:02:19,530 --> 00:02:22,500 Stephen Koukoulas: last week, they escalated with Victoria coming on board. So 46 00:02:22,530 --> 00:02:25,739 Stephen Koukoulas: that's the question now that the markets and the economists 47 00:02:25,740 --> 00:02:27,840 Stephen Koukoulas: are looking at, how big an effect will that be 48 00:02:27,840 --> 00:02:30,690 Stephen Koukoulas: on ac tivity? Was it just a bump in the road? 49 00:02:30,690 --> 00:02:32,850 Stephen Koukoulas: We lose a couple of months of output, or is 50 00:02:32,850 --> 00:02:34,730 Stephen Koukoulas: it going to be something that changes sentiment? 51 00:02:34,919 --> 00:02:37,030 Sean Aylmer: So, how big an effect will it be? 52 00:02:37,169 --> 00:02:40,740 Stephen Koukoulas: Oh, look, I've seen various estimates, about a billion, a 53 00:02:40,740 --> 00:02:43,200 Stephen Koukoulas: billion and a quarter a week for both New South 54 00:02:43,200 --> 00:02:47,820 Stephen Koukoulas: Wales and Victoria lockdowns being lost to economic activity. Possibly 55 00:02:47,820 --> 00:02:52,350 Stephen Koukoulas: that translates to a faltering of somewhere between 75 and 56 00:02:52,350 --> 00:02:55,200 Stephen Koukoulas: 100 thousand jobs. You know, whether people are just on 57 00:02:55,500 --> 00:02:57,660 Stephen Koukoulas: zero hours and they don't join the ranks of the 58 00:02:57,660 --> 00:03:01,200 Stephen Koukoulas: unemployed because employers know now that this thing will end 59 00:03:01,200 --> 00:03:02,820 Stephen Koukoulas: and they don't want to lose their workers. They don't 60 00:03:02,820 --> 00:03:05,910 Stephen Koukoulas: want to pay them anything because they're getting no revenue either. So, look, 61 00:03:05,910 --> 00:03:08,700 Stephen Koukoulas: at this stage, it looks like a jolt. It's possible, 62 00:03:08,700 --> 00:03:10,440 Stephen Koukoulas: given that this occurred at the very beginning of the 63 00:03:10,440 --> 00:03:13,890 Stephen Koukoulas: September quarter, that the September quarter GDP numbers, when we 64 00:03:13,889 --> 00:03:17,429 Stephen Koukoulas: get them in December, will be flat, maybe slightly negative 65 00:03:17,430 --> 00:03:19,980 Stephen Koukoulas: if these lockdowns extend for any length of time. So 66 00:03:20,310 --> 00:03:23,880 Stephen Koukoulas: that'll spark the headlines oh, a double dip recession, which 67 00:03:23,880 --> 00:03:26,610 Stephen Koukoulas: I think is a bit overstated. But nonetheless, we could be in 68 00:03:26,610 --> 00:03:30,389 Stephen Koukoulas: this period where all this optimism from business and consumers 69 00:03:30,389 --> 00:03:33,359 Stephen Koukoulas: will take a hit because the news on the economy 70 00:03:33,360 --> 00:03:35,610 Stephen Koukoulas: and just in terms of the lockdowns won't be great. 71 00:03:35,820 --> 00:03:37,830 Sean Aylmer: And you sort of alluded to it a moment ago. 72 00:03:37,830 --> 00:03:39,809 Sean Aylmer: One thing is that we have been through it all before, 73 00:03:39,810 --> 00:03:42,750 Sean Aylmer: particularly if you live in Victoria and you do know 74 00:03:42,750 --> 00:03:45,600 Sean Aylmer: it will end and what we've seen previously after lockdowns 75 00:03:45,600 --> 00:03:47,250 Sean Aylmer: is that spending bounces back. 76 00:03:47,400 --> 00:03:50,580 Stephen Koukoulas: Yes, indeed. And that's why, that's why it's probably wrong 77 00:03:50,580 --> 00:03:52,890 Stephen Koukoulas: to be too gloomy on the economy. That this is 78 00:03:52,890 --> 00:03:56,190 Stephen Koukoulas: really just putting back, if you like, that move to 79 00:03:56,190 --> 00:03:59,310 Stephen Koukoulas: full strength in the economy a couple of months. A 80 00:04:00,270 --> 00:04:02,400 Stephen Koukoulas: lot of economists were looking for the unemployment rate to 81 00:04:02,400 --> 00:04:04,800 Stephen Koukoulas: get to 4.5 per cent by the end of 2021, 82 00:04:05,220 --> 00:04:09,420 Stephen Koukoulas: early 2022. And certainly, the job vacancies, the employment momentum 83 00:04:09,420 --> 00:04:13,350 Stephen Koukoulas: that we'd seen, made that a strong probability. What these 84 00:04:13,350 --> 00:04:15,090 Stephen Koukoulas: lockdowns means is that we're probably going to get a 85 00:04:15,090 --> 00:04:18,210 Stephen Koukoulas: blip up in the unemployment rate in the next few 86 00:04:18,210 --> 00:04:21,450 Stephen Koukoulas: months and that that move to a 4.5 per cent unemployment, 87 00:04:21,450 --> 00:04:23,700 Stephen Koukoulas: which is what the Reserve Bank and Treasury want to see, 88 00:04:24,029 --> 00:04:26,039 Stephen Koukoulas: could well be pushed back to the sort of middle 89 00:04:26,040 --> 00:04:30,600 Stephen Koukoulas: of 2022 rather than early 2022. So it's really postponing 90 00:04:30,600 --> 00:04:32,550 Stephen Koukoulas: the good news because, again, we know that the RBA 91 00:04:32,550 --> 00:04:36,870 Stephen Koukoulas: is keeping interest rates near zero. We're seeing last week 92 00:04:36,870 --> 00:04:39,150 Stephen Koukoulas: from the Morrison government, as well as the state governments, 93 00:04:39,150 --> 00:04:41,880 Stephen Koukoulas: a range of fiscal stimulus measures. So there's going to 94 00:04:41,880 --> 00:04:43,530 Stephen Koukoulas: be a bit of money pumped into the economy to 95 00:04:43,529 --> 00:04:46,830 Stephen Koukoulas: keep business and consumers chugging along, I suppose, in these 96 00:04:46,830 --> 00:04:49,260 Stephen Koukoulas: difficult times. But when it does end, when we do 97 00:04:49,260 --> 00:04:52,560 Stephen Koukoulas: have back to near zero cases, that people go out and 98 00:04:52,560 --> 00:04:54,540 Stephen Koukoulas: spend and hopefully they invest and hire again too. 99 00:04:55,260 --> 00:04:57,180 Sean Aylmer: Stephen, we'll be back with more in a moment. 100 00:05:01,820 --> 00:05:05,870 Sean Aylmer: I'm with economist Stephen Koukoulas, a.k.a. The Kouk. And data this week, 101 00:05:05,870 --> 00:05:08,180 Sean Aylmer: in a sense, it's all been overwhelmed by what's happened 102 00:05:08,180 --> 00:05:11,210 Sean Aylmer: in the last seven days or so. The RBA board 103 00:05:11,210 --> 00:05:11,840 Sean Aylmer: minutes are out. 104 00:05:12,650 --> 00:05:15,860 Stephen Koukoulas: They're out. Yes, look, they're probably not going to have the attention 105 00:05:15,860 --> 00:05:18,260 Stephen Koukoulas: because of these lockdowns and the things we've just been discussing. 106 00:05:18,500 --> 00:05:21,770 Stephen Koukoulas: But nonetheless, that was the meeting, the one in early July, 107 00:05:21,950 --> 00:05:25,219 Stephen Koukoulas: where the RBA did signal a slight scaling back in 108 00:05:25,220 --> 00:05:28,099 Stephen Koukoulas: its bond buying program. They didn't extend the yield curve 109 00:05:28,100 --> 00:05:31,039 Stephen Koukoulas: control beyond the April 2024 bond, which is something we've 110 00:05:31,040 --> 00:05:34,310 Stephen Koukoulas: spoken about in recent weeks. So getting their assessment on 111 00:05:34,430 --> 00:05:36,650 Stephen Koukoulas: just how strong the economy was as we went into 112 00:05:36,660 --> 00:05:39,950 Stephen Koukoulas: the lockdown's will actually be part of how the markets 113 00:05:39,950 --> 00:05:43,660 Stephen Koukoulas: will read that. And, of course, this housing boom continues to, dare I say, 114 00:05:43,940 --> 00:05:47,180 Stephen Koukoulas: bubble along. Pun intended there. And that will be sort 115 00:05:47,180 --> 00:05:48,590 Stephen Koukoulas: of something that I think the Reserve Bank will be 116 00:05:48,589 --> 00:05:51,290 Stephen Koukoulas: looking at as well, because house prices, even within this 117 00:05:51,529 --> 00:05:54,320 Stephen Koukoulas: uncertainty that we're seeing now, look to be maintaining a 118 00:05:54,320 --> 00:05:55,190 Stephen Koukoulas: fair bit of momentum. 119 00:05:55,400 --> 00:05:57,589 Sean Aylmer: And international trade data. That will come out, too. And that 120 00:05:57,589 --> 00:05:58,160 Sean Aylmer: will be strong, 121 00:05:58,610 --> 00:06:01,310 Stephen Koukoulas: As we've been seeing for quite a while now. And 122 00:06:01,339 --> 00:06:03,109 Stephen Koukoulas: the iron ore price at the end of last week 123 00:06:03,110 --> 00:06:06,980 Stephen Koukoulas: was 220 US dollars a tonne or thereabouts. So it 124 00:06:06,980 --> 00:06:12,170 Stephen Koukoulas: was very, very strong. We're exporting huge tonnages of iron 125 00:06:12,170 --> 00:06:14,840 Stephen Koukoulas: ore and even the coal price is at a 10 126 00:06:14,839 --> 00:06:17,710 Stephen Koukoulas: year high. So coking coal has been in hot demand. 127 00:06:17,720 --> 00:06:19,789 Stephen Koukoulas: You've got to use it to melt the iron ore. 128 00:06:19,790 --> 00:06:22,219 Stephen Koukoulas: And so the linkage there is quite clear and we 129 00:06:22,220 --> 00:06:25,640 Stephen Koukoulas: export lots of that stuff. So another trade surplus for 130 00:06:25,640 --> 00:06:28,250 Stephen Koukoulas: the month of, you know, around about nine or 10 131 00:06:28,250 --> 00:06:32,000 Stephen Koukoulas: billion dollars is in the offing. And that is providing 132 00:06:32,000 --> 00:06:34,159 Stephen Koukoulas: a really important boost to our economy. 133 00:06:34,460 --> 00:06:36,710 Sean Aylmer: Incredible. Just the other one coming out is retail trade, 134 00:06:36,710 --> 00:06:37,159 Sean Aylmer: is that right? 135 00:06:37,500 --> 00:06:40,580 Stephen Koukoulas: Yeah. Retail trade, preliminary numbers, they are for the month 136 00:06:40,580 --> 00:06:43,700 Stephen Koukoulas: of June. That had part of the Victorian lockdown. And 137 00:06:43,700 --> 00:06:45,800 Stephen Koukoulas: I think if we look at the various banks who 138 00:06:45,800 --> 00:06:49,520 Stephen Koukoulas: produce their card tracker type data, they look at internal 139 00:06:49,520 --> 00:06:52,970 Stephen Koukoulas: transactions and produce, you know, pretty reliable forecasts of what 140 00:06:52,970 --> 00:06:55,190 Stephen Koukoulas: consumers are spending. It's probably going to be a small 141 00:06:55,190 --> 00:06:59,659 Stephen Koukoulas: negative for the month of June, partly because of the Victorian lockdown. So, again, 142 00:06:59,660 --> 00:07:04,070 Stephen Koukoulas: just that risk that we see a run of slightly negative 143 00:07:04,070 --> 00:07:06,110 Stephen Koukoulas: news over the next few months, which might just dampen 144 00:07:06,110 --> 00:07:08,870 Stephen Koukoulas: some of this business and consumer sentiment, which, as we've 145 00:07:08,870 --> 00:07:11,940 Stephen Koukoulas: been seeing, was buoyant until these lockdowns came along. 146 00:07:12,110 --> 00:07:13,200 Sean Aylmer: Have a great week, Stephen. 147 00:07:13,400 --> 00:07:14,090 Stephen Koukoulas: Thank you, Sean. 148 00:07:14,290 --> 00:07:17,150 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. You 149 00:07:17,150 --> 00:07:20,180 Sean Aylmer: can find him at thekouk.com and follow him on Twitter 150 00:07:20,180 --> 00:07:23,210 Sean Aylmer: using the handle @TheKouk. I'm Sean Aylmer and this is Fear and Greed, 151 00:07:23,720 --> 00:07:24,650 Sean Aylmer: The Week Ahead.