1 00:00:05,460 --> 00:00:07,410 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean Sean 2 00:00:07,410 --> 00:00:09,510 Sean Aylmer: Aylmer. And as always at this time on a Monday 3 00:00:09,510 --> 00:00:12,539 Sean Aylmer: morning, I'm joined by economist Stephen Koukoulas. You'll find him 4 00:00:12,539 --> 00:00:14,580 Sean Aylmer: at thekouk. com, T- H- E- K- O- U- K . 5 00:00:14,730 --> 00:00:18,330 Sean Aylmer: com, and on X using the handle TheKouk. Stephen, good morning. 6 00:00:18,809 --> 00:00:19,739 Stephen Koukoulas: Good morning, Sean. 7 00:00:19,739 --> 00:00:23,100 Sean Aylmer: Stephen, we're in the midst of almost a drought of 8 00:00:23,100 --> 00:00:26,189 Sean Aylmer: economic data. I mean, last week, we had some interesting... 9 00:00:26,189 --> 00:00:28,620 Sean Aylmer: We had housing finance stuff, and we had the National 10 00:00:28,620 --> 00:00:31,710 Sean Aylmer: Australia Bank Business Conditions and Sentiment Survey. We had the 11 00:00:31,710 --> 00:00:34,949 Sean Aylmer: Westpac Consumer Sentiment Survey. Not a lot. What did all 12 00:00:34,949 --> 00:00:35,910 Sean Aylmer: that stuff tell us? 13 00:00:36,570 --> 00:00:39,750 Stephen Koukoulas: You're right. It either rains or it's a drought, as 14 00:00:39,750 --> 00:00:42,300 Stephen Koukoulas: they say. So we had largely a drought, but there 15 00:00:42,300 --> 00:00:45,269 Stephen Koukoulas: were a few snippets in the data that did come 16 00:00:45,269 --> 00:00:48,598 Stephen Koukoulas: out last week on the conditions and confidence in both 17 00:00:48,598 --> 00:00:52,409 Stephen Koukoulas: business and consumers. The thing that's no surprise is that 18 00:00:52,409 --> 00:00:57,000 Stephen Koukoulas: we consumers are collectively still pretty pessimistic. Both the Westpac 19 00:00:57,000 --> 00:01:01,740 Stephen Koukoulas: Consumer Sentiment, the ANZ, Roy Morgan consumer conditions were both 20 00:01:01,980 --> 00:01:05,010 Stephen Koukoulas: weak, miserable. They pulled back a bit. And that was 21 00:01:05,010 --> 00:01:07,170 Stephen Koukoulas: the week where we had some income tax cuts being 22 00:01:07,170 --> 00:01:09,899 Stephen Koukoulas: paid. So, I think the cost of living issues, fear 23 00:01:09,900 --> 00:01:12,900 Stephen Koukoulas: of rate hikes were cited as reasons why people are 24 00:01:12,900 --> 00:01:17,160 Stephen Koukoulas: feeling gloomy, and that's disconcerting given that consumer spending's over 25 00:01:17,160 --> 00:01:21,660 Stephen Koukoulas: half GDP. But the thing that probably was more important 26 00:01:21,660 --> 00:01:24,120 Stephen Koukoulas: from an economic perspective was the NAB survey. And while 27 00:01:24,450 --> 00:01:28,199 Stephen Koukoulas: business confidence ticked up a bit, business conditions, which is 28 00:01:28,199 --> 00:01:31,260 Stephen Koukoulas: actual activity, ticked down to below the long- run average, 29 00:01:31,590 --> 00:01:35,040 Stephen Koukoulas: which is suggesting the businesses are reacting to the slowdown 30 00:01:35,040 --> 00:01:38,640 Stephen Koukoulas: in the economy. And arguably even more importantly in my 31 00:01:38,819 --> 00:01:42,840 Stephen Koukoulas: ladder of importance, there was a whole lot of information 32 00:01:42,840 --> 00:01:47,699 Stephen Koukoulas: in the NAB survey about selling prices, labor costs, input 33 00:01:47,699 --> 00:01:51,540 Stephen Koukoulas: costs, and they were all tilting back down again, which is a 34 00:01:51,540 --> 00:01:55,170 Stephen Koukoulas: precursor to inflation. So, it says to me that while 35 00:01:55,170 --> 00:01:57,450 Stephen Koukoulas: we're all anxiously awaiting the June quarter CPI at the 36 00:01:57,450 --> 00:02:01,410 Stephen Koukoulas: end of July, maybe we're already moving beyond that, and that the 37 00:02:01,980 --> 00:02:05,010 Stephen Koukoulas: business sector's telling us that inflation, while it might blip 38 00:02:05,010 --> 00:02:08,490 Stephen Koukoulas: up in the June quarter, well, could well blip down 39 00:02:08,490 --> 00:02:09,810 Stephen Koukoulas: when we get the September quarter data. 40 00:02:10,260 --> 00:02:13,889 Sean Aylmer: It's interesting because that real time data shows us, obviously 41 00:02:14,010 --> 00:02:16,500 Sean Aylmer: in real time, what's happening, and most of the ABS 42 00:02:16,500 --> 00:02:21,120 Sean Aylmer: stuff, we are looking backwards. Something that the Federal Reserve 43 00:02:21,120 --> 00:02:24,120 Sean Aylmer: Chair Jerome Powell said last week was kind of interesting. 44 00:02:24,450 --> 00:02:27,630 Sean Aylmer: He was talking, he was appearing before Congress, and he 45 00:02:27,630 --> 00:02:30,839 Sean Aylmer: just made the point that it wasn't just about getting 46 00:02:31,169 --> 00:02:33,989 Sean Aylmer: prices down, it was also about not going too far 47 00:02:34,139 --> 00:02:37,020 Sean Aylmer: or not waiting too long before they cut interest rates 48 00:02:37,020 --> 00:02:40,200 Sean Aylmer: because he doesn't want to put the economy into a recession. 49 00:02:40,440 --> 00:02:44,100 Stephen Koukoulas: Yeah, they were really interesting comments. It sort of seemingly 50 00:02:44,370 --> 00:02:48,090 Stephen Koukoulas: spiked the equity market to new highs, but the bond 51 00:02:48,090 --> 00:02:50,309 Stephen Koukoulas: market didn't really react all that much. But what his 52 00:02:50,309 --> 00:02:53,700 Stephen Koukoulas: point was is that you don't wait till you hit the 53 00:02:53,700 --> 00:02:55,799 Stephen Koukoulas: brick wall before you start turning the steering wheel. You 54 00:02:55,799 --> 00:02:58,889 Stephen Koukoulas: know you're heading towards it. You're heading towards the 2% inflation 55 00:02:58,889 --> 00:03:01,860 Stephen Koukoulas: target, or the US is, and before you get there, you've 56 00:03:01,860 --> 00:03:04,859 Stephen Koukoulas: got to start adjusting policy so that you don't overshoot, 57 00:03:05,250 --> 00:03:07,710 Stephen Koukoulas: that you don't get inflation to 1%, which would be 58 00:03:07,710 --> 00:03:10,888 Stephen Koukoulas: a bad outcome because it would inevitably mean the economy 59 00:03:10,889 --> 00:03:14,669 Stephen Koukoulas: is weaker, unemployment's higher, and, as Powell was alluding to, 60 00:03:14,669 --> 00:03:17,609 Stephen Koukoulas: we have have a recession. And that's the sort of 61 00:03:17,609 --> 00:03:20,850 Stephen Koukoulas: issue that the central banks around the world are grappling 62 00:03:20,850 --> 00:03:24,600 Stephen Koukoulas: with. You reminded me of Glenn Stevens, the former RBA 63 00:03:24,630 --> 00:03:28,290 Stephen Koukoulas: governor here in Australia, and he was the master, I 64 00:03:28,290 --> 00:03:33,119 Stephen Koukoulas: suppose, of preemptive policy. He adjusted policy before the economy 65 00:03:33,120 --> 00:03:35,129 Stephen Koukoulas: hit the brick hall, so to speak. So, he was 66 00:03:35,129 --> 00:03:38,040 Stephen Koukoulas: one that said, " Look, we think that the economy's weak, 67 00:03:38,040 --> 00:03:40,410 Stephen Koukoulas: and if we wait too long to adjust interest rates, 68 00:03:40,890 --> 00:03:41,670 Stephen Koukoulas: we'll be too late." 69 00:03:42,060 --> 00:03:43,620 Sean Aylmer: I suppose the flip side to that, you could argue 70 00:03:43,620 --> 00:03:46,559 Sean Aylmer: that Phil Lowe, the previous serving governor, the one after 71 00:03:46,559 --> 00:03:50,610 Sean Aylmer: Glenn Stevens, waited too long before lifting interest rates, and 72 00:03:50,610 --> 00:03:52,109 Sean Aylmer: the economy was already out of control. 73 00:03:52,170 --> 00:03:56,070 Stephen Koukoulas: Yes, in hindsight, and even at the time some of us were saying, " Come on. 74 00:03:56,100 --> 00:03:58,260 Stephen Koukoulas: Yeah." And we were moving from a cash rate of 0. 1%. 75 00:03:58,560 --> 00:03:59,011 Stephen Koukoulas: Don't forget that. 76 00:03:59,011 --> 00:03:59,850 Sean Aylmer: Yeah. Yeah, yeah, yeah. 77 00:03:59,880 --> 00:04:02,729 Stephen Koukoulas: Be preemptive. And again, even this discussion now, and in 78 00:04:02,730 --> 00:04:05,489 Stephen Koukoulas: the US or Australia, or in fact the European Central 79 00:04:05,490 --> 00:04:08,189 Stephen Koukoulas: Bank or Bank of England, wherever, I don't think anybody's 80 00:04:08,190 --> 00:04:12,090 Stephen Koukoulas: talking about wholesale hundreds of basis points of rate cuts. 81 00:04:12,330 --> 00:04:15,060 Stephen Koukoulas: What we are talking about is perhaps just give a 82 00:04:15,060 --> 00:04:18,839 Stephen Koukoulas: couple of 25s, 25 point rate cuts, and then just see 83 00:04:18,839 --> 00:04:21,089 Stephen Koukoulas: how the economy's going. And if the economy turns out 84 00:04:21,089 --> 00:04:23,460 Stephen Koukoulas: to be weak, phew, we've delivered a little bit of 85 00:04:23,460 --> 00:04:26,309 Stephen Koukoulas: easing. We're not too far behind the curve. Whereas if 86 00:04:26,309 --> 00:04:29,430 Stephen Koukoulas: they wait, then you get the scenario that we saw 87 00:04:29,609 --> 00:04:32,250 Stephen Koukoulas: in the hiking cycle, and you get central banks moving 88 00:04:32,250 --> 00:04:34,349 Stephen Koukoulas: in 50 basis point increments. I hope we don't get 89 00:04:34,350 --> 00:04:35,640 Stephen Koukoulas: to that level and that position. 90 00:04:35,820 --> 00:04:38,309 Sean Aylmer: Okay. This week we get some pretty interesting information about 91 00:04:38,309 --> 00:04:41,759 Sean Aylmer: our local economy, particularly in terms of how it's affecting 92 00:04:41,759 --> 00:04:45,210 Sean Aylmer: the labor market. The unemployment stats from the Bureau of 93 00:04:45,210 --> 00:04:47,729 Sean Aylmer: Statistics comes out. What are you expecting? 94 00:04:47,879 --> 00:04:52,229 Stephen Koukoulas: Yeah. Between now and the 6th August, RBA decision on interest rates, 95 00:04:52,230 --> 00:04:54,600 Stephen Koukoulas: we get the inflation numbers at the end of July, 96 00:04:54,750 --> 00:04:57,419 Stephen Koukoulas: but on Thursday this week we've got the labor market 97 00:04:57,420 --> 00:05:01,500 Stephen Koukoulas: numbers, and I think they're equally important. The RBA, with 98 00:05:01,500 --> 00:05:04,589 Stephen Koukoulas: its new mandate, has got an eye on the inflation 99 00:05:04,589 --> 00:05:06,058 Stephen Koukoulas: rate, but it's also got an eye on the labor 100 00:05:06,059 --> 00:05:09,930 Stephen Koukoulas: market. Look, the consensus is that we're going to see a slightly 101 00:05:09,930 --> 00:05:14,070 Stephen Koukoulas: softer employment number, about plus 25,000. And while that might 102 00:05:14,070 --> 00:05:16,859 Stephen Koukoulas: sound high, remember that the population growth of the Australian 103 00:05:16,860 --> 00:05:20,399 Stephen Koukoulas: economy means we need to see 35 to 40,000 a 104 00:05:20,400 --> 00:05:23,729 Stephen Koukoulas: month to keep the unemployment rate steady. And that means 105 00:05:23,730 --> 00:05:26,070 Stephen Koukoulas: that the consensus for the unemployment rate to either hold 106 00:05:26,070 --> 00:05:29,820 Stephen Koukoulas: at 4% or edge up to 4.1% as part of this 107 00:05:29,820 --> 00:05:31,410 Stephen Koukoulas: general economic slowdown that we're seeing. 108 00:05:31,830 --> 00:05:34,678 Sean Aylmer: Okay. So the labor market, I mean, even what Jerome 109 00:05:34,678 --> 00:05:37,200 Sean Aylmer: Powell said last week about it, and then your analogy 110 00:05:37,200 --> 00:05:38,849 Sean Aylmer: about turning the car before it hits the brick wall 111 00:05:38,849 --> 00:05:40,949 Sean Aylmer: and the fact... I mean, the labor market reflects all 112 00:05:40,949 --> 00:05:41,400 Sean Aylmer: that, doesn't it? 113 00:05:41,400 --> 00:05:45,060 Stephen Koukoulas: It does. And again, that's important. And even in the 114 00:05:45,060 --> 00:05:48,000 Stephen Koukoulas: US, because last week we saw the US labor market 115 00:05:48,000 --> 00:05:51,659 Stephen Koukoulas: numbers, and their unemployment rate in an economy that's been 116 00:05:51,719 --> 00:05:55,170 Stephen Koukoulas: remarkably resilient has gone up by 0. 7 percentage points. 117 00:05:55,620 --> 00:05:58,949 Stephen Koukoulas: Unemployment was as low as 3. 4% about a year 118 00:05:58,949 --> 00:06:02,670 Stephen Koukoulas: ago. It's now 4. 1. In Australia, ahead of this 119 00:06:02,670 --> 00:06:06,870 Stephen Koukoulas: week's figures, we've had the unemployment rate go from 3.5 to 4. 0, 120 00:06:07,260 --> 00:06:11,849 Stephen Koukoulas: possibly probably 4. 1% as well. So, the unemployment rate 121 00:06:11,849 --> 00:06:13,948 Stephen Koukoulas: started to creep up. You don't want it to hit 122 00:06:13,950 --> 00:06:16,078 Stephen Koukoulas: four and a half or 5% before you start a 123 00:06:16,080 --> 00:06:18,150 Stephen Koukoulas: rate cutting cycle, and I think that's what the RBA 124 00:06:18,150 --> 00:06:20,910 Stephen Koukoulas: will tell us when we preview the RBA board meeting 125 00:06:21,510 --> 00:06:22,440 Stephen Koukoulas: in a couple of weeks' time. 126 00:06:22,890 --> 00:06:24,060 Sean Aylmer: Yeah. Stephen, enjoy your week. 127 00:06:24,420 --> 00:06:25,020 Stephen Koukoulas: Thank you, Sean. 128 00:06:25,290 --> 00:06:27,839 Sean Aylmer: That was Economist Stephen Koukoulas, better known as The Kouk. 129 00:06:27,990 --> 00:06:30,210 Sean Aylmer: You can find him at thekouk. com and follow him 130 00:06:30,210 --> 00:06:33,150 Sean Aylmer: on X using the handle TheKouk. I'm Sean Aylmer, and this 131 00:06:33,150 --> 00:06:34,558 Sean Aylmer: is Fear and Greed - The Week Ahead.