1 00:00:08,100 --> 00:00:10,350 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. This is 2 00:00:10,350 --> 00:00:12,059 Sean Aylmer: where we take a look at the big events, reports 3 00:00:12,060 --> 00:00:14,400 Sean Aylmer: and releases coming up this week that give insight into 4 00:00:14,400 --> 00:00:16,170 Sean Aylmer: the economy and a look back at what happened last 5 00:00:16,170 --> 00:00:18,870 Sean Aylmer: week too. I'm Sean Aylmer and every Monday I'm joined for 6 00:00:18,870 --> 00:00:22,110 Sean Aylmer: the week ahead by economist Stephen Koukoulas. You'll find him 7 00:00:22,110 --> 00:00:28,320 Sean Aylmer: at thekouk.com and on Twitter using the handle @TheKouk. Stephen, good morning. 8 00:00:28,500 --> 00:00:29,700 Stephen Koukoulas: Good morning, Sean. 9 00:00:29,820 --> 00:00:32,430 Sean Aylmer: I know you're excited about the week coming up. Before 10 00:00:32,430 --> 00:00:34,770 Sean Aylmer: we get there, just let's have a quick look at 11 00:00:34,770 --> 00:00:38,790 Sean Aylmer: last week and what went on. Capital expenditure figures, business 12 00:00:38,790 --> 00:00:40,830 Sean Aylmer: investment figures. They weren't too bad. 13 00:00:41,159 --> 00:00:43,290 Stephen Koukoulas: They weren't too bad. They were actually really good. They were for 14 00:00:43,290 --> 00:00:45,779 Stephen Koukoulas: the June quarter. So in a sense, they predated the 15 00:00:45,780 --> 00:00:48,540 Stephen Koukoulas: lockdowns or the severity of the lockdown that we now experiencing. 16 00:00:48,540 --> 00:00:50,790 Stephen Koukoulas: But what the businesses were saying to the Bureau of 17 00:00:50,790 --> 00:00:52,620 Stephen Koukoulas: Statistics was that there's about a four and a half 18 00:00:52,620 --> 00:00:56,550 Stephen Koukoulas: per cent increase in business investment in the quarter, and that 19 00:00:56,550 --> 00:00:59,760 Stephen Koukoulas: was spread across buildings and structures, you know, the traditional 20 00:01:00,090 --> 00:01:02,700 Stephen Koukoulas: way that we look at CapEx. But it was also 21 00:01:02,700 --> 00:01:05,880 Stephen Koukoulas: on a lot of machinery and equipment and IT. So 22 00:01:06,209 --> 00:01:09,300 Stephen Koukoulas: what we saw in the lead up to these latest 23 00:01:09,300 --> 00:01:13,230 Stephen Koukoulas: lockdowns was that the economy was doing well. The business 24 00:01:13,230 --> 00:01:15,750 Stephen Koukoulas: sector was saying and it was reflected in the NAB 25 00:01:15,750 --> 00:01:18,150 Stephen Koukoulas: business surveys, if you like, they were saying that, look, 26 00:01:18,150 --> 00:01:20,490 Stephen Koukoulas: things are pretty good. They can borrow at very, very 27 00:01:20,490 --> 00:01:23,670 Stephen Koukoulas: low interest rates. They've got the ability to expand and 28 00:01:23,670 --> 00:01:26,190 Stephen Koukoulas: they were putting that into practice. But what was also 29 00:01:26,190 --> 00:01:29,010 Stephen Koukoulas: really encouraging from the numbers is that they surveyed the 30 00:01:29,010 --> 00:01:31,290 Stephen Koukoulas: business sector to say, well, what are you expecting to 31 00:01:31,290 --> 00:01:34,140 Stephen Koukoulas: invest over the next financial year? And that was a 32 00:01:34,140 --> 00:01:37,530 Stephen Koukoulas: strongly positive number, too. So even despite the lockdowns, I 33 00:01:37,530 --> 00:01:40,500 Stephen Koukoulas: think what we're seeing is that the business investment climate, 34 00:01:40,500 --> 00:01:43,410 Stephen Koukoulas: which admittedly was very weak up until about a year ago, 35 00:01:43,709 --> 00:01:45,310 Stephen Koukoulas: is now coming back very strongly. 36 00:01:45,330 --> 00:01:48,240 Sean Aylmer: And of course, business investment is really important to keeping 37 00:01:48,240 --> 00:01:49,110 Sean Aylmer: the economy moving. 38 00:01:49,770 --> 00:01:52,290 Stephen Koukoulas: It is. When you think about business investment, it is, 39 00:01:52,290 --> 00:01:54,960 Stephen Koukoulas: well, as I said, buildings and structures. It's building well, not so 40 00:01:54,960 --> 00:01:57,690 Stephen Koukoulas: much shopping centres right now, but, you know, warehouses and 41 00:01:57,690 --> 00:02:01,470 Stephen Koukoulas: facilities and production plants and those sorts of things. But 42 00:02:01,470 --> 00:02:03,480 Stephen Koukoulas: machinery and equipment so that, you know, the computers on 43 00:02:03,480 --> 00:02:06,480 Stephen Koukoulas: our desks and trucks and all that sort of stuff, 44 00:02:06,480 --> 00:02:09,330 Stephen Koukoulas: and even the I.T. that goes in to support all 45 00:02:09,330 --> 00:02:13,410 Stephen Koukoulas: of our computing and online work now. That's all business investment. 46 00:02:13,419 --> 00:02:16,560 Stephen Koukoulas: So when businesses aren't investing, you think, oh, gee, you know, 47 00:02:16,560 --> 00:02:18,750 Stephen Koukoulas: they're not confident about the future of the economy. They 48 00:02:18,750 --> 00:02:22,080 Stephen Koukoulas: don't have much optimism about the future and turn that 49 00:02:22,080 --> 00:02:24,420 Stephen Koukoulas: on its head like we saw last week. It's a 50 00:02:24,419 --> 00:02:28,350 Stephen Koukoulas: really positive sign. So that was a good news, economic 51 00:02:28,350 --> 00:02:30,060 Stephen Koukoulas: story that we saw last week. 52 00:02:30,360 --> 00:02:32,609 Sean Aylmer: The other thing I thought last week, which was interesting, 53 00:02:32,610 --> 00:02:34,769 Sean Aylmer: and it's gone on for about three weeks now. Profits 54 00:02:34,770 --> 00:02:38,299 Sean Aylmer: have been great. Earnings have been above expectations regularly yet. 55 00:02:38,310 --> 00:02:43,380 Sean Aylmer: But the outlook statements, CEOs and management are really unsure 56 00:02:43,380 --> 00:02:45,839 Sean Aylmer: about exactly how things are going right now. 57 00:02:46,110 --> 00:02:49,020 Stephen Koukoulas: Yes, indeed. And again, it's a little bit related to this. 58 00:02:49,320 --> 00:02:52,710 Stephen Koukoulas: If we start the timing of the current lockdowns of just, say, 59 00:02:52,710 --> 00:02:55,500 Stephen Koukoulas: the first of July, for example, because it was approximately 60 00:02:55,500 --> 00:02:57,480 Stephen Koukoulas: then there was a bit of action in Victoria, New 61 00:02:57,480 --> 00:02:59,639 Stephen Koukoulas: South Wales was just sort of starting its soft lockdown 62 00:02:59,639 --> 00:03:02,610 Stephen Koukoulas: and it's got harder since, that firms did really well 63 00:03:02,610 --> 00:03:06,359 Stephen Koukoulas: last year, last financial year to 30 June. We were spending, 64 00:03:06,360 --> 00:03:09,120 Stephen Koukoulas: they were selling lots of products. And you look at 65 00:03:09,120 --> 00:03:12,000 Stephen Koukoulas: some of the mining companies, there were volumes and the prices 66 00:03:12,000 --> 00:03:14,550 Stephen Koukoulas: they were getting were fabulous. You know, the retailers were 67 00:03:14,550 --> 00:03:17,280 Stephen Koukoulas: doing well. We were getting the stuff home delivered and the consumers 68 00:03:17,280 --> 00:03:20,070 Stephen Koukoulas: were cashed up. They were benefiting from these incredibly low interest rates. 69 00:03:20,430 --> 00:03:22,680 Stephen Koukoulas: But now, when you ask people what's the outlook for business? 70 00:03:22,830 --> 00:03:25,560 Stephen Koukoulas: I'm seeing this with a lot of my small business 71 00:03:25,560 --> 00:03:28,080 Stephen Koukoulas: contacts as well as others, although I'm not sure I 72 00:03:28,080 --> 00:03:30,980 Stephen Koukoulas: don't know how this ending of lockdowns going to go. 73 00:03:30,990 --> 00:03:35,310 Stephen Koukoulas: So while I'm doing okay, I'm just very unclear about 74 00:03:35,310 --> 00:03:37,800 Stephen Koukoulas: whether I'm going to be hiring more people, whether I'm 75 00:03:37,800 --> 00:03:40,140 Stephen Koukoulas: going to be wanting to sort of just get that 76 00:03:40,140 --> 00:03:41,880 Stephen Koukoulas: sort of cash flow that I really want to see 77 00:03:41,880 --> 00:03:43,140 Stephen Koukoulas: to maintain that profit level. 78 00:03:43,500 --> 00:03:45,510 Sean Aylmer: Well, that's last week. In a moment, I'll be back 79 00:03:45,510 --> 00:03:48,090 Sean Aylmer: with Stephen Koukoulas to talk about what's coming up this week. 80 00:03:53,070 --> 00:03:58,010 Sean Aylmer: I'm with economist Stephen Koukoulas, a.k.a. The Kouk. Stephen, GDP Week, 81 00:03:58,020 --> 00:03:59,700 Sean Aylmer: that must be about as good as it gets for 82 00:03:59,700 --> 00:04:00,930 Sean Aylmer: an economist every quarter? 83 00:04:01,770 --> 00:04:04,470 Stephen Koukoulas: Four times a year! Yes, and these are the June 84 00:04:04,470 --> 00:04:07,590 Stephen Koukoulas: quarter GDP numbers that are coming out. And we have 85 00:04:07,590 --> 00:04:09,180 Stephen Koukoulas: had a few of the building blocks. You know, we know 86 00:04:09,180 --> 00:04:13,800 Stephen Koukoulas: that GDP is C consumption plus I investment plus government spending 87 00:04:14,010 --> 00:04:16,830 Stephen Koukoulas: plus export minus imports. So we've got snippets of all of 88 00:04:16,830 --> 00:04:19,469 Stephen Koukoulas: those indicators that have come through. And I think the 89 00:04:19,470 --> 00:04:23,190 Stephen Koukoulas: general consensus of economists is going to be a softish number, 90 00:04:23,730 --> 00:04:28,169 Stephen Koukoulas: you know, around about 0.3, 0.4 growth, which, of course, after 91 00:04:28,170 --> 00:04:30,450 Stephen Koukoulas: the stellar numbers that we saw from the recovery a 92 00:04:30,450 --> 00:04:33,990 Stephen Koukoulas: few quarters ago is a bit weaker. And that's despite 93 00:04:33,990 --> 00:04:36,359 Stephen Koukoulas: the CapEx we're just talking about. But we know that 94 00:04:36,870 --> 00:04:40,980 Stephen Koukoulas: net exports, exports minus imports, is actually quite weak. And 95 00:04:40,980 --> 00:04:43,830 Stephen Koukoulas: that sounds odd when we've got these trade surpluses, but 96 00:04:43,830 --> 00:04:48,510 Stephen Koukoulas: that CapEx is very heavily concentrated in import volumes so 97 00:04:48,510 --> 00:04:51,419 Stephen Koukoulas: we don't make any cars or much machinery. So that 98 00:04:51,420 --> 00:04:55,200 Stephen Koukoulas: good news on CapEx is sort of diluted by a 99 00:04:55,200 --> 00:04:58,080 Stephen Koukoulas: negative from imports. So that said, the economy is going 100 00:04:58,080 --> 00:05:00,219 Stephen Koukoulas: to be growing a bit more. The year on year 101 00:05:00,240 --> 00:05:02,040 Stephen Koukoulas: figure will be about nine per cent but that'll be 102 00:05:02,040 --> 00:05:04,320 Stephen Koukoulas: distorted by what happened a year ago, of course. But 103 00:05:04,740 --> 00:05:08,460 Stephen Koukoulas: a good number probably broadly consistent with what the RBA 104 00:05:08,460 --> 00:05:11,339 Stephen Koukoulas: and Treasury are thinking. But of course, that's probably going 105 00:05:11,339 --> 00:05:14,070 Stephen Koukoulas: to be discussed in the context that we know September 106 00:05:14,070 --> 00:05:16,290 Stephen Koukoulas: quarter is going to be a big negative as these lockdowns 107 00:05:16,290 --> 00:05:17,640 Stephen Koukoulas: start to impact on the data. 108 00:05:17,910 --> 00:05:19,500 Sean Aylmer: So is there a chance that we would have a 109 00:05:19,500 --> 00:05:22,830 Sean Aylmer: double-dip recession as defined by two negative quarters, which we 110 00:05:22,830 --> 00:05:24,120 Sean Aylmer: know we're having one in September? 111 00:05:24,300 --> 00:05:26,010 Stephen Koukoulas: There is. Well, in fact, I read a lot of 112 00:05:26,010 --> 00:05:30,120 Stephen Koukoulas: the bank reports from the economics departments and my mates at Citi, they're 113 00:05:30,120 --> 00:05:32,339 Stephen Koukoulas: actually saying that the June quarter could be negative, that 114 00:05:32,339 --> 00:05:36,690 Stephen Koukoulas: they've got an assumption of a slightly weaker government spending number, 115 00:05:36,690 --> 00:05:40,560 Stephen Koukoulas: which we don't currently have before us. And household consumption 116 00:05:40,560 --> 00:05:43,229 Stephen Koukoulas: of services, they're saying, could be a bit weaker. And 117 00:05:43,230 --> 00:05:45,330 Stephen Koukoulas: if that's correct, well, they've got a -0.1 for the 118 00:05:45,330 --> 00:05:47,970 Stephen Koukoulas: June quarter. We know September quarter is negative. That's a given. 119 00:05:47,980 --> 00:05:50,490 Stephen Koukoulas: Whether it's minus two or three or four is really 120 00:05:50,490 --> 00:05:52,890 Stephen Koukoulas: the only thing we're debating now. But for the June quarter, 121 00:05:52,920 --> 00:05:55,080 Stephen Koukoulas: you know, if it comes out as a small negative 122 00:05:55,080 --> 00:05:57,870 Stephen Koukoulas: later this week, then, of course, that discussion of a 123 00:05:57,870 --> 00:06:01,050 Stephen Koukoulas: recession will be there. And of course, it will be, 124 00:06:01,230 --> 00:06:02,760 Stephen Koukoulas: you know, a blow to sentiment. You know, we don't 125 00:06:02,760 --> 00:06:05,409 Stephen Koukoulas: want a recession. They are not good things. And, you know, 126 00:06:05,430 --> 00:06:07,920 Stephen Koukoulas: even if we statistically avoid one it's probably better than 127 00:06:07,920 --> 00:06:09,150 Stephen Koukoulas: statistically having one. 128 00:06:09,420 --> 00:06:11,910 Sean Aylmer: And it probably doesn't help Scott Morrison and the Coalition, which, 129 00:06:11,910 --> 00:06:13,890 Sean Aylmer: of course, needs to have an election at some point 130 00:06:13,890 --> 00:06:15,060 Sean Aylmer: in the next nine or 10 months. 131 00:06:15,510 --> 00:06:18,420 Stephen Koukoulas: Yes, that's getting close. You know, economic management is always 132 00:06:18,420 --> 00:06:21,030 Stephen Koukoulas: the really important one of the really important issues in 133 00:06:21,029 --> 00:06:24,839 Stephen Koukoulas: an election campaign. "It's the economy stupid." I think that was, oh gosh, 134 00:06:25,110 --> 00:06:27,510 Stephen Koukoulas: was that Bill Clinton? I can't remember who it was that 135 00:06:27,510 --> 00:06:30,000 Stephen Koukoulas: coined that phrase, but while the vaccinations and things are going to be 136 00:06:30,000 --> 00:06:33,750 Stephen Koukoulas: an important voter driver, if you like. It's the economy 137 00:06:33,750 --> 00:06:35,789 Stephen Koukoulas: that does come down. You know, have I got a job, 138 00:06:36,150 --> 00:06:39,360 Stephen Koukoulas: my wages going up, what's happening to my tax policy 139 00:06:39,360 --> 00:06:41,820 Stephen Koukoulas: settings and these sorts of things that will come into play. And, 140 00:06:42,000 --> 00:06:45,570 Stephen Koukoulas: you know, of course, Mr Morrison would love a stronger economy. 141 00:06:45,570 --> 00:06:49,230 Stephen Koukoulas: And that's why until this next wave of COVID came along 142 00:06:49,230 --> 00:06:50,760 Stephen Koukoulas: in New South Wales, all the betting was on that 143 00:06:50,760 --> 00:06:53,100 Stephen Koukoulas: he'd be going to the polls in about October this 144 00:06:53,100 --> 00:06:55,080 Stephen Koukoulas: year because the economy was doing really well. 145 00:06:55,500 --> 00:06:57,360 Sean Aylmer: Now, of course, GDP comes out, but there are other 146 00:06:57,390 --> 00:07:00,120 Sean Aylmer: bits of data around. House prices will be interesting. So, too, 147 00:07:00,120 --> 00:07:00,930 Sean Aylmer: building approvals. 148 00:07:01,230 --> 00:07:03,779 Stephen Koukoulas: Yes, the housing cycle is still doing well. The house 149 00:07:03,779 --> 00:07:06,419 Stephen Koukoulas: price numbers from CoreLogic will probably show we've got a 150 00:07:06,420 --> 00:07:09,390 Stephen Koukoulas: lot of the information in already, but they'll probably show 151 00:07:09,390 --> 00:07:11,910 Stephen Koukoulas: that for the month of August, house prices rose by 152 00:07:11,910 --> 00:07:16,290 Stephen Koukoulas: about 1.3 per cent, give or take. A little bit slower, 153 00:07:16,290 --> 00:07:19,110 Stephen Koukoulas: but still a pretty hefty increase. If you get 1.3 per month, ... 154 00:07:19,350 --> 00:07:20,760 Sean Aylmer: That's what? About 15 per cent annualised. Not bad. 155 00:07:21,900 --> 00:07:23,550 Stephen Koukoulas: It's just not the two per cent that we saw 156 00:07:23,550 --> 00:07:26,610 Stephen Koukoulas: three or four months ago. But yeah, so there's not 157 00:07:26,610 --> 00:07:31,310 Stephen Koukoulas: really any evidence that the housing price cycle is cooling off. Again, 158 00:07:31,320 --> 00:07:33,780 Stephen Koukoulas: the numbers might be a little bit distorted by the lockdowns, 159 00:07:33,780 --> 00:07:36,840 Stephen Koukoulas: but nonetheless, there's housing auction clearance rates are still strong. 160 00:07:36,840 --> 00:07:40,110 Stephen Koukoulas: There's not much supply of property on the market. So 161 00:07:40,320 --> 00:07:43,170 Stephen Koukoulas: the price dynamics are still buoyant. Building approvals, on the 162 00:07:43,170 --> 00:07:46,220 Stephen Koukoulas: other hand, you know, we've had an ending of the home 163 00:07:46,230 --> 00:07:49,410 Stephen Koukoulas: builders subsidies that were predominant. They finished, what, a few 164 00:07:49,410 --> 00:07:51,450 Stephen Koukoulas: months ago now. And already we've seen the number of 165 00:07:51,450 --> 00:07:55,230 Stephen Koukoulas: new building approvals starting to trend lower. Another negatives highly 166 00:07:55,230 --> 00:07:58,590 Stephen Koukoulas: likely because what the home builder program meant was a 167 00:07:58,590 --> 00:08:01,890 Stephen Koukoulas: lot of construction was brought forward. That's in the earlier numbers. 168 00:08:01,890 --> 00:08:03,690 Stephen Koukoulas: And so now we're probably going to have a softer number. 169 00:08:04,020 --> 00:08:05,790 Sean Aylmer: Well, I hope so, because I'm actually about to start 170 00:08:05,790 --> 00:08:07,580 Sean Aylmer: renovating and I don't want to be renovating in the 171 00:08:07,580 --> 00:08:08,850 Sean Aylmer: middle of a building boom. 172 00:08:09,570 --> 00:08:12,060 Stephen Koukoulas: Well, that's the other thing. We're also hearing that the 173 00:08:12,180 --> 00:08:14,670 Stephen Koukoulas: supply of a lot of materials is pretty constrained now 174 00:08:14,670 --> 00:08:18,570 Stephen Koukoulas: that those bottlenecks have occurred. And you know if you are needing timber and 175 00:08:18,570 --> 00:08:20,820 Stephen Koukoulas: plastic pipes, apparently, there are not that many around. 176 00:08:21,390 --> 00:08:23,250 Sean Aylmer: Thanks, Stephen. I think let's just leave it at that. 177 00:08:23,370 --> 00:08:23,730 Stephen Koukoulas: Sorry about that, Sean. 178 00:08:24,030 --> 00:08:24,179 Sean Aylmer: Yeah. Righto.  179 00:08:24,180 --> 00:08:25,080 Stephen Koukoulas: Just pay up. Just pay up. 180 00:08:25,140 --> 00:08:26,790 Sean Aylmer: Enjoy your week. Enjoy the GDP. 181 00:08:27,270 --> 00:08:28,320 Stephen Koukoulas: Thanks, mate. I will. 182 00:08:28,710 --> 00:08:31,290 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 183 00:08:31,320 --> 00:08:34,140 Sean Aylmer: You can find him at thekouk.com and follow him on 184 00:08:34,140 --> 00:08:37,290 Sean Aylmer: Twitter using the handle, @TheKouk. I'm Sean Aylmer and this 185 00:08:37,290 --> 00:08:38,640 Sean Aylmer: is Fear and Greed, The Week Ahead.