1 00:00:03,720 --> 00:00:10,930 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. This is 2 00:00:10,930 --> 00:00:12,830 Sean Aylmer: where we take a look at the big events, reports 3 00:00:12,830 --> 00:00:15,659 Sean Aylmer: and releases coming up this week that give insight into the 4 00:00:15,660 --> 00:00:18,040 Sean Aylmer: economy and a look back at what happened last week too. 5 00:00:18,510 --> 00:00:20,419 Sean Aylmer: I'm Sean Aylmer, and every Monday I'm joined for The 6 00:00:20,420 --> 00:00:24,419 Sean Aylmer: Week Ahead by economist Stephen Koukoulas. You'll find him at TheKouk.com, T-H-E-K-O-U-K.com, 7 00:00:26,660 --> 00:00:29,760 Sean Aylmer: and on Twitter using the handle @ TheKouk. Stephen, good morning. 8 00:00:30,120 --> 00:00:30,940 Stephen Koukoulas: Good morning, Sean. 9 00:00:31,150 --> 00:00:33,099 Sean Aylmer: I'm thinking of doing a new introduction next week. We've 10 00:00:33,100 --> 00:00:34,760 Sean Aylmer: been doing this one for a long time. 11 00:00:35,000 --> 00:00:37,580 Stephen Koukoulas: Yeah, please feel free to change it as long 12 00:00:37,620 --> 00:00:40,750 Stephen Koukoulas: as it's respectful and of course accurate, that's all I ask. 13 00:00:41,140 --> 00:00:43,760 Sean Aylmer: Hmm. We'll see. We'll see. Look, it wasn't a very 14 00:00:43,760 --> 00:00:46,110 Sean Aylmer: busy week last week. The Reserve Bank minutes came out, 15 00:00:46,110 --> 00:00:47,839 Sean Aylmer: but they didn't say too much. I think a lot of the big 16 00:00:47,840 --> 00:00:50,050 Sean Aylmer: debate last week, really in the lead up to the 17 00:00:50,050 --> 00:00:53,880 Sean Aylmer: Glasgow United Nations Climate Change Summit was all about what 18 00:00:53,880 --> 00:00:57,870 Sean Aylmer: the government's position is going to be around climate change. 19 00:00:58,360 --> 00:01:00,880 Sean Aylmer: And I mean, that has emerged over the weekend. But 20 00:01:01,200 --> 00:01:03,670 Sean Aylmer: for the economy, how does it affect the economy? 21 00:01:04,410 --> 00:01:07,209 Stephen Koukoulas: Yeah, well, you're quite right. The RBA added little to the 22 00:01:07,209 --> 00:01:09,410 Stephen Koukoulas: debate, so we can move on from that. But as 23 00:01:09,410 --> 00:01:14,240 Stephen Koukoulas: you correctly point out, these climate change issues are huge 24 00:01:14,240 --> 00:01:19,640 Stephen Koukoulas: for economics, for financial markets and they've been impacting for 25 00:01:19,640 --> 00:01:22,240 Stephen Koukoulas: some time already, of course. But we are seeing it 26 00:01:22,240 --> 00:01:26,670 Stephen Koukoulas: in terms of how banks are funding particular projects. That 27 00:01:26,670 --> 00:01:29,280 Stephen Koukoulas: if you're in the polluting sort of sector, you're not 28 00:01:29,280 --> 00:01:31,520 Stephen Koukoulas: likely to get as much capital from the banks and 29 00:01:31,520 --> 00:01:34,580 Stephen Koukoulas: other fund managers as you might otherwise do. And it's 30 00:01:34,870 --> 00:01:37,040 Stephen Koukoulas: the renewables that are doing very well, that's attracting the 31 00:01:37,040 --> 00:01:40,610 Stephen Koukoulas: capital. Now whether you're a believer or not, and I 32 00:01:40,610 --> 00:01:43,440 Stephen Koukoulas: understand some people still don't believe the science on climate 33 00:01:43,440 --> 00:01:45,620 Stephen Koukoulas: change, but it's going to happen. And you've just got 34 00:01:45,620 --> 00:01:48,059 Stephen Koukoulas: to look around the world at the rapid pace towards 35 00:01:48,180 --> 00:01:53,210 Stephen Koukoulas: renewables and how that is changing investment strategies, how it's 36 00:01:53,210 --> 00:01:56,130 Stephen Koukoulas: changing companies and quite curiously, I like to use this 37 00:01:56,130 --> 00:02:00,850 Stephen Koukoulas: example from time to time that BP, British Petroleum, which 38 00:02:00,850 --> 00:02:05,200 Stephen Koukoulas: was obviously once just an oil company, that's all it 39 00:02:05,200 --> 00:02:08,560 Stephen Koukoulas: did, in the last decade or so has transformed itself 40 00:02:08,840 --> 00:02:14,419 Stephen Koukoulas: quite dramatically where it's actually a renewables powerhouse. That it's 41 00:02:14,419 --> 00:02:17,170 Stephen Koukoulas: instead saying, well, just sitting there and pumping oil out of 42 00:02:17,240 --> 00:02:19,669 Stephen Koukoulas: the ground, that's still part of their business. Of course 43 00:02:19,669 --> 00:02:21,769 Stephen Koukoulas: it is. But they're saying that for them to remain 44 00:02:21,770 --> 00:02:24,239 Stephen Koukoulas: relevant over the next decade or two, they need to 45 00:02:24,240 --> 00:02:25,160 Stephen Koukoulas: move with the times. 46 00:02:25,330 --> 00:02:27,730 Sean Aylmer: I was listening to a conference last week and Shayne 47 00:02:27,730 --> 00:02:31,070 Sean Aylmer: Elliott, the boss of ANZ was speaking. And he said, 48 00:02:31,560 --> 00:02:34,590 Sean Aylmer: not in so many words, but do you bank a 49 00:02:34,590 --> 00:02:37,669 Sean Aylmer: company that has a strategy for climate change that's in a 50 00:02:37,669 --> 00:02:40,919 Sean Aylmer: dirty industry that is transforming? Or do you bank a 51 00:02:40,919 --> 00:02:44,179 Sean Aylmer: company that isn't in a dirty industry, but has no 52 00:02:44,180 --> 00:02:48,050 Sean Aylmer: strategy for climate change? It's a really interesting moral dilemma 53 00:02:48,050 --> 00:02:51,500 Sean Aylmer: for the banks because, he didn't say this, but what 54 00:02:51,500 --> 00:02:53,639 Sean Aylmer: he was getting at is we're actually probably better to 55 00:02:53,639 --> 00:02:55,649 Sean Aylmer: bank the oil and gas company that's trying to become 56 00:02:55,650 --> 00:02:59,240 Sean Aylmer: a renewable than we are the kind of middle company 57 00:02:59,320 --> 00:03:01,200 Sean Aylmer: that hasn't even thought about climate change. 58 00:03:01,720 --> 00:03:04,450 Stephen Koukoulas: Really interesting concept too, because again, and this is the discussion 59 00:03:04,450 --> 00:03:05,860 Stephen Koukoulas: I've had with a lot of fund managers over the 60 00:03:05,860 --> 00:03:08,540 Stephen Koukoulas: last couple of years, the debate about whether they should 61 00:03:08,540 --> 00:03:10,470 Stephen Koukoulas: be still holding their shares in, I'll just use the 62 00:03:10,470 --> 00:03:13,470 Stephen Koukoulas: example of coal companies. A number of the large super 63 00:03:13,470 --> 00:03:16,600 Stephen Koukoulas: funds have sold out of them or downsized their holdings. 64 00:03:16,600 --> 00:03:19,109 Stephen Koukoulas: Others have said, well, quite vehemently, we want a hold 65 00:03:19,470 --> 00:03:22,220 Stephen Koukoulas: our position in these coal companies for a couple of reasons. 66 00:03:22,419 --> 00:03:24,400 Stephen Koukoulas: One is that coal is still going to be around 67 00:03:24,710 --> 00:03:27,140 Stephen Koukoulas: at least a little bit for the next few years, 68 00:03:27,500 --> 00:03:31,460 Stephen Koukoulas: but also they can influence the board strategy and how 69 00:03:31,460 --> 00:03:35,210 Stephen Koukoulas: a coal company can perhaps transition towards some renewables. And 70 00:03:35,570 --> 00:03:37,970 Stephen Koukoulas: if you're on the sidelines, you're not a shareholder, you're 71 00:03:37,970 --> 00:03:40,610 Stephen Koukoulas: not a member of the board and you're not voting on 72 00:03:40,610 --> 00:03:43,730 Stephen Koukoulas: what they do, you're out of the game. You're actually not 73 00:03:43,730 --> 00:03:45,670 Stephen Koukoulas: having that impact that you might otherwise have. 74 00:03:45,840 --> 00:03:48,910 Sean Aylmer: Now, I don't want to be a cynic, maybe that really high price of 75 00:03:48,910 --> 00:03:50,380 Sean Aylmer: coal helps with that argument too. 76 00:03:51,610 --> 00:03:54,570 Stephen Koukoulas: Well, it's been very high. Just late last week it 77 00:03:54,570 --> 00:03:56,470 Stephen Koukoulas: started to come off the boil, but yes, it's been a 78 00:03:56,470 --> 00:03:57,380 Stephen Koukoulas: phenomenal rise. 79 00:03:57,900 --> 00:03:59,590 Sean Aylmer: Well that's last week. We'll be back in a moment 80 00:03:59,610 --> 00:04:00,960 Sean Aylmer: and get into the week ahead. 81 00:04:00,960 --> 00:04:12,410 Sean Aylmer: I'm with economist, Stephen Koukoulas, AKA The Kouk. Huge week, Stephen. Inflation, inflation, inflation. 82 00:04:12,750 --> 00:04:17,250 Stephen Koukoulas: Massive. And this is Australia's quarterly inflation reading for the 83 00:04:17,250 --> 00:04:21,740 Stephen Koukoulas: September quarter. Unfortunately, we don't have an official monthly inflation number. 84 00:04:21,740 --> 00:04:23,880 Stephen Koukoulas: So where the rest of the world is having the 85 00:04:23,880 --> 00:04:27,289 Stephen Koukoulas: monthly updates on inflation pressures, and you look at the US, 86 00:04:27,290 --> 00:04:32,750 Stephen Koukoulas: the UK, Eurozone, even Japan heaven forbid, there's inflation pressures building. 87 00:04:33,220 --> 00:04:35,550 Stephen Koukoulas: And that's caused the bond market to sell off, it's 88 00:04:35,550 --> 00:04:39,200 Stephen Koukoulas: caused monetary policy expectations around the world to change. So 89 00:04:39,200 --> 00:04:43,110 Stephen Koukoulas: we get our quarterly inflation number, expected for the headline 90 00:04:43,110 --> 00:04:48,130 Stephen Koukoulas: figure to be around about 0.7 for the quarter, 3% year on year. So, 91 00:04:48,860 --> 00:04:50,560 Stephen Koukoulas: the upper end of the target range. There's still a 92 00:04:50,560 --> 00:04:54,820 Stephen Koukoulas: few distortions from COVID related issues. But even underlying inflation, 93 00:04:54,820 --> 00:04:57,340 Stephen Koukoulas: the trimmed mean measure that the RBA love to use, 94 00:04:57,790 --> 00:05:01,479 Stephen Koukoulas: probably 0.6 for the quarter, which gets us just to about 95 00:05:02,150 --> 00:05:04,890 Stephen Koukoulas: out 2% annual. So just perhaps for the first time 96 00:05:04,890 --> 00:05:06,390 Stephen Koukoulas: in quite a while, moving to the bottom of the 97 00:05:06,390 --> 00:05:10,020 Stephen Koukoulas: target range. Huge implications, any upside surprise like we saw 98 00:05:10,020 --> 00:05:12,710 Stephen Koukoulas: in New Zealand a couple of weeks ago will really 99 00:05:13,770 --> 00:05:16,770 Stephen Koukoulas: reinforce the expectations in markets here that perhaps that rate 100 00:05:16,770 --> 00:05:19,330 Stephen Koukoulas: hike won't be in 2024, could even be in the 101 00:05:19,330 --> 00:05:20,680 Stephen Koukoulas: latter part of 2022. 102 00:05:21,010 --> 00:05:23,110 Sean Aylmer: And is that a bad thing to have a bit of inflation 103 00:05:23,110 --> 00:05:24,099 Sean Aylmer: in the economy, Stephen? 104 00:05:24,950 --> 00:05:28,020 Stephen Koukoulas: It's actually a good thing again, like good red wine, 105 00:05:28,020 --> 00:05:30,359 Stephen Koukoulas: a little bit's good, too much can be a bit of a problem 106 00:05:30,360 --> 00:05:32,210 Stephen Koukoulas: for you, but none is no fun at all. So, 107 00:05:32,500 --> 00:05:36,320 Stephen Koukoulas: you've got to have the price signals coming through different 108 00:05:36,320 --> 00:05:39,100 Stephen Koukoulas: sectors of the economy to allow the economy to grow. 109 00:05:39,190 --> 00:05:41,760 Stephen Koukoulas: And that's why every central bank I'm aware of has 110 00:05:41,760 --> 00:05:45,510 Stephen Koukoulas: a positive target for inflation. It's not minus 2%. It's about 111 00:05:45,510 --> 00:05:49,730 Stephen Koukoulas: 2%. In Australia's case, it's between two and 3%. So it's 112 00:05:49,730 --> 00:05:52,300 Stephen Koukoulas: a sign that your economy's growing at a reasonable pace, 113 00:05:52,300 --> 00:05:54,960 Stephen Koukoulas: that you're getting a little bit of wage pressure coming 114 00:05:54,960 --> 00:05:57,800 Stephen Koukoulas: through when you've got inflation in that two to three 115 00:05:57,800 --> 00:06:00,400 Stephen Koukoulas: band. And for many years now, pre COVID, we didn't 116 00:06:00,400 --> 00:06:03,650 Stephen Koukoulas: quite have that momentum and it felt like the economy 117 00:06:03,650 --> 00:06:05,560 Stephen Koukoulas: wasn't really performing as it should. 118 00:06:06,000 --> 00:06:07,540 Sean Aylmer: Retail sales are also out this week. 119 00:06:07,870 --> 00:06:10,750 Stephen Koukoulas: Yes, retail sales. This is an important one because for 120 00:06:10,750 --> 00:06:13,760 Stephen Koukoulas: the month of September, probably very weak, because we know 121 00:06:13,760 --> 00:06:18,080 Stephen Koukoulas: September, over half the country was still lockdown and it's 122 00:06:18,080 --> 00:06:20,710 Stephen Koukoulas: only now that we're opening up, thank goodness. But probably 123 00:06:20,710 --> 00:06:23,609 Stephen Koukoulas: another weak result, probably a minus 1% to build on 124 00:06:23,610 --> 00:06:26,350 Stephen Koukoulas: the three big minuses in the previous three months. So 125 00:06:26,730 --> 00:06:29,790 Stephen Koukoulas: that's a downside, but the September quarter number is the 126 00:06:29,790 --> 00:06:33,130 Stephen Koukoulas: first building block into the September quarter GDP results. Retail 127 00:06:33,130 --> 00:06:37,390 Stephen Koukoulas: spending makes up around about 20% of GDP. So we'll 128 00:06:37,390 --> 00:06:40,929 Stephen Koukoulas: have the Bureau of Statistics having obviously the dollar values 129 00:06:41,010 --> 00:06:43,510 Stephen Koukoulas: that have been sold in the retail sector, but they'll 130 00:06:43,510 --> 00:06:46,220 Stephen Koukoulas: also have the real, the volume measure, which feeds into 131 00:06:46,220 --> 00:06:48,650 Stephen Koukoulas: real GDP. And again, we are looking at a figure 132 00:06:48,650 --> 00:06:52,170 Stephen Koukoulas: of about minus 5% for the quarter. So a big drop 133 00:06:52,170 --> 00:06:55,150 Stephen Koukoulas: is where many of us were locked down and sitting 134 00:06:55,150 --> 00:06:57,010 Stephen Koukoulas: at home and not spending much money. 135 00:06:57,300 --> 00:06:58,789 Sean Aylmer: And private sector credits out too. 136 00:06:59,320 --> 00:07:02,710 Stephen Koukoulas: Credits out, yes. Another strong result expected. These house prices 137 00:07:02,710 --> 00:07:05,540 Stephen Koukoulas: that we are seeing are fueled by borrowing. So expect 138 00:07:05,540 --> 00:07:08,680 Stephen Koukoulas: housing credit to be increasing very close to a 10% 139 00:07:08,680 --> 00:07:11,870 Stephen Koukoulas: year on year pace. So a lot of mortgage holders 140 00:07:11,870 --> 00:07:14,890 Stephen Koukoulas: are ramping up their borrowings. Business credit probably a little 141 00:07:14,890 --> 00:07:17,410 Stephen Koukoulas: bit softer. Again, this is during the lockdown period, so 142 00:07:17,440 --> 00:07:20,210 Stephen Koukoulas: a lot of CapEX was postponed. But nonetheless, we'll be 143 00:07:20,210 --> 00:07:24,490 Stephen Koukoulas: seeing mortgage credit accelerating yet again and again. That's something 144 00:07:24,490 --> 00:07:28,970 Stephen Koukoulas: that is causing a few little concerns for APRA, the RBA and 145 00:07:29,260 --> 00:07:30,790 Stephen Koukoulas: other people looking at house prices. 146 00:07:31,040 --> 00:07:32,020 Sean Aylmer: Enjoy the week, Stephen. 147 00:07:32,280 --> 00:07:32,690 Stephen Koukoulas: Thank you, Sean. 148 00:07:33,210 --> 00:07:36,160 Sean Aylmer: That was economist Steven Koukoulas, better known as the Kouk. You can 149 00:07:36,160 --> 00:07:38,830 Sean Aylmer: find him at TheKouk. com and follow him on Twitter 150 00:07:38,830 --> 00:07:41,640 Sean Aylmer: using the handle @TheKouk. I'm Sean Aylmer and this is Fear 151 00:07:41,640 --> 00:07:42,840 Sean Aylmer: and Greed, The Week Ahead.