1 00:00:08,700 --> 00:00:11,690 Sean Aylmer: Welcome to Fear And Greed: The Week Ahead. This is where we take 2 00:00:11,690 --> 00:00:13,710 Sean Aylmer: a look at the big events, reports and releases coming 3 00:00:13,710 --> 00:00:16,130 Sean Aylmer: up this week that give insight into the economy and a 4 00:00:16,130 --> 00:00:18,970 Sean Aylmer: look back at what happened last week too. I'm Sean 5 00:00:19,060 --> 00:00:21,430 Sean Aylmer: Aylmer, and every Monday I'm joined for The Week Ahead by 6 00:00:21,430 --> 00:00:25,380 Sean Aylmer: economist Stephen Koukoulas, a very excited man. We're mid- racing 7 00:00:25,380 --> 00:00:28,380 Sean Aylmer: season. That's what Stephen loves. You'll find him at thekouk. 8 00:00:28,380 --> 00:00:30,930 Sean Aylmer: com, T- H- E- K- O- U- K, . com, and 9 00:00:30,930 --> 00:00:35,130 Sean Aylmer: on Twitter using the handle TheKouk. Righto, Stephen, Melbourne Cup day 10 00:00:35,130 --> 00:00:36,610 Sean Aylmer: tomorrow. Do you know what you're on? 11 00:00:37,610 --> 00:00:39,450 Stephen Koukoulas: Oh, it has to be Incentivise. I know it's a short- 12 00:00:39,450 --> 00:00:42,000 Stephen Koukoulas: priced favourite, but the way that it's been winning has 13 00:00:42,000 --> 00:00:47,370 Stephen Koukoulas: been incredible, absolutely incredible. Probably starting around the $ 2. 30, $2. 14 00:00:47,820 --> 00:00:51,030 Stephen Koukoulas: 40 mark tomorrow, but that's where my hard- earned is 15 00:00:51,030 --> 00:00:51,560 Stephen Koukoulas: going to be. 16 00:00:51,890 --> 00:00:55,060 Sean Aylmer: Which is quite incredible for a Melbourne Cup favourite to 17 00:00:55,060 --> 00:00:55,940 Sean Aylmer: be that short. 18 00:00:56,350 --> 00:00:58,880 Stephen Koukoulas: Yes. It's not as if it's running against donkeys. There's 19 00:00:59,220 --> 00:01:00,381 Stephen Koukoulas: some pretty good horses there. 20 00:01:00,381 --> 00:01:00,550 Sean Aylmer: Yeah, yeah, yeah. 21 00:01:00,550 --> 00:01:03,480 Stephen Koukoulas: So in a field of 24 where, obviously, luck plays 22 00:01:03,480 --> 00:01:06,510 Stephen Koukoulas: a much bigger part than in a smaller field, that, and 23 00:01:07,170 --> 00:01:08,900 Stephen Koukoulas: the horses are of a high quality, to be that 24 00:01:08,900 --> 00:01:11,080 Stephen Koukoulas: short suggests that a lot of other people are on 25 00:01:11,080 --> 00:01:13,010 Stephen Koukoulas: board too. But the way it won the Caulfield Cup, 26 00:01:13,010 --> 00:01:15,130 Stephen Koukoulas: the way it won some of its other races in 27 00:01:15,130 --> 00:01:18,959 Stephen Koukoulas: the lead in were just spectacular. And, gosh, yeah, I'll 28 00:01:19,260 --> 00:01:20,060 Stephen Koukoulas: be backing the favourite. 29 00:01:20,220 --> 00:01:22,690 Sean Aylmer: I love the way you're thinking about it. I'm going 30 00:01:22,690 --> 00:01:23,990 Sean Aylmer: for Tralee Rose- 31 00:01:24,260 --> 00:01:24,701 Stephen Koukoulas: Ah, yes. 32 00:01:24,701 --> 00:01:27,380 Sean Aylmer: ... because my daughter's name is Rose. 33 00:01:27,680 --> 00:01:28,490 Stephen Koukoulas: Perfect choice. 34 00:01:28,490 --> 00:01:28,690 Sean Aylmer: There you go. 35 00:01:28,690 --> 00:01:30,929 Stephen Koukoulas: That's a very good reason. It's as good as any. 36 00:01:30,940 --> 00:01:34,000 Sean Aylmer: Righto. Last week, big week last week, huge week this 37 00:01:34,000 --> 00:01:36,360 Sean Aylmer: week. CPI last week was a big one. What did 38 00:01:36,360 --> 00:01:38,300 Sean Aylmer: you reckon, is it a turning point? 39 00:01:38,540 --> 00:01:40,420 Stephen Koukoulas: Yeah. Look, I think it is. And the way that 40 00:01:40,420 --> 00:01:43,429 Stephen Koukoulas: the bond market reacted to it clearly suggested that they 41 00:01:43,430 --> 00:01:47,810 Stephen Koukoulas: were surprised that the underlying measure, the trimmed mean measure 42 00:01:47,810 --> 00:01:50,540 Stephen Koukoulas: of inflation, which of course is the one that the Reserve Bank spend 43 00:01:50,800 --> 00:01:53,670 Stephen Koukoulas: most of their time focusing on, came in at 0.7 for 44 00:01:53,670 --> 00:01:57,150 Stephen Koukoulas: the quarter. Now, in a sense, it doesn't sound too high. 0. 45 00:01:57,150 --> 00:02:00,930 Stephen Koukoulas: 7 multiplied by four, to annualise it you get 2. 8%. So, look, 46 00:02:01,030 --> 00:02:05,080 Stephen Koukoulas: it's not bursting through the ceiling, but the fact that 47 00:02:05,080 --> 00:02:08,130 Stephen Koukoulas: it was the highest quarterly reading in about six years, 48 00:02:08,530 --> 00:02:10,990 Stephen Koukoulas: the fact that it didn't include what we're now seeing 49 00:02:10,990 --> 00:02:13,810 Stephen Koukoulas: on prices as we go into the December quarter on 50 00:02:14,030 --> 00:02:17,340 Stephen Koukoulas: things like prices, commodities and the like suggest that it 51 00:02:17,340 --> 00:02:20,850 Stephen Koukoulas: was really a game changer, that the RBA has probably 52 00:02:20,850 --> 00:02:24,810 Stephen Koukoulas: hit its inflation target earlier than it thought. When we 53 00:02:24,810 --> 00:02:26,609 Stephen Koukoulas: get the next quarterly number, the annual figure will be 54 00:02:26,610 --> 00:02:29,169 Stephen Koukoulas: about two and a half per cent or maybe a touch more, 55 00:02:29,169 --> 00:02:31,760 Stephen Koukoulas: so middle of the target range. And it caused the 56 00:02:31,760 --> 00:02:35,300 Stephen Koukoulas: bond market to have, well, a crash, to be blunt, 57 00:02:35,300 --> 00:02:37,579 Stephen Koukoulas: because the three year yield spiked to one and a 58 00:02:37,580 --> 00:02:41,510 Stephen Koukoulas: quarter per cent. Can you believe it? Up about 60, 70 basis 59 00:02:41,510 --> 00:02:43,870 Stephen Koukoulas: points on the week. Incredible moves. 60 00:02:44,139 --> 00:02:47,650 Sean Aylmer: Yeah. Okay. Well, we've got so much coming up this week. That was 61 00:02:47,650 --> 00:02:49,340 Sean Aylmer: last week. We'll be back at a moment and get 62 00:02:49,340 --> 00:02:50,230 Sean Aylmer: into the week ahead. 63 00:02:55,320 --> 00:02:59,960 Sean Aylmer: I'm with economist Stephen Koukoulas aka The Kouk. The big one is 64 00:03:00,120 --> 00:03:03,120 Sean Aylmer: tomorrow, Melbourne Cup day, the Reserve Bank board meeting, which 65 00:03:03,200 --> 00:03:05,089 Sean Aylmer: on the back of what you were just speaking about 66 00:03:05,090 --> 00:03:06,790 Sean Aylmer: in inflation numbers, what do you expect? 67 00:03:06,800 --> 00:03:10,850 Stephen Koukoulas: Oh, they have to change. The market is telling them 68 00:03:10,850 --> 00:03:14,190 Stephen Koukoulas: that their view that rates would be on hold till 2024 and 69 00:03:14,550 --> 00:03:18,570 Stephen Koukoulas: they've got to continue their $ 4 billion of bond buying 70 00:03:18,930 --> 00:03:22,370 Stephen Koukoulas: per week out to February next year has all got 71 00:03:22,370 --> 00:03:25,230 Stephen Koukoulas: to change. And even their target for the 2024 bond 72 00:03:25,230 --> 00:03:28,299 Stephen Koukoulas: has got to change. The inflation pressures, not just in 73 00:03:28,300 --> 00:03:30,070 Stephen Koukoulas: those numbers that we were just chatting about a moment 74 00:03:30,070 --> 00:03:33,350 Stephen Koukoulas: ago, but what's happening globally, it's not just an event 75 00:03:33,350 --> 00:03:36,820 Stephen Koukoulas: that's happening in Australia. You look at the inflation rate 76 00:03:36,870 --> 00:03:42,240 Stephen Koukoulas: in Canada, the US, Eurozone, heaven forbid, New Zealand, across 77 00:03:42,240 --> 00:03:45,760 Stephen Koukoulas: the world, they're all lifting. And every central bank now 78 00:03:45,760 --> 00:03:48,140 Stephen Koukoulas: has got rate hikes. Even the European Central Bank, for 79 00:03:48,140 --> 00:03:50,309 Stephen Koukoulas: heaven's sake, they've got a 20 point rate hike priced 80 00:03:50,310 --> 00:03:52,920 Stephen Koukoulas: into the end of next year. The feds got somewhere 81 00:03:52,920 --> 00:03:55,410 Stephen Koukoulas: between half and a four percentage point in the next 82 00:03:55,410 --> 00:03:58,400 Stephen Koukoulas: 12 months. And even the Bank of England, who literally 83 00:03:58,400 --> 00:04:00,700 Stephen Koukoulas: six weeks ago was suggesting rates would be on hold 84 00:04:00,700 --> 00:04:03,050 Stephen Koukoulas: for a couple of years, are probably going to be 85 00:04:03,050 --> 00:04:06,860 Stephen Koukoulas: hiking before Christmas this year. So the RBA must change 86 00:04:06,860 --> 00:04:10,510 Stephen Koukoulas: its view on the economy, on the inflation risks. And 87 00:04:10,770 --> 00:04:12,740 Stephen Koukoulas: that's not to be critical of it. It's actually a 88 00:04:12,740 --> 00:04:15,840 Stephen Koukoulas: good news story. The economy has recovered earlier than they 89 00:04:15,840 --> 00:04:18,860 Stephen Koukoulas: were thinking. Inflation pressures are starting to pick up earlier 90 00:04:18,860 --> 00:04:22,039 Stephen Koukoulas: than they were thinking. And when the facts change, policy 91 00:04:22,040 --> 00:04:22,849 Stephen Koukoulas: should change too. 92 00:04:22,850 --> 00:04:25,839 Sean Aylmer: How do they do it? Is it something that tomorrow 93 00:04:25,839 --> 00:04:28,300 Sean Aylmer: we'll read the minutes and the language will change a 94 00:04:28,300 --> 00:04:31,450 Sean Aylmer: bit? They might talk about tapering their bond purchases. Is that 95 00:04:31,450 --> 00:04:32,280 Sean Aylmer: the first step? 96 00:04:32,560 --> 00:04:35,210 Stephen Koukoulas: Yeah. Look, I think it is. Certainly, the language will 97 00:04:35,210 --> 00:04:38,529 Stephen Koukoulas: change but also what their policy deliberations are. Obviously, the 98 00:04:38,529 --> 00:04:40,350 Stephen Koukoulas: official cash rate will not change. It'll be at 0. 1%. 99 00:04:41,600 --> 00:04:44,460 Stephen Koukoulas: The other elements of their monetary policy settings, as you said, 100 00:04:44,460 --> 00:04:48,010 Stephen Koukoulas: the bond buying where they had pencilled in four billion 101 00:04:48,010 --> 00:04:50,450 Stephen Koukoulas: a week through to February next year, that's too much. 102 00:04:50,450 --> 00:04:52,800 Stephen Koukoulas: They don't need to support the bond market. The economy 103 00:04:52,800 --> 00:04:56,200 Stephen Koukoulas: doesn't need that sort of intervention. So I suggest, and look, 104 00:04:56,200 --> 00:04:58,570 Stephen Koukoulas: I don't know quite what the trajectory would be, but the 105 00:04:58,570 --> 00:05:01,099 Stephen Koukoulas: hard part, so they'd go cold turkey and just stop 106 00:05:01,100 --> 00:05:03,640 Stephen Koukoulas: it now. Obviously, that would cause a bit of disruption 107 00:05:03,640 --> 00:05:06,870 Stephen Koukoulas: in the market. But more realistically, they'll probably phase the 108 00:05:06,870 --> 00:05:09,050 Stephen Koukoulas: four billion down to three, down to two, down to 109 00:05:09,050 --> 00:05:12,070 Stephen Koukoulas: one billion, and perhaps by the end of the year, 110 00:05:12,070 --> 00:05:14,670 Stephen Koukoulas: they'll be doing no intervention in the bond market. And 111 00:05:14,670 --> 00:05:19,300 Stephen Koukoulas: their target for the early 2024 bond, again, maybe they 112 00:05:19,300 --> 00:05:21,469 Stephen Koukoulas: do go cold turkey on that and say, " Hey, we're not going to 113 00:05:21,470 --> 00:05:25,290 Stephen Koukoulas: be targeting that anymore. Inflation's lifting. The market forces are 114 00:05:25,290 --> 00:05:28,589 Stephen Koukoulas: causing those yields to rise, and that's a good thing." 115 00:05:28,990 --> 00:05:31,600 Stephen Koukoulas: And as part of their commentary, in my view, they 116 00:05:31,600 --> 00:05:34,530 Stephen Koukoulas: should embrace that what's happening in the markets is actually 117 00:05:34,950 --> 00:05:37,580 Stephen Koukoulas: a positive development for the economy. Sure, it's causing a 118 00:05:37,580 --> 00:05:40,550 Stephen Koukoulas: few ructions in the market but, hey, that's the adjustment 119 00:05:40,600 --> 00:05:43,320 Stephen Koukoulas: we're having as we move away from the COVID recession 120 00:05:43,620 --> 00:05:46,920 Stephen Koukoulas: and into the post- COVID economic pickup, which looks to 121 00:05:46,990 --> 00:05:48,180 Stephen Koukoulas: be really strong. 122 00:05:48,480 --> 00:05:50,650 Sean Aylmer: Yeah. And we'll find out a lot about that pickup 123 00:05:50,720 --> 00:05:54,080 Sean Aylmer: this week. We've got CoreLogic house prices, ANZ job ads, 124 00:05:54,420 --> 00:05:58,820 Sean Aylmer: building approvals, motor vehicle sales, international trade, retail trade. Wow, a 125 00:05:58,920 --> 00:05:59,520 Sean Aylmer: hell of a week. 126 00:05:59,810 --> 00:06:00,930 Stephen Koukoulas: I don't know how I'm going to take my eyes 127 00:06:00,930 --> 00:06:02,210 Stephen Koukoulas: off the horse racing to have a look at all 128 00:06:02,210 --> 00:06:05,400 Stephen Koukoulas: this economic data. But yeah, look, there's a lot of 129 00:06:05,400 --> 00:06:08,750 Stephen Koukoulas: news there. And while some of that information will incorporate, 130 00:06:08,750 --> 00:06:11,589 Stephen Koukoulas: yeah, part of the lockdowns, because really the lockdowns only ended at the 131 00:06:11,589 --> 00:06:14,910 Stephen Koukoulas: end of September, let's say, or early October, nonetheless, they'll 132 00:06:14,910 --> 00:06:18,580 Stephen Koukoulas: be looked at really closely to see whether the economy 133 00:06:18,580 --> 00:06:21,140 Stephen Koukoulas: was maintaining some sort of resilience in the month of 134 00:06:21,140 --> 00:06:24,729 Stephen Koukoulas: September. The CoreLogic house price numbers will be for the 135 00:06:24,730 --> 00:06:27,670 Stephen Koukoulas: month of October, the month that's just passed, and they'll 136 00:06:27,670 --> 00:06:32,109 Stephen Koukoulas: show house prices up another 1.3, 1. 4% month on month, 137 00:06:32,450 --> 00:06:38,099 Stephen Koukoulas: every city growing 15, 20, 22%, something like that. But 138 00:06:38,100 --> 00:06:41,060 Stephen Koukoulas: the other data, the retail sales numbers, the building approvals 139 00:06:41,060 --> 00:06:43,300 Stephen Koukoulas: numbers, they'll be looked at because they do feed into 140 00:06:43,300 --> 00:06:47,020 Stephen Koukoulas: what's happening in the real economy. But really, they're probably 141 00:06:47,020 --> 00:06:50,560 Stephen Koukoulas: going to be superseded by what's happening to sentiment, to 142 00:06:50,560 --> 00:06:53,070 Stephen Koukoulas: confidence as we get out of these lockdowns and we 143 00:06:53,330 --> 00:06:57,760 Stephen Koukoulas: resume normal processes. Today the international borders are opening again. 144 00:06:57,810 --> 00:06:59,390 Stephen Koukoulas: Not a lot of flights at this stage, but again, 145 00:06:59,390 --> 00:07:02,920 Stephen Koukoulas: it's a symptom of how optimistic the economic outlook is 146 00:07:02,920 --> 00:07:05,361 Stephen Koukoulas: as we end 2021 and look forward to 2022. 147 00:07:05,361 --> 00:07:08,390 Sean Aylmer: Yeah. It's funny, rising interest rates you always think is 148 00:07:08,390 --> 00:07:11,190 Sean Aylmer: bad news, but I'm quite excited by the fact that 149 00:07:11,310 --> 00:07:13,670 Sean Aylmer: things might get a little bit more back to normal 150 00:07:13,980 --> 00:07:15,530 Sean Aylmer: over the next 12 to 18 months. 151 00:07:15,970 --> 00:07:17,900 Stephen Koukoulas: Oh look, that's a really good point. Yeah. We don't 152 00:07:17,900 --> 00:07:20,420 Stephen Koukoulas: have a 0. 1% cash rate because the economy's great. 153 00:07:20,920 --> 00:07:21,020 Sean Aylmer: Yeah. 154 00:07:21,020 --> 00:07:23,050 Stephen Koukoulas: They were put there in the middle of the pandemic 155 00:07:23,050 --> 00:07:26,770 Stephen Koukoulas: last year because the RBA wanted to support the economy. And 156 00:07:26,770 --> 00:07:30,850 Stephen Koukoulas: it worked. The good news is that stimulatory fiscal policy 157 00:07:30,870 --> 00:07:34,190 Stephen Koukoulas: from the federal government, low interest rates from the RBA, 158 00:07:34,190 --> 00:07:37,460 Stephen Koukoulas: the quantitative easing from the RBA were all designed to 159 00:07:37,460 --> 00:07:41,680 Stephen Koukoulas: get the economy through this downturn, through the pandemic and 160 00:07:41,680 --> 00:07:43,960 Stephen Koukoulas: into this recovery phase. You might recall, I think it 161 00:07:43,960 --> 00:07:46,510 Stephen Koukoulas: was the RBA governor, gosh, 18 months ago, saying, " We're 162 00:07:46,510 --> 00:07:47,380 Stephen Koukoulas: building a bridge." 163 00:07:47,600 --> 00:07:47,670 Sean Aylmer: Yeah. 164 00:07:47,860 --> 00:07:49,400 Stephen Koukoulas: And I think we're almost at the other side of 165 00:07:49,410 --> 00:07:52,460 Stephen Koukoulas: that bridge now. So the question for the board tomorrow, 166 00:07:52,460 --> 00:07:54,860 Stephen Koukoulas: the RBA board, and for the government, for that matter, 167 00:07:54,860 --> 00:07:57,210 Stephen Koukoulas: when it comes to budget settings and the like, is, 168 00:07:57,560 --> 00:08:01,440 Stephen Koukoulas: are the current policy settings appropriate for an economy that's recovering, 169 00:08:01,440 --> 00:08:04,520 Stephen Koukoulas: that's growing strongly where inflation pressures are? The short answer 170 00:08:04,520 --> 00:08:07,610 Stephen Koukoulas: is no. It's just, as we were just discussing a 171 00:08:07,610 --> 00:08:11,220 Stephen Koukoulas: moment ago, the trajectory about how the central bank starts 172 00:08:11,220 --> 00:08:14,760 Stephen Koukoulas: to remove some of this monetary stimulus. And I guess 173 00:08:14,760 --> 00:08:17,640 Stephen Koukoulas: the question for the federal government, obviously made difficult by 174 00:08:17,640 --> 00:08:20,260 Stephen Koukoulas: the federal election that's coming up, how do they repair 175 00:08:20,260 --> 00:08:22,440 Stephen Koukoulas: the budget? Because we still have pretty big budget deficits 176 00:08:22,440 --> 00:08:22,850 Stephen Koukoulas: out there. 177 00:08:23,170 --> 00:08:26,010 Sean Aylmer: Stephen, enjoy both the racing and the economics, probably in 178 00:08:26,010 --> 00:08:26,790 Sean Aylmer: the reverse order, though. 179 00:08:27,320 --> 00:08:29,440 Stephen Koukoulas: I will, Sean. I can't wait. What a busy week 180 00:08:29,710 --> 00:08:31,240 Stephen Koukoulas: we've got ahead of us. Thank you, Sean. 181 00:08:31,630 --> 00:08:34,380 Sean Aylmer: That was economist, Stephen Koukoulas, better known as The Kouk. 182 00:08:34,380 --> 00:08:36,600 Sean Aylmer: You can find him at thekouk. com and follow him 183 00:08:36,600 --> 00:08:40,709 Sean Aylmer: on Twitter using the handle @ TheKouk. I'm Sean Aylmer and this is Fear And Greed: 184 00:08:40,710 --> 00:08:41,020 Sean Aylmer: The Week Ahead.