1 00:00:08,130 --> 00:00:11,488 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. I'm Sean Aylmer; and as 2 00:00:11,490 --> 00:00:14,549 Sean Aylmer: always, I'm joined by economist, Stephen Koukoulas. You'll find him 3 00:00:14,549 --> 00:00:17,789 Sean Aylmer: at TheKouk. com and on Twitter using the handle TheKouk. 4 00:00:17,789 --> 00:00:18,779 Sean Aylmer: Stephen, good morning. 5 00:00:18,989 --> 00:00:19,709 Stephen Koukoulas: Good morning, Sean. 6 00:00:20,160 --> 00:00:23,280 Sean Aylmer: We've got a pretty exciting week coming up. We know 7 00:00:23,280 --> 00:00:25,230 Sean Aylmer: next week we've got the Reserve Bank making a decision 8 00:00:25,230 --> 00:00:28,590 Sean Aylmer: on interest rates, but a fair bit of information this 9 00:00:28,590 --> 00:00:32,250 Sean Aylmer: week will help them make that decision. Monthly inflation is 10 00:00:32,250 --> 00:00:33,178 Sean Aylmer: a good starting point. 11 00:00:34,229 --> 00:00:36,570 Stephen Koukoulas: It's a very good starting point. And I think where 12 00:00:36,570 --> 00:00:39,240 Stephen Koukoulas: we had the shock decision, and this is from the 13 00:00:39,240 --> 00:00:42,870 Stephen Koukoulas: minutes of the RBA meeting that were released last week, 14 00:00:43,560 --> 00:00:46,348 Stephen Koukoulas: and that shock decision to hike in June was pretty 15 00:00:46,348 --> 00:00:51,390 Stephen Koukoulas: much predicated on two things: one was the surprisingly high 16 00:00:51,540 --> 00:00:56,460 Stephen Koukoulas: monthly CPI previously, and house prices going up, so the 17 00:00:56,460 --> 00:00:59,340 Stephen Koukoulas: inflation numbers which come out this week will be really 18 00:00:59,340 --> 00:01:02,099 Stephen Koukoulas: important for the RBA. If it remains elevated, or we 19 00:01:02,099 --> 00:01:05,609 Stephen Koukoulas: don't get that deceleration which the consensus is looking for, 20 00:01:05,610 --> 00:01:09,629 Stephen Koukoulas: then it feeds into the RBA probably just chugging along 21 00:01:09,630 --> 00:01:12,840 Stephen Koukoulas: and delivering another rate hike next week. It's always on 22 00:01:12,840 --> 00:01:14,220 Stephen Koukoulas: a monthly CPI. 23 00:01:14,850 --> 00:01:17,580 Sean Aylmer: Okay. It's interesting how in the last two or three 24 00:01:17,580 --> 00:01:21,300 Sean Aylmer: weeks there really has been a shift towards more rate 25 00:01:21,300 --> 00:01:24,419 Sean Aylmer: hikes on the back of inflation, it seems, and certainly 26 00:01:24,420 --> 00:01:27,899 Sean Aylmer: a slowing in economic growth, but people are talking about 27 00:01:27,900 --> 00:01:31,529 Sean Aylmer: two more rate hikes, potentially three more rate hikes. Where 28 00:01:31,590 --> 00:01:32,340 Sean Aylmer: do you stand on that? 29 00:01:32,760 --> 00:01:35,369 Stephen Koukoulas: Look, it's incredible, and it's being reflected in the bond 30 00:01:35,370 --> 00:01:39,929 Stephen Koukoulas: market. We've had basically close to 100 basis points in 31 00:01:39,929 --> 00:01:42,300 Stephen Koukoulas: bond yields... and that's from let's call it roughly 3% 32 00:01:43,500 --> 00:01:45,929 Stephen Koukoulas: about a month ago, to roughly 4% as we speak 33 00:01:45,929 --> 00:01:48,600 Stephen Koukoulas: now... so that's a big movement. Of course, as you're 34 00:01:48,600 --> 00:01:52,860 Stephen Koukoulas: alluding to, on a reassessment of the inflation persistence, if 35 00:01:52,860 --> 00:01:54,690 Stephen Koukoulas: we can call it that, and of course what the 36 00:01:54,690 --> 00:01:57,750 Stephen Koukoulas: Reserve Bank might be doing to get that inflation rate 37 00:01:57,750 --> 00:02:00,929 Stephen Koukoulas: back down... Gosh, I'm still looking at a range of 38 00:02:00,929 --> 00:02:05,789 Stephen Koukoulas: indicators. Look, I've missed the last three RBA rate hikes. I'm looking 39 00:02:05,789 --> 00:02:09,630 Stephen Koukoulas: at inflation decelerating, so I've got a big eye on 40 00:02:09,630 --> 00:02:12,930 Stephen Koukoulas: the inflation numbers, but also the economy's weak. We know 41 00:02:12,930 --> 00:02:16,650 Stephen Koukoulas: that business confidence is down, retail spending is down. We've 42 00:02:16,650 --> 00:02:20,579 Stephen Koukoulas: got a scenario where the lagging indicators, and don't want 43 00:02:20,579 --> 00:02:24,180 Stephen Koukoulas: to be talking too much like an economist, but the things that always turn last in the 44 00:02:24,180 --> 00:02:27,480 Stephen Koukoulas: business cycle are unemployment and inflation. They're the things that 45 00:02:27,480 --> 00:02:30,419 Stephen Koukoulas: are still sticky, stubborn, whatever you want to call it. 46 00:02:30,419 --> 00:02:35,760 Stephen Koukoulas: Whereas the leading indicators... building approvals, retail spending, consumer confidence... 47 00:02:35,969 --> 00:02:38,429 Stephen Koukoulas: other ones that are really under downward pressure. 48 00:02:39,419 --> 00:02:42,360 Sean Aylmer: We'll get retail sales this week as well for May. There's 49 00:02:42,360 --> 00:02:46,260 Sean Aylmer: a lot of pressure on the Reserve Bank though to 50 00:02:46,380 --> 00:02:48,630 Sean Aylmer: not go too hard on all this. 51 00:02:49,020 --> 00:02:52,770 Stephen Koukoulas: Yes, and I guess that's a delicate balancing act that 52 00:02:52,770 --> 00:02:56,369 Stephen Koukoulas: it's trying to grapple with at the moment. But clearly, 53 00:02:56,370 --> 00:02:59,279 Stephen Koukoulas: we've had 400 points of rate hikes. Wow. That's been 54 00:02:59,279 --> 00:03:03,180 Stephen Koukoulas: a pretty chunky tightening cycle from May last year. So in 55 00:03:03,180 --> 00:03:05,610 Stephen Koukoulas: the space of about 14 months or so, we've had 56 00:03:05,610 --> 00:03:09,268 Stephen Koukoulas: a really big lift in official interest rates. The risk 57 00:03:09,270 --> 00:03:10,950 Stephen Koukoulas: is that you do too much too late in the 58 00:03:10,950 --> 00:03:13,679 Stephen Koukoulas: cycle, but it takes a while for the data to 59 00:03:13,679 --> 00:03:17,549 Stephen Koukoulas: catch up with the interest rate action. In a sense, 60 00:03:17,549 --> 00:03:20,520 Stephen Koukoulas: we're looking at the inflation numbers, the retail numbers, the 61 00:03:21,210 --> 00:03:24,960 Stephen Koukoulas: unemployment numbers, and they're really reflecting where policy was, I don't 62 00:03:24,960 --> 00:03:29,070 Stephen Koukoulas: know, six or eight or nine months ago, so that's the risk that the RBA 63 00:03:29,070 --> 00:03:30,929 Stephen Koukoulas: is trying to grapple with. That's why, earlier in the 64 00:03:30,929 --> 00:03:33,030 Stephen Koukoulas: year, they were being a little bit more cautious. But 65 00:03:33,030 --> 00:03:35,339 Stephen Koukoulas: of course, in the last couple of months, they've found 66 00:03:35,340 --> 00:03:39,089 Stephen Koukoulas: a problem with inflation and they've kept on hiking. 67 00:03:39,780 --> 00:03:41,970 Sean Aylmer: Now what I thought was interesting last week: Michele Bullock, 68 00:03:41,970 --> 00:03:44,580 Sean Aylmer: the Deputy Governor of the Reserve Bank, and a candidate 69 00:03:44,639 --> 00:03:46,799 Sean Aylmer: to take over from Phil Lowe if he doesn't get 70 00:03:46,800 --> 00:03:50,429 Sean Aylmer: reappointed in September, she basically said we need to lose 71 00:03:50,429 --> 00:03:53,100 Sean Aylmer: a bunch of jobs, about 140,000 jobs, to get the 72 00:03:53,100 --> 00:03:56,340 Sean Aylmer: unemployment rate back up to about 4. 5%, which will 73 00:03:56,340 --> 00:04:00,390 Sean Aylmer: take pressure off wages, which will take pressure off inflation. 74 00:04:01,110 --> 00:04:03,360 Sean Aylmer: Tying that into job vacancy figures which are out this 75 00:04:03,360 --> 00:04:06,179 Sean Aylmer: week, firstly, do you think it makes sense what she's 76 00:04:06,179 --> 00:04:08,070 Sean Aylmer: talking about? Secondly, do you think we're going to get 77 00:04:08,070 --> 00:04:09,539 Sean Aylmer: there based on the vacancy rate? 78 00:04:09,749 --> 00:04:11,609 Stephen Koukoulas: Look, I think what she said, and she copped a 79 00:04:11,609 --> 00:04:14,640 Stephen Koukoulas: lot of flack for that comment, but it's largely true. 80 00:04:15,300 --> 00:04:20,190 Stephen Koukoulas: Interest rates do not have a material long- run impact 81 00:04:20,250 --> 00:04:23,880 Stephen Koukoulas: on the unemployment rate. I posed the question on Twitter, 82 00:04:24,990 --> 00:04:27,150 Stephen Koukoulas: for those who are criticizing her, " Why don't we have 83 00:04:27,150 --> 00:04:30,030 Stephen Koukoulas: interest rate and monetary policy settings to have, I don't know, 84 00:04:30,120 --> 00:04:34,980 Stephen Koukoulas: unemployment at 1%, 0%?" Because that's not what the interest 85 00:04:34,980 --> 00:04:37,830 Stephen Koukoulas: rate settings are designed to achieve. We've got the labor 86 00:04:37,830 --> 00:04:40,950 Stephen Koukoulas: market in the early stages of softening. We do know 87 00:04:40,950 --> 00:04:44,250 Stephen Koukoulas: that the job vacancies numbers are trending down, so this 88 00:04:44,250 --> 00:04:47,549 Stephen Koukoulas: week's number would be very important. Another, even a moderate 89 00:04:47,549 --> 00:04:50,219 Stephen Koukoulas: fall, in the job vacancy series would suggest that the 90 00:04:50,220 --> 00:04:53,430 Stephen Koukoulas: labor market is coming off the boil, the unemployment rates 91 00:04:53,670 --> 00:04:55,680 Stephen Koukoulas: are going to be trending up over the second half 92 00:04:55,680 --> 00:05:00,058 Stephen Koukoulas: of 2023, so that will feed into this assessment that 93 00:05:00,270 --> 00:05:03,269 Stephen Koukoulas: Ms. Bullock made about the state of the labor market 94 00:05:03,270 --> 00:05:05,039 Stephen Koukoulas: and economy; and whether we're going to get unemployment at 95 00:05:05,039 --> 00:05:07,920 Stephen Koukoulas: 4.5%, I don't know, in six months, or we've got 96 00:05:07,920 --> 00:05:09,480 Stephen Koukoulas: to wait 18 months before we get there. 97 00:05:10,740 --> 00:05:13,290 Sean Aylmer: What's going to happen on interest rates next week? I know we're a week early, 98 00:05:13,290 --> 00:05:14,130 Sean Aylmer: but I have to ask you. 99 00:05:15,330 --> 00:05:17,040 Stephen Koukoulas: It's all going to be predicated on the data this 100 00:05:17,040 --> 00:05:17,999 Stephen Koukoulas: week, I hate to say, Sean. 101 00:05:18,599 --> 00:05:19,770 Sean Aylmer: Fair enough. Good answer. 102 00:05:20,040 --> 00:05:22,349 Stephen Koukoulas: I wouldn't do it. I wouldn't hike, from what I 103 00:05:22,529 --> 00:05:25,409 Stephen Koukoulas: know now. As I said, the leading indicators on growth, 104 00:05:26,010 --> 00:05:29,580 Stephen Koukoulas: global pressures on inflation, are all pointing to lower inflation, 105 00:05:29,580 --> 00:05:33,150 Stephen Koukoulas: weaker growth, and higher unemployment, as we're just touching, so 106 00:05:33,150 --> 00:05:36,180 Stephen Koukoulas: I'd do nothing. I guess if we saw a shock 107 00:05:36,779 --> 00:05:40,169 Stephen Koukoulas: assistance in inflation in the numbers... if we saw, for 108 00:05:40,170 --> 00:05:44,909 Stephen Koukoulas: example, retail- spending numbers being resilient, and even global events 109 00:05:45,240 --> 00:05:49,380 Stephen Koukoulas: being resilient... then of course that feeds into a possibility, 110 00:05:49,500 --> 00:05:51,839 Stephen Koukoulas: a probability, of an interest rate hike. I would just 111 00:05:51,839 --> 00:05:55,649 Stephen Koukoulas: note in passing, when we're focusing on the Bank of 112 00:05:55,650 --> 00:05:59,249 Stephen Koukoulas: England rate hikes, the fed being hawkish again last week, 113 00:05:59,699 --> 00:06:04,349 Stephen Koukoulas: these sorts of indicators: China, certainly our largest export market, 114 00:06:04,350 --> 00:06:07,860 Stephen Koukoulas: actually eased the interest rates last week because its economy 115 00:06:08,160 --> 00:06:11,999 Stephen Koukoulas: is a bit soggy, and its annual inflation rate is 0%. 116 00:06:12,690 --> 00:06:17,039 Stephen Koukoulas: So it's not all inflation booming and rising for Australia. 117 00:06:17,459 --> 00:06:19,440 Stephen Koukoulas: I pay a lot of attention to what's happening in China. 118 00:06:20,070 --> 00:06:21,480 Sean Aylmer: Yeah. Stephen, have a great week. 119 00:06:21,839 --> 00:06:22,320 Stephen Koukoulas: Thank you, Sean. 120 00:06:22,980 --> 00:06:25,560 Sean Aylmer: That was economist, Stephen Koukoulas, better known as The Kouk. 121 00:06:25,800 --> 00:06:27,900 Sean Aylmer: You can find him at TheKouk. com and follow him 122 00:06:27,900 --> 00:06:30,750 Sean Aylmer: on Twitter using the handle TheKouk. I'm Sean Aylmer, and 123 00:06:30,750 --> 00:06:32,580 Sean Aylmer: this is Fear and Greed, The Week Ahead.