1 00:00:08,010 --> 00:00:10,019 Sean Aylmer: Welcome to Fear and Greed- The Week Ahead. I'm Sean 2 00:00:10,020 --> 00:00:12,959 Sean Aylmer: Aylmer, and for the second time this year I'm joined 3 00:00:12,960 --> 00:00:16,829 Sean Aylmer: by Economist Stephen Koukoulas. You'll find him at thekouk. com 4 00:00:16,829 --> 00:00:19,410 Sean Aylmer: and on X using the handle "TheKouk", and of course, at 5 00:00:19,410 --> 00:00:22,140 Sean Aylmer: Fear and Greed every Monday Morning. Stephen, good morning. 6 00:00:22,650 --> 00:00:23,670 Stephen Koukoulas: Good morning to you, Sean. 7 00:00:24,329 --> 00:00:26,610 Sean Aylmer: Very big week coming up. Can't wait to get into 8 00:00:26,610 --> 00:00:30,960 Sean Aylmer: it, but just quickly, last week, locally, we had the 9 00:00:30,960 --> 00:00:33,809 Sean Aylmer: NAB Business Survey, but international, globally, we had a bunch 10 00:00:33,809 --> 00:00:36,270 Sean Aylmer: of central banks not doing much. So let's start with 11 00:00:36,450 --> 00:00:39,720 Sean Aylmer: National Australia Bank, then on to the global central banks, 12 00:00:39,720 --> 00:00:41,100 Sean Aylmer: but really it's all about this week. 13 00:00:41,519 --> 00:00:43,740 Stephen Koukoulas: Yeah, it's a big week this week, but last week 14 00:00:43,740 --> 00:00:46,050 Stephen Koukoulas: we had the NAB Survey, which we alluded to in 15 00:00:46,050 --> 00:00:48,870 Stephen Koukoulas: The Week Ahead, this time a week ago, and it 16 00:00:48,870 --> 00:00:52,739 Stephen Koukoulas: showed that the slowdown in the economy is well entrenched. It 17 00:00:52,739 --> 00:00:56,430 Stephen Koukoulas: had, as we again alluded to, the price indicators. So, 18 00:00:56,640 --> 00:00:59,070 Stephen Koukoulas: the NAB Survey, they ask businesses, " What's going to happen 19 00:00:59,070 --> 00:01:02,700 Stephen Koukoulas: to your selling prices? Your labor costs? Your input prices?" 20 00:01:02,760 --> 00:01:04,950 Stephen Koukoulas: All these sorts of things which are leading indicators of 21 00:01:04,950 --> 00:01:08,550 Stephen Koukoulas: inflation. They're all tilting down again. So the market interpreted 22 00:01:08,610 --> 00:01:11,850 Stephen Koukoulas: that to say that that inflation momentum, which has been 23 00:01:11,850 --> 00:01:15,870 Stephen Koukoulas: down since the end of 2022, is continuing into the 24 00:01:15,900 --> 00:01:20,160 Stephen Koukoulas: early part of 2024, and that's a good news sign. 25 00:01:20,370 --> 00:01:24,360 Stephen Koukoulas: Business conditions were still okay. They're not strong, but they're 26 00:01:24,360 --> 00:01:27,089 Stephen Koukoulas: not near that recessionary level either. So, in terms of 27 00:01:27,089 --> 00:01:32,250 Stephen Koukoulas: activity, the business sectors muddling along, but the price pressures 28 00:01:32,250 --> 00:01:34,410 Stephen Koukoulas: are coming off. And in terms of the four central bank 29 00:01:34,410 --> 00:01:37,709 Stephen Koukoulas: meetings, wow. Well, there's a lot of noise and not 30 00:01:37,709 --> 00:01:42,510 Stephen Koukoulas: much action, but again, that was not unexpected. Inflation, gosh, 31 00:01:42,539 --> 00:01:46,379 Stephen Koukoulas: in the ECB, in the Bank of Canada, it's still 32 00:01:46,379 --> 00:01:49,169 Stephen Koukoulas: a little elevated. It's all coming down, and they were 33 00:01:49,740 --> 00:01:53,610 Stephen Koukoulas: dovish on hold decisions, if you like, and that was 34 00:01:53,610 --> 00:01:55,890 Stephen Koukoulas: part of the reason why the market's still waiting to see 35 00:01:56,130 --> 00:01:59,849 Stephen Koukoulas: that next bout of inflation coming down. The one thing 36 00:01:59,849 --> 00:02:03,630 Stephen Koukoulas: that is dominating markets too is the, what do we 37 00:02:03,630 --> 00:02:06,929 Stephen Koukoulas: call it, the inflationary effects of the blockages in the 38 00:02:06,930 --> 00:02:10,980 Stephen Koukoulas: Red Sea and the trade flows and the shipping container rate 39 00:02:10,980 --> 00:02:13,950 Stephen Koukoulas: problem, which will put a bit of a floor under 40 00:02:13,950 --> 00:02:16,769 Stephen Koukoulas: prices coming down in the next few months. But whether 41 00:02:16,770 --> 00:02:19,110 Stephen Koukoulas: that's enough to derail central banks, we'll wait and see. 42 00:02:19,530 --> 00:02:22,828 Sean Aylmer: Okay, that's the week that was. But in the Australian 43 00:02:22,829 --> 00:02:26,010 Sean Aylmer: economy, this is the big one. We have the December 44 00:02:26,010 --> 00:02:29,250 Sean Aylmer: quarter Consumer Price Index data out, which of course is 45 00:02:29,250 --> 00:02:32,399 Sean Aylmer: all important for the Reserve Bank's decision on interest rates, Stephen. 46 00:02:32,610 --> 00:02:35,639 Stephen Koukoulas: All important, that's the understatement of the year so far, 47 00:02:35,639 --> 00:02:37,919 Stephen Koukoulas: and I know we're only 20 something days into the 48 00:02:37,919 --> 00:02:41,699 Stephen Koukoulas: year, but it is more than all important. That inflation 49 00:02:41,699 --> 00:02:46,770 Stephen Koukoulas: stuff is the important issue for central bank interest rates 50 00:02:47,130 --> 00:02:50,700 Stephen Koukoulas: settings, including from our friends at the RBA. The market's looking for 51 00:02:50,700 --> 00:02:54,419 Stephen Koukoulas: a further step down in the inflation rate. In the 52 00:02:54,419 --> 00:02:57,299 Stephen Koukoulas: quarterly numbers, it'll be in the low fours, and that 53 00:02:57,299 --> 00:03:01,200 Stephen Koukoulas: means 4.2, 4. 3% in annual terms, quarterly, probably a 54 00:03:01,200 --> 00:03:04,230 Stephen Koukoulas: touch below 1%, which is good news again, that that 55 00:03:04,230 --> 00:03:07,859 Stephen Koukoulas: disinflation is coming through. The trimmed means, all these underlying 56 00:03:07,860 --> 00:03:11,070 Stephen Koukoulas: measures of inflation, are also probably just ticking down to 57 00:03:11,070 --> 00:03:15,599 Stephen Koukoulas: that 4. 25% in annual terms. The other interesting part 58 00:03:15,599 --> 00:03:17,669 Stephen Koukoulas: of that, and I don't want to be cherry- picking 59 00:03:17,669 --> 00:03:21,899 Stephen Koukoulas: data to suit a particular argument, but the monthly reading 60 00:03:21,900 --> 00:03:25,320 Stephen Koukoulas: on inflation will also be pretty important, and there's a 61 00:03:25,320 --> 00:03:29,910 Stephen Koukoulas: strong probability, I know my friends at CBA are saying 62 00:03:29,910 --> 00:03:32,610 Stephen Koukoulas: this, they're thinking that the annual inflation rate will be in the 63 00:03:32,610 --> 00:03:35,969 Stephen Koukoulas: low threes when we get the monthly number, because they 64 00:03:35,969 --> 00:03:38,760 Stephen Koukoulas: are picking the trajectory of lower inflation through the quarter. 65 00:03:38,760 --> 00:03:43,110 Stephen Koukoulas: So, it's always on this inflation read and just how 66 00:03:43,110 --> 00:03:46,410 Stephen Koukoulas: low it goes, and that'll obviously feed into the RBA 67 00:03:46,500 --> 00:03:47,040 Stephen Koukoulas: next week. 68 00:03:47,430 --> 00:03:51,929 Sean Aylmer: So, this is the $ 64 question, I suppose. How low does it 69 00:03:51,929 --> 00:03:55,440 Sean Aylmer: need to be for the Reserve Bank to think, " Ah, 70 00:03:55,500 --> 00:03:56,850 Sean Aylmer: maybe we need to cut rates"? 71 00:03:58,710 --> 00:04:01,440 Stephen Koukoulas: A little bit lower. I think that's the short answer. 72 00:04:01,950 --> 00:04:05,790 Stephen Koukoulas: It's the trajectory in the forecast for inflation that matters. 73 00:04:06,389 --> 00:04:09,690 Stephen Koukoulas: In a funny sense, that annual figure does capture inflation 74 00:04:10,350 --> 00:04:13,530 Stephen Koukoulas: three and four quarters ago. If we're getting quarterly readings 75 00:04:13,530 --> 00:04:17,370 Stephen Koukoulas: of arguably 0. 6s and 0.7s, now, I'm not saying we're getting that 76 00:04:17,370 --> 00:04:20,010 Stephen Koukoulas: for the December quarter, but if the March quarter data is a 0. 77 00:04:20,010 --> 00:04:25,050 Stephen Koukoulas: 6 and the unemployment rates heading up still to 4. 78 00:04:25,740 --> 00:04:28,770 Stephen Koukoulas: 25% from the 3. 9 that we're currently seeing in 79 00:04:28,770 --> 00:04:32,909 Stephen Koukoulas: the economy, and the world economy is still fragile, that 80 00:04:32,910 --> 00:04:35,370 Stephen Koukoulas: there's concerns in the US and Europe and the like, 81 00:04:36,420 --> 00:04:40,919 Stephen Koukoulas: the RBA will have an easing bias, but to pull 82 00:04:40,920 --> 00:04:44,460 Stephen Koukoulas: the trigger, they probably want to see that momentum really coming 83 00:04:44,460 --> 00:04:46,888 Stephen Koukoulas: off on inflation. And not that they want to see 84 00:04:46,889 --> 00:04:49,560 Stephen Koukoulas: the unemployment rate going up, but if it does, that'll 85 00:04:49,560 --> 00:04:52,318 Stephen Koukoulas: be the catalyst for that rate cut, which is starting 86 00:04:52,319 --> 00:04:54,480 Stephen Koukoulas: to get a little bit more, well, a little bit more 87 00:04:54,480 --> 00:04:57,209 Stephen Koukoulas: coverage, a little bit more speculation in financial markets. 88 00:04:57,660 --> 00:05:01,499 Sean Aylmer: So, your take on it at the moment then is that we'll get 89 00:05:01,500 --> 00:05:05,698 Sean Aylmer: reasonably okay inflation numbers in terms of they won't be 90 00:05:05,699 --> 00:05:08,279 Sean Aylmer: too high, and then the Reserve Bank the following week 91 00:05:08,670 --> 00:05:11,339 Sean Aylmer: will be on hold. Is that what your view is? 92 00:05:11,460 --> 00:05:15,029 Stephen Koukoulas: Yeah. February, I think that's the easiest forecast I've ever 93 00:05:15,029 --> 00:05:19,770 Stephen Koukoulas: made. Oh, maybe not. They can't do anything. They're not 94 00:05:19,770 --> 00:05:23,339 Stephen Koukoulas: going to hike. There's enough information to say no hike, but to cut, no, there's not enough 95 00:05:23,339 --> 00:05:25,140 Stephen Koukoulas: information either. So it's one of those ones where I 96 00:05:25,140 --> 00:05:28,589 Stephen Koukoulas: dare say if I was hosting that board meeting or 97 00:05:28,589 --> 00:05:32,400 Stephen Koukoulas: participating, I'd want to see some scenario planning, some war 98 00:05:32,400 --> 00:05:34,229 Stephen Koukoulas: gaming if you like. " What do we need to see?" 99 00:05:34,229 --> 00:05:37,650 Stephen Koukoulas: So just like we've had our two- minute question here, what's the 100 00:05:38,190 --> 00:05:41,609 Stephen Koukoulas: RBA staff thinking about that inflation risk? " What do we 101 00:05:41,609 --> 00:05:44,339 Stephen Koukoulas: need to see?" Will inflation fall to 2%, or will it be 102 00:05:44,339 --> 00:05:48,450 Stephen Koukoulas: sticky at 4%?" What are these scenarios and war game 103 00:05:48,450 --> 00:05:50,849 Stephen Koukoulas: them, and then with their next meeting, see whether any 104 00:05:50,849 --> 00:05:53,520 Stephen Koukoulas: of those war games have come to a reality. 105 00:05:54,000 --> 00:05:57,990 Sean Aylmer: Okay. So, everything I suppose diminishes somewhat compared to the 106 00:05:57,990 --> 00:06:00,209 Sean Aylmer: CPI figures, but there is a bit of stuff around. 107 00:06:00,209 --> 00:06:02,820 Sean Aylmer: We've got retail figures, we've got credit, and we're going 108 00:06:02,820 --> 00:06:05,789 Sean Aylmer: to find out how the January house price growth went. 109 00:06:06,300 --> 00:06:09,630 Stephen Koukoulas: Yeah, all important too. Not as high profile as the CPI, but 110 00:06:10,020 --> 00:06:13,529 Stephen Koukoulas: they feed into this activity indicator or mindset of the 111 00:06:13,529 --> 00:06:17,039 Stephen Koukoulas: economy as well. Retail sales, they're really important, because these are 112 00:06:17,039 --> 00:06:21,210 Stephen Koukoulas: the December numbers. Normally a strong month for Christmas reasons, 113 00:06:21,210 --> 00:06:24,060 Stephen Koukoulas: obviously, even though the ABS seasonally adjusts them, but with 114 00:06:24,060 --> 00:06:27,959 Stephen Koukoulas: the Black Friday fashion, if you like, people's spending up 115 00:06:27,960 --> 00:06:30,839 Stephen Koukoulas: and a lot of businesses offering specials and discounts and 116 00:06:30,839 --> 00:06:34,350 Stephen Koukoulas: the like, we know that in November, retail sales jumped 117 00:06:34,350 --> 00:06:37,589 Stephen Koukoulas: 2%, which was nice and strong. The market's got a 118 00:06:37,589 --> 00:06:40,169 Stephen Koukoulas: really big range about what might happen to retail sales 119 00:06:40,170 --> 00:06:42,960 Stephen Koukoulas: in December. I think the consensus is about minus two, 120 00:06:42,960 --> 00:06:45,210 Stephen Koukoulas: so we have it up to minus two, so we're 121 00:06:45,210 --> 00:06:48,870 Stephen Koukoulas: dead flat. So again, that'll be interesting to see whether we, consumers, are still 122 00:06:48,870 --> 00:06:52,109 Stephen Koukoulas: under cost of living pressures, the rate hikes are impacting 123 00:06:52,109 --> 00:06:56,339 Stephen Koukoulas: our cashflow, so not an unimportant indicator of how we 124 00:06:56,339 --> 00:06:59,430 Stephen Koukoulas: consumers are going. Not unrelated to all of that, house 125 00:06:59,430 --> 00:07:02,520 Stephen Koukoulas: prices. We know from the CoreLogic numbers, they're slowing down, 126 00:07:02,730 --> 00:07:06,660 Stephen Koukoulas: probably a little bit negative in Melbourne, flat in Sydney 127 00:07:06,660 --> 00:07:09,029 Stephen Koukoulas: for the first time in over a year. They're still 128 00:07:09,029 --> 00:07:14,700 Stephen Koukoulas: going up a lot in Perth, Adelaide, Brisbane. But the 129 00:07:14,700 --> 00:07:18,060 Stephen Koukoulas: overall national picture is still of a slowing housing market. 130 00:07:18,060 --> 00:07:19,920 Stephen Koukoulas: I think that there's a few things happening in terms 131 00:07:19,920 --> 00:07:23,219 Stephen Koukoulas: of the labor market, as we mentioned, people becoming unemployed. 132 00:07:23,219 --> 00:07:25,530 Stephen Koukoulas: You don't buy as many houses when that happens, but 133 00:07:25,530 --> 00:07:28,170 Stephen Koukoulas: that'll be an interesting thing to look at just where this 134 00:07:28,170 --> 00:07:30,329 Stephen Koukoulas: housing cycle is going. 135 00:07:31,260 --> 00:07:33,990 Sean Aylmer: Stephen, plenty to chew on, and we'll be back the 136 00:07:33,990 --> 00:07:36,000 Sean Aylmer: next week, well, in a week's time, we'll be back 137 00:07:36,510 --> 00:07:38,490 Sean Aylmer: to talk about interest rates, because that's when the Reserve 138 00:07:38,490 --> 00:07:42,209 Sean Aylmer: Bank will be meeting. Enjoy the week, especially the CPI figures. 139 00:07:42,599 --> 00:07:44,520 Stephen Koukoulas: Oh, look, they're going to be so much fun and 140 00:07:44,520 --> 00:07:47,369 Stephen Koukoulas: there's so much information to dig into; what happened to 141 00:07:47,369 --> 00:07:50,820 Stephen Koukoulas: petrol prices, the price of meat, and with this, oh, 142 00:07:51,090 --> 00:07:54,120 Stephen Koukoulas: the government's attempt to jawbone or to force the supermarkets 143 00:07:54,120 --> 00:07:57,750 Stephen Koukoulas: into cutting prices. Maybe a low CPI will dissipate some 144 00:07:57,750 --> 00:08:01,200 Stephen Koukoulas: of that concern that the supermarkets are price gouging. I 145 00:08:01,200 --> 00:08:03,419 Stephen Koukoulas: don't think they are, but let's see these inflation numbers. 146 00:08:03,480 --> 00:08:03,840 Stephen Koukoulas: I love them. 147 00:08:04,080 --> 00:08:08,790 Sean Aylmer: Yeah. We'll see how that goes. Thank you very much. That was economist Stephen Koukoulas, 148 00:08:08,790 --> 00:08:11,250 Sean Aylmer: better known as The Kouk. You can find him at thekouk. 149 00:08:11,700 --> 00:08:14,220 Sean Aylmer: com, T- H- E- K- O- U- K, thekouk. com, 150 00:08:14,220 --> 00:08:17,010 Sean Aylmer: and follow him on X using the handle " TheKouk". I'm 151 00:08:17,010 --> 00:08:19,470 Sean Aylmer: Sean Aylmer and this is Fear and Greed- The Week Ahead.