1 00:00:08,070 --> 00:00:11,280 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean Aylmer, and as 2 00:00:11,280 --> 00:00:14,190 Sean Aylmer: always I'm joined by economist Stephen Koukoulas. You'll find him 3 00:00:14,190 --> 00:00:16,799 Sean Aylmer: at thekouk. com, T- H- E K- O- U- K . 4 00:00:17,190 --> 00:00:21,000 Sean Aylmer: com, and on Twitter, X, I think it is, using 5 00:00:21,000 --> 00:00:22,860 Sean Aylmer: the handle TheKouk. Stephen, good morning. 6 00:00:23,190 --> 00:00:24,329 Stephen Koukoulas: And a very good morning, Sean. 7 00:00:24,630 --> 00:00:26,729 Sean Aylmer: Now, are you an X fan rather than Twitter? 8 00:00:27,090 --> 00:00:29,190 Stephen Koukoulas: An X fan? I don't like the name change. I've 9 00:00:29,190 --> 00:00:33,479 Stephen Koukoulas: got so used to the old blue bird and all the rest of it. Yeah. So I 10 00:00:33,479 --> 00:00:36,869 Stephen Koukoulas: hope Mr. Musk knows what he's doing there and that 11 00:00:36,869 --> 00:00:40,979 Stephen Koukoulas: it still becomes or remains a way to see different 12 00:00:40,979 --> 00:00:43,830 Stephen Koukoulas: things, exchange a few views and the like. It's a 13 00:00:43,830 --> 00:00:46,770 Stephen Koukoulas: useful, for me anyway, a data source and just to put a 14 00:00:47,250 --> 00:00:50,009 Stephen Koukoulas: few arguments out there. So anyway, we'll see what happens 15 00:00:50,009 --> 00:00:51,510 Stephen Koukoulas: with X. The X factor. 16 00:00:52,199 --> 00:00:55,530 Sean Aylmer: Now let's get into it. Massive week coming up, the 17 00:00:55,530 --> 00:00:58,050 Sean Aylmer: Reserve Bank meets tomorrow, the Reserve Bank Board meets tomorrow, 18 00:00:58,050 --> 00:01:00,210 Sean Aylmer: but we can't talk about that without mentioning what happened 19 00:01:00,210 --> 00:01:03,240 Sean Aylmer: last week, which was the inflation figures in Australia for 20 00:01:03,240 --> 00:01:06,809 Sean Aylmer: the June quarter, not quite as hot as we thought 21 00:01:06,809 --> 00:01:07,350 Sean Aylmer: they might be. 22 00:01:07,980 --> 00:01:11,578 Stephen Koukoulas: Yes. It was welcome news and not only from what 23 00:01:11,580 --> 00:01:14,610 Stephen Koukoulas: the market consensus was forecasting for the inflation rate but 24 00:01:14,610 --> 00:01:16,740 Stephen Koukoulas: also from what the Reserve Bank had been putting in 25 00:01:16,740 --> 00:01:20,099 Stephen Koukoulas: their recent statements on monetary policy where, of course, they 26 00:01:20,099 --> 00:01:23,699 Stephen Koukoulas: outlined a whole range of their forecast for GDP, wages, 27 00:01:23,759 --> 00:01:27,450 Stephen Koukoulas: unemployment, and, of course, inflation. So the fact that we 28 00:01:27,450 --> 00:01:30,000 Stephen Koukoulas: had the headline figure in angle terms coming in at 29 00:01:30,000 --> 00:01:34,319 Stephen Koukoulas: 6%, quarterly was 0. 8, the lowest in about three 30 00:01:34,319 --> 00:01:37,470 Stephen Koukoulas: years, so that was encouraging to see. But even the 31 00:01:37,470 --> 00:01:40,169 Stephen Koukoulas: trimmed mean, which is sort of the underlying measure which 32 00:01:40,380 --> 00:01:43,889 Stephen Koukoulas: excludes a range of volatile items, it came in at 0. 33 00:01:43,889 --> 00:01:47,009 Stephen Koukoulas: 9 for the quarter, 5. 9 for the year. So 34 00:01:47,250 --> 00:01:49,500 Stephen Koukoulas: look, inflation's still high, but we've got to be careful 35 00:01:49,500 --> 00:01:52,770 Stephen Koukoulas: not to double count the very high inflation numbers in 36 00:01:52,770 --> 00:01:56,010 Stephen Koukoulas: the second half of 2022, which are still in the year- on- 37 00:01:56,010 --> 00:01:58,559 Stephen Koukoulas: year run rate. Instead, focus on the more recent trends, 38 00:01:58,559 --> 00:02:01,169 Stephen Koukoulas: which are clearly down. I think that'll give the Reserve 39 00:02:01,170 --> 00:02:05,099 Stephen Koukoulas: Bank Board tomorrow a degree of pause for thought, remembering 40 00:02:05,100 --> 00:02:08,370 Stephen Koukoulas: that they've paused a few times so far this year. 41 00:02:08,370 --> 00:02:10,560 Stephen Koukoulas: I think the case for another pause is very strong 42 00:02:10,560 --> 00:02:13,830 Stephen Koukoulas: now, partly because that inflation number was just so much 43 00:02:13,830 --> 00:02:15,510 Stephen Koukoulas: lower than they were expecting, put it that way. 44 00:02:15,960 --> 00:02:17,999 Sean Aylmer: It's kind of hard for the Reserve Bank, given what 45 00:02:18,000 --> 00:02:21,929 Sean Aylmer: they said four weeks ago about wanting to see the 46 00:02:21,929 --> 00:02:25,410 Sean Aylmer: data before making any decision, to then see soft data. 47 00:02:25,410 --> 00:02:28,230 Sean Aylmer: I suppose you can argue that the labor market's still hot, to be 48 00:02:28,320 --> 00:02:30,870 Sean Aylmer: fair, but it kind of puts them in a bit 49 00:02:30,870 --> 00:02:33,030 Sean Aylmer: of a difficult position if they want to lift rates. 50 00:02:33,599 --> 00:02:35,790 Stephen Koukoulas: If they want to lift rates, yes. On the labor 51 00:02:35,790 --> 00:02:38,160 Stephen Koukoulas: force numbers, as you quite rightly pointed out, they came out a couple 52 00:02:38,160 --> 00:02:39,960 Stephen Koukoulas: of weeks ago and they were really strong, three and 53 00:02:39,960 --> 00:02:42,960 Stephen Koukoulas: a half unemployment rate still, despite the fact that the economy's 54 00:02:43,530 --> 00:02:46,080 Stephen Koukoulas: slowing down. But on the inflation front, if they were 55 00:02:46,080 --> 00:02:52,919 Stephen Koukoulas: to put them up now, the sort of sales pitch or the vocalizing of 56 00:02:52,919 --> 00:02:54,960 Stephen Koukoulas: what they're doing would be very difficult, I think, for 57 00:02:54,960 --> 00:02:56,880 Stephen Koukoulas: Dr. Lowe. And remembering that he's only got a couple 58 00:02:56,880 --> 00:02:58,859 Stephen Koukoulas: of board meetings to go until he hands over to 59 00:02:58,859 --> 00:03:03,300 Stephen Koukoulas: Michele Bullock. I know the Fed hiked last week, too, 60 00:03:03,300 --> 00:03:07,050 Stephen Koukoulas: to towards 5.5% for the Fed funds rate and the 61 00:03:07,050 --> 00:03:11,219 Stephen Koukoulas: like. But we've had pauses from other central banks coming 62 00:03:11,219 --> 00:03:15,269 Stephen Koukoulas: through loud and clear as inflation's fallen. And given that 63 00:03:15,270 --> 00:03:18,179 Stephen Koukoulas: the Reserve Bank has really got an eye on inflation 64 00:03:18,209 --> 00:03:20,700 Stephen Koukoulas: and they've said, both Michele Bullock and Philip Lowe have 65 00:03:20,700 --> 00:03:23,760 Stephen Koukoulas: said, they do have more than just a casting eye 66 00:03:23,760 --> 00:03:27,330 Stephen Koukoulas: on the unemployment rate, and that " narrow path," to use 67 00:03:27,330 --> 00:03:29,550 Stephen Koukoulas: that quote, that they want to get the economy going 68 00:03:29,550 --> 00:03:31,620 Stephen Koukoulas: through, they don't want to cause recession and unemployment to 69 00:03:31,620 --> 00:03:36,450 Stephen Koukoulas: spike prohibitively. They want to get the economy slowing, inflation down. 70 00:03:36,510 --> 00:03:40,290 Stephen Koukoulas: And maybe, just maybe they'll tolerate inflation being a few 71 00:03:40,290 --> 00:03:43,620 Stephen Koukoulas: ticks higher for a few quarters longer if that means 72 00:03:43,620 --> 00:03:45,870 Stephen Koukoulas: that the unemployment rate can stay a little bit lower 73 00:03:45,870 --> 00:03:46,950 Stephen Koukoulas: than it might otherwise be. 74 00:03:47,700 --> 00:03:49,769 Sean Aylmer: We'll find out more about what the Reserve Bank's thinking 75 00:03:49,770 --> 00:03:51,750 Sean Aylmer: late in the week, too, because it puts out its 76 00:03:51,750 --> 00:03:53,009 Sean Aylmer: Statement on Monetary Policy. 77 00:03:53,699 --> 00:03:57,630 Stephen Koukoulas: Indeed, and that quarterly statement is something that all economists 78 00:03:57,630 --> 00:03:59,550 Stephen Koukoulas: and a whole bunch of other people look at, too. 79 00:03:59,970 --> 00:04:04,469 Stephen Koukoulas: It's usually 60, 70 odd pages of really detailed analysis. They 80 00:04:04,469 --> 00:04:07,440 Stephen Koukoulas: usually pluck out a couple of really hot topics to 81 00:04:07,440 --> 00:04:10,980 Stephen Koukoulas: put in what they call their boxes, in between the 82 00:04:11,160 --> 00:04:14,040 Stephen Koukoulas: regular commentary on the economy. So what's in there? I'm 83 00:04:14,040 --> 00:04:16,110 Stephen Koukoulas: not sure. We don't know yet, but I would hazard 84 00:04:16,110 --> 00:04:20,159 Stephen Koukoulas: a guess it'll be focused very much on the inflation 85 00:04:20,160 --> 00:04:23,159 Stephen Koukoulas: side. But also, as I mentioned earlier, they put in 86 00:04:23,160 --> 00:04:27,000 Stephen Koukoulas: the comprehensive forecast for the economy, and what they say 87 00:04:27,000 --> 00:04:31,020 Stephen Koukoulas: about GDP, the unemployment rate and then wages and inflation 88 00:04:31,020 --> 00:04:33,180 Stephen Koukoulas: will be the benchmark for the next three months for 89 00:04:33,180 --> 00:04:37,200 Stephen Koukoulas: financial markets. So I dare say they'll probably be revising 90 00:04:37,200 --> 00:04:40,500 Stephen Koukoulas: GDP down just a smidge. Not much. The growth performance 91 00:04:40,830 --> 00:04:45,210 Stephen Koukoulas: is slowing, as they thought. The unemployment rate's probably on the trajectory 92 00:04:45,210 --> 00:04:47,519 Stephen Koukoulas: they thought. But as we mentioned before, that inflation number 93 00:04:47,520 --> 00:04:51,180 Stephen Koukoulas: last week was a good quarter to half a percentage 94 00:04:51,180 --> 00:04:55,080 Stephen Koukoulas: point below what they were assuming in February. So they'll 95 00:04:55,080 --> 00:04:58,560 Stephen Koukoulas: probably have to tweak down the inflation forecast. And phew, 96 00:04:58,920 --> 00:05:00,719 Stephen Koukoulas: that's a good thing. It'll be nice to see some 97 00:05:01,170 --> 00:05:02,580 Stephen Koukoulas: good news on the inflation front. 98 00:05:03,000 --> 00:05:05,010 Sean Aylmer: And I mean in terms of how the economy's going 99 00:05:05,010 --> 00:05:08,430 Sean Aylmer: in their forecasts, we have both retail trade and building 100 00:05:08,430 --> 00:05:09,840 Sean Aylmer: approval data out, too. 101 00:05:10,320 --> 00:05:14,070 Stephen Koukoulas: Two key indicators on GDP growth and spending and investment 102 00:05:14,070 --> 00:05:16,889 Stephen Koukoulas: and activity in the economy. We know retail sales have 103 00:05:16,889 --> 00:05:19,678 Stephen Koukoulas: been pretty weak, so we get both the monthly and the 104 00:05:19,678 --> 00:05:22,649 Stephen Koukoulas: quarterly number, which feeds into the GDP result for the 105 00:05:22,650 --> 00:05:25,890 Stephen Koukoulas: June quarter. A soft result, inevitably. We know that consumers 106 00:05:25,890 --> 00:05:29,070 Stephen Koukoulas: are hunkering down. Building approvals, gosh, they're all over the 107 00:05:29,070 --> 00:05:32,580 Stephen Koukoulas: place. We had a plus 20% last month after many 108 00:05:32,580 --> 00:05:34,950 Stephen Koukoulas: months of decline, and that was because I think there 109 00:05:34,950 --> 00:05:38,791 Stephen Koukoulas: were two high- rise approval buildings in New South Wales or something. 110 00:05:38,791 --> 00:05:38,791 Sean Aylmer: That's right. Yeah, yeah. 111 00:05:38,791 --> 00:05:42,058 Stephen Koukoulas: So they're very, very choppy. So they're probably going to be edging 112 00:05:42,059 --> 00:05:44,460 Stephen Koukoulas: down month on month. But, really, the trend for new 113 00:05:44,460 --> 00:05:47,339 Stephen Koukoulas: construction's still pretty weak. We've got building companies going belly- 114 00:05:47,339 --> 00:05:50,070 Stephen Koukoulas: up, unfortunately, which is putting a bit more of a 115 00:05:50,070 --> 00:05:52,260 Stephen Koukoulas: constraint on the supply of new dwellings. 116 00:05:52,589 --> 00:05:53,999 Sean Aylmer: And it's the end of the month, so we'll get 117 00:05:54,000 --> 00:05:56,400 Sean Aylmer: CoreLogic Data's information on house prices. 118 00:05:56,670 --> 00:06:00,089 Stephen Koukoulas: Indeed, and we know from the more high frequency daily 119 00:06:00,089 --> 00:06:02,760 Stephen Koukoulas: data that they put out, we're going to see probably 120 00:06:02,760 --> 00:06:05,340 Stephen Koukoulas: a rise of around about 0. 8 or 0. 9% for 121 00:06:06,150 --> 00:06:09,089 Stephen Koukoulas: the month of July, which is another month, I think 122 00:06:09,089 --> 00:06:10,830 Stephen Koukoulas: we're now up to five months in a row, where 123 00:06:10,830 --> 00:06:14,130 Stephen Koukoulas: house prices have been increasing. They've probably got from the 124 00:06:14,130 --> 00:06:17,280 Stephen Koukoulas: low point, which was recorded in February, a rise of 125 00:06:17,459 --> 00:06:20,820 Stephen Koukoulas: around about 4. 5%, give or take a few decimal points. 126 00:06:20,820 --> 00:06:24,480 Stephen Koukoulas: But the housing market's doing reasonably well despite these high 127 00:06:24,480 --> 00:06:27,210 Stephen Koukoulas: interest rates. Good old supply and demand work. We've got 128 00:06:27,389 --> 00:06:30,779 Stephen Koukoulas: hot demand from a really strong level of immigration. Supply, 129 00:06:30,779 --> 00:06:33,270 Stephen Koukoulas: as we just mentioned, on the building approvals side is 130 00:06:33,270 --> 00:06:36,089 Stephen Koukoulas: pretty weak. We're not building enough houses. And even with 131 00:06:36,089 --> 00:06:38,760 Stephen Koukoulas: interest rates where they are, the labor market's strong, which 132 00:06:38,760 --> 00:06:42,178 Stephen Koukoulas: is allowing people to still borrow money, I suppose, and 133 00:06:42,180 --> 00:06:45,209 Stephen Koukoulas: bid that extra few bucks on a house. So we've 134 00:06:45,210 --> 00:06:47,909 Stephen Koukoulas: got this whole sort of mishmash of things impacting housing, 135 00:06:47,910 --> 00:06:50,849 Stephen Koukoulas: but for the moment it's putting upward pressure on house prices. 136 00:06:51,210 --> 00:06:52,738 Sean Aylmer: Stephen, you're going to have a great week, aren't you, 137 00:06:52,740 --> 00:06:54,000 Sean Aylmer: with all this information coming out? 138 00:06:54,000 --> 00:06:56,940 Stephen Koukoulas: Oh, can't wait. RBA weeks, and particularly when we've got a Statement 139 00:06:56,940 --> 00:06:59,460 Stephen Koukoulas: on Monetary Policy coming through, is just like a win- win 140 00:06:59,460 --> 00:07:00,330 Stephen Koukoulas: situation for me. 141 00:07:00,930 --> 00:07:01,530 Sean Aylmer: Enjoy it. 142 00:07:01,830 --> 00:07:02,279 Stephen Koukoulas: Thank you. 143 00:07:02,970 --> 00:07:05,279 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 144 00:07:05,279 --> 00:07:07,950 Sean Aylmer: You can find him at thekouk. com and follow him 145 00:07:07,950 --> 00:07:11,489 Sean Aylmer: on Twitter using the handle TheKouk. I'm Sean Aylmer, and this is Fear 146 00:07:11,490 --> 00:07:12,420 Sean Aylmer: and Greed - The Week Ahead.