1 00:00:08,100 --> 00:00:10,350 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean Aylmer, 2 00:00:11,100 --> 00:00:14,940 Sean Aylmer: and I'd like to welcome back in 2023, our favorite 3 00:00:15,060 --> 00:00:18,870 Sean Aylmer: economist, our resident economist really, Stephen Koukoulas. Hello, Stephen. 4 00:00:19,079 --> 00:00:20,939 Stephen Koukoulas: Hello, Sean. And a big happy New Year. 5 00:00:21,120 --> 00:00:23,819 Sean Aylmer: Same to you. Of course, you'll always find Steven at thekouk. 6 00:00:24,120 --> 00:00:26,820 Sean Aylmer: com, T- H- E K- O- U- K. com, and 7 00:00:26,820 --> 00:00:30,510 Sean Aylmer: on Twitter using the handle The Kouk. Now, Stephen, before 8 00:00:30,510 --> 00:00:33,510 Sean Aylmer: the show this morning, you were just mentioning that things 9 00:00:33,510 --> 00:00:36,180 Sean Aylmer: are busy already. Normally, no one does anything much till 10 00:00:36,180 --> 00:00:39,659 Sean Aylmer: after Australia Day but, in fact, things have ramped up early, you reckon? 11 00:00:39,720 --> 00:00:43,860 Stephen Koukoulas: Look, I think so. It's just an observation from what's happening in my 12 00:00:43,860 --> 00:00:45,690 Stephen Koukoulas: neck of the woods and with people who I talk 13 00:00:45,690 --> 00:00:50,340 Stephen Koukoulas: to that there seems to be a shorter holiday period, 14 00:00:50,340 --> 00:00:54,180 Stephen Koukoulas: and people are certainly back in the swing of getting 15 00:00:54,330 --> 00:00:57,420 Stephen Koukoulas: ready for the year ahead, probably two or three weeks 16 00:00:57,420 --> 00:00:59,310 Stephen Koukoulas: before they used to. I don't know whether this is 17 00:01:00,060 --> 00:01:03,150 Stephen Koukoulas: a change in patterns after COVID or whether the- 18 00:01:03,150 --> 00:01:03,301 Sean Aylmer: Yeah, maybe. 19 00:01:03,301 --> 00:01:05,459 Stephen Koukoulas: ... it's just so strong, they have to be at 20 00:01:05,459 --> 00:01:09,030 Stephen Koukoulas: work, but there seems to be a fairly solid kickoff 21 00:01:09,030 --> 00:01:10,830 Stephen Koukoulas: to the New Year, and here we are only in 22 00:01:10,830 --> 00:01:13,410 Stephen Koukoulas: the third week of the New Year. 23 00:01:13,680 --> 00:01:17,940 Sean Aylmer: Maybe people like you and me spent our money on 24 00:01:17,940 --> 00:01:20,100 Sean Aylmer: overseas holidays late last year and have to come back 25 00:01:20,100 --> 00:01:22,590 Sean Aylmer: to work early because we don't have any holidays stored 26 00:01:22,590 --> 00:01:23,310 Sean Aylmer: up, perhaps. 27 00:01:24,240 --> 00:01:26,610 Stephen Koukoulas: Well, that is certainly one issue. I can only speak 28 00:01:26,610 --> 00:01:28,800 Stephen Koukoulas: for myself, and possibly you, on that one. But yeah, 29 00:01:28,800 --> 00:01:30,839 Stephen Koukoulas: look, I think that is the case too, that we... 30 00:01:30,840 --> 00:01:34,199 Stephen Koukoulas: Yeah, we might have spent a lot of money, done 31 00:01:34,200 --> 00:01:37,709 Stephen Koukoulas: a lot of traveling late last year. We know the 32 00:01:37,709 --> 00:01:40,470 Stephen Koukoulas: Black Friday sales were strong, all these other things. And 33 00:01:40,470 --> 00:01:42,120 Stephen Koukoulas: then, so when we kicked off the New Year, " Gee, 34 00:01:42,120 --> 00:01:44,000 Stephen Koukoulas: I better get back to work. Oh, I've already had 35 00:01:44,010 --> 00:01:46,620 Stephen Koukoulas: my (inaudible) . I'd better turn up." And I think 36 00:01:46,620 --> 00:01:51,240 Stephen Koukoulas: that's something. And the economy is moving along. It's slowing down 37 00:01:51,240 --> 00:01:53,580 Stephen Koukoulas: but it's moving along, and maybe we need to be busy. 38 00:01:53,730 --> 00:01:55,950 Sean Aylmer: Yes, and just take it a bit further. The past 39 00:01:55,950 --> 00:01:58,170 Sean Aylmer: four weeks or so, while most of us have been 40 00:01:58,170 --> 00:02:00,870 Sean Aylmer: on holidays for most of the time, yeah, quite a 41 00:02:00,870 --> 00:02:03,030 Sean Aylmer: bit's been going on, hasn't it? Both here and in 42 00:02:03,030 --> 00:02:03,960 Sean Aylmer: the US, particularly. 43 00:02:04,050 --> 00:02:06,900 Stephen Koukoulas: Very much so in the US. The themes that we 44 00:02:06,900 --> 00:02:09,900 Stephen Koukoulas: were chatting about in the latter part of 2022 have 45 00:02:09,900 --> 00:02:12,630 Stephen Koukoulas: come to play out in the early part of 2023, 46 00:02:13,080 --> 00:02:16,440 Stephen Koukoulas: and they are that... A couple of things. The economies, 47 00:02:16,500 --> 00:02:20,760 Stephen Koukoulas: US, Australia, and globally are slowing down. That's no surprise 48 00:02:21,120 --> 00:02:23,760 Stephen Koukoulas: that the rate hikes that were delivered through the course 49 00:02:23,760 --> 00:02:26,820 Stephen Koukoulas: of 2022 are starting to bite. So that's the important 50 00:02:26,820 --> 00:02:30,299 Stephen Koukoulas: thing. But I believe even more important, there is clear, 51 00:02:30,360 --> 00:02:33,600 Stephen Koukoulas: and I would say now unambiguous evidence that global inflation 52 00:02:33,600 --> 00:02:38,460 Stephen Koukoulas: is decelerating and decelerating quite quickly. The US CPIs sort of 53 00:02:38,460 --> 00:02:40,860 Stephen Koukoulas: come off from above 9% now to about 6 1/ 54 00:02:41,130 --> 00:02:43,889 Stephen Koukoulas: 2 percent and the month- on- month momentum, they're suggesting 55 00:02:43,889 --> 00:02:46,740 Stephen Koukoulas: that it could well be at 2% by the end of 56 00:02:46,740 --> 00:02:50,070 Stephen Koukoulas: this year, which would be an extraordinary deceleration. Eurozone's a 57 00:02:50,070 --> 00:02:53,609 Stephen Koukoulas: little bit different because of gas prices and global indicators 58 00:02:53,610 --> 00:02:56,639 Stephen Koukoulas: are a fraction different. But nonetheless, it's pretty clear that 59 00:02:56,639 --> 00:03:01,290 Stephen Koukoulas: we've seen that deceleration in inflation coming through. Bond markets 60 00:03:01,290 --> 00:03:05,100 Stephen Koukoulas: have rallied like crazy. Yields are significantly lower now than 61 00:03:05,100 --> 00:03:08,220 Stephen Koukoulas: they were a month ago. The rate hiking in pricing 62 00:03:08,220 --> 00:03:12,989 Stephen Koukoulas: for financial markets has been scaled back. Equity prices choppy, 63 00:03:12,990 --> 00:03:15,990 Stephen Koukoulas: of course, because fears of recession versus the good news 64 00:03:15,990 --> 00:03:18,780 Stephen Koukoulas: of not as many rate hikes. So we're just still 65 00:03:18,780 --> 00:03:22,440 Stephen Koukoulas: digesting these new dynamics, I suppose, that have evolved. 66 00:03:22,800 --> 00:03:26,520 Sean Aylmer: Okay, now we kick off the year's economic news. Well, 67 00:03:26,520 --> 00:03:29,160 Sean Aylmer: we had unemployment last week, actually. And I just want 68 00:03:29,160 --> 00:03:31,440 Sean Aylmer: to ask you... I mean something Michael brought up in 69 00:03:31,500 --> 00:03:35,610 Sean Aylmer: the show last week... Unemployment in December came in at 3. 70 00:03:35,880 --> 00:03:39,570 Sean Aylmer: 5%, which was the same as November. Now, where we 71 00:03:39,570 --> 00:03:43,020 Sean Aylmer: all got confused, the preliminary November figure said 3. 4%. 72 00:03:43,980 --> 00:03:46,200 Sean Aylmer: The final one, which we found out last week said 3. 73 00:03:46,440 --> 00:03:50,369 Sean Aylmer: 5%. Why is there a difference between preliminary and final 74 00:03:50,370 --> 00:03:51,990 Sean Aylmer: figures from the ABS? 75 00:03:52,050 --> 00:03:56,190 Stephen Koukoulas: Yes, with that, this happens with all economic data, labor 76 00:03:56,190 --> 00:03:59,520 Stephen Koukoulas: force, GDP in particular, but for the labor force numbers, 77 00:03:59,880 --> 00:04:02,100 Stephen Koukoulas: a couple of things happen. They do get a little 78 00:04:02,100 --> 00:04:07,020 Stephen Koukoulas: bit more of a compliance from people who they issue 79 00:04:07,020 --> 00:04:09,270 Stephen Koukoulas: the surveys to. And when those new numbers come in, 80 00:04:09,480 --> 00:04:11,760 Stephen Koukoulas: it's a little bit like postal boats come in, and they're 81 00:04:11,760 --> 00:04:15,300 Stephen Koukoulas: not many, but it can, at the margin, change things. 82 00:04:15,630 --> 00:04:19,950 Stephen Koukoulas: And also, they have an adjustment to the seasonal numbers 83 00:04:19,950 --> 00:04:24,240 Stephen Koukoulas: in the seasonal process, and they tweak them, and it's 84 00:04:24,240 --> 00:04:26,820 Stephen Koukoulas: rarely, if ever, more than 0. 1 of a percentage 85 00:04:26,820 --> 00:04:28,739 Stephen Koukoulas: point on the unemployment rate, which is what we saw 86 00:04:28,740 --> 00:04:32,640 Stephen Koukoulas: last month. So a combination of getting that final input 87 00:04:32,640 --> 00:04:35,790 Stephen Koukoulas: of the last little bit of data from the surveys 88 00:04:36,089 --> 00:04:40,170 Stephen Koukoulas: impacts their numbers, and that's what happened for the November 89 00:04:40,170 --> 00:04:42,779 Stephen Koukoulas: data. And the employment number was actually revised down from 90 00:04:43,260 --> 00:04:47,190 Stephen Koukoulas: a growth of 62,000 to 56, 000. So that's where the unemployment 91 00:04:47,190 --> 00:04:48,090 Stephen Koukoulas: rate picked up. 92 00:04:48,120 --> 00:04:50,130 Sean Aylmer: Yeah, right. Okay. That's a much better answer than I 93 00:04:50,130 --> 00:04:53,790 Sean Aylmer: gave. Now, this week, big one. CPI for the December quarter. 94 00:04:54,029 --> 00:04:56,970 Stephen Koukoulas: Oh. Again, as we were just discussing, the inflation numbers 95 00:04:56,970 --> 00:04:59,310 Stephen Koukoulas: in the US and around the world seemingly are topping 96 00:04:59,310 --> 00:05:01,710 Stephen Koukoulas: out now. They're not going to top out in Australia. 97 00:05:01,710 --> 00:05:05,610 Stephen Koukoulas: The December quarter headline inflation number will probably come in 98 00:05:06,000 --> 00:05:10,740 Stephen Koukoulas: around about 1. 7, 1. 8%, quarter- on- quarter, around 99 00:05:10,740 --> 00:05:14,040 Stephen Koukoulas: about 7 1/ 2% year- on- year. And we know 100 00:05:14,040 --> 00:05:16,440 Stephen Koukoulas: that it's high for a couple of reasons, that building 101 00:05:16,440 --> 00:05:18,390 Stephen Koukoulas: costs are still there. We know that a lot of 102 00:05:19,620 --> 00:05:24,000 Stephen Koukoulas: retail, electricity, gas prices are still increasing and that's feeding 103 00:05:24,000 --> 00:05:28,680 Stephen Koukoulas: directly into the CPI. More interesting, arguably, for financial markets, 104 00:05:28,680 --> 00:05:30,630 Stephen Koukoulas: and certainly our friends at the RBA, will be the 105 00:05:30,690 --> 00:05:34,470 Stephen Koukoulas: underlying inflation measures which strip out some of these volatile 106 00:05:34,470 --> 00:05:37,470 Stephen Koukoulas: items and items that are driven by one- off events. 107 00:05:38,160 --> 00:05:41,219 Stephen Koukoulas: It's probably going to be showing a quarterly rise a 108 00:05:41,220 --> 00:05:43,620 Stephen Koukoulas: little bit under 1. 5, so it's still very elevated. 109 00:05:43,620 --> 00:05:46,260 Stephen Koukoulas: Don't get me wrong. It's still inflation's high, but the 110 00:05:46,260 --> 00:05:49,200 Stephen Koukoulas: annual figure will probably be around about 6%, not the 111 00:05:49,230 --> 00:05:52,110 Stephen Koukoulas: 7 1/2 that the headline figure's going to be showing. So, 112 00:05:53,850 --> 00:05:56,700 Stephen Koukoulas: two things to note that yes, inflation's high, but it 113 00:05:56,700 --> 00:06:00,180 Stephen Koukoulas: will probably, very probably, be lower than what the RBA 114 00:06:00,180 --> 00:06:05,040 Stephen Koukoulas: was forecasting in November. So therefore we get into this 115 00:06:05,430 --> 00:06:08,940 Stephen Koukoulas: debate, discussion. Has the RBA finished its hiking cycle or 116 00:06:08,940 --> 00:06:10,380 Stephen Koukoulas: are there a couple more hikes to come? And these 117 00:06:11,070 --> 00:06:13,380 Stephen Koukoulas: CPI numbers will feed into that narrative very clearly. 118 00:06:14,070 --> 00:06:15,960 Sean Aylmer: So, I'm going to put you on the spot here. 119 00:06:16,140 --> 00:06:17,790 Sean Aylmer: What do you reckon? Do you think they'll keep raising 120 00:06:17,790 --> 00:06:19,050 Sean Aylmer: rates in the next couple of months? 121 00:06:19,110 --> 00:06:20,730 Stephen Koukoulas: The short answer for me is no. I think they've 122 00:06:20,730 --> 00:06:23,490 Stephen Koukoulas: done enough. And from what Dr. Lowe was saying late 123 00:06:23,490 --> 00:06:26,970 Stephen Koukoulas: last year in his public speeches and the like, there's 124 00:06:26,970 --> 00:06:29,580 Stephen Koukoulas: a couple of things that are filtering into their thinking, 125 00:06:30,839 --> 00:06:34,260 Stephen Koukoulas: and it's not historical inflation rates, as we were just saying. We know that 126 00:06:34,260 --> 00:06:36,360 Stephen Koukoulas: the December quarter's going to be high. The things that are 127 00:06:36,360 --> 00:06:40,110 Stephen Koukoulas: going into their consideration, the global economy is weakening. They 128 00:06:40,500 --> 00:06:42,570 Stephen Koukoulas: don't think they need to hike when they know that 129 00:06:42,570 --> 00:06:45,659 Stephen Koukoulas: world economic activity will be slowing through the course of 130 00:06:45,660 --> 00:06:49,589 Stephen Koukoulas: this year. Similarly with inflation. Just as inflation in Australia 131 00:06:49,589 --> 00:06:54,210 Stephen Koukoulas: was largely imported from global economic conditions, the lower inflation 132 00:06:54,210 --> 00:06:56,909 Stephen Koukoulas: will be imported too. So yeah, supply chain issues have 133 00:06:56,910 --> 00:07:01,020 Stephen Koukoulas: been largely resolved. Commodity prices are down. And so, when 134 00:07:01,020 --> 00:07:04,200 Stephen Koukoulas: you sort of crunch the numbers, what could inflation be 135 00:07:04,410 --> 00:07:08,279 Stephen Koukoulas: in the latter part of 2023 without more rate hikes, 136 00:07:08,460 --> 00:07:10,920 Stephen Koukoulas: you get a number that's getting close to the RBA 137 00:07:10,920 --> 00:07:14,730 Stephen Koukoulas: target. So I think Dr. Lowe will be having a 138 00:07:14,730 --> 00:07:17,220 Stephen Koukoulas: bias to hike. He'll probably come out and say, " Oh, 139 00:07:17,220 --> 00:07:18,720 Stephen Koukoulas: look. If we are going to move rates, it'll be 140 00:07:18,720 --> 00:07:21,570 Stephen Koukoulas: up, not down." But to actually act on that trigger 141 00:07:21,570 --> 00:07:26,490 Stephen Koukoulas: will require an upside surprise to the inflation reading. And 142 00:07:26,730 --> 00:07:28,920 Stephen Koukoulas: as we were just discussing on the labor market, probably 143 00:07:29,550 --> 00:07:33,000 Stephen Koukoulas: a rebound in employment and another dip back lower in 144 00:07:33,000 --> 00:07:35,310 Stephen Koukoulas: the unemployment rate which, of course, will feed into wages, 145 00:07:35,580 --> 00:07:37,981 Sean Aylmer: Stephen, enjoy the week, the month, and indeed 2023. 146 00:07:37,981 --> 00:07:41,790 Stephen Koukoulas: And same to you. Let's hope it's a good one for everybody 147 00:07:41,790 --> 00:07:43,380 Stephen Koukoulas: and every market you're invested in. 148 00:07:43,620 --> 00:07:46,260 Sean Aylmer: Indeed. I'll speak next week. Thanks, Stephen. 149 00:07:46,320 --> 00:07:46,890 Stephen Koukoulas: Thank you, Sean. 150 00:07:46,980 --> 00:07:49,530 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 151 00:07:49,530 --> 00:07:51,540 Sean Aylmer: You can find him at thekouk. com and follow him 152 00:07:51,540 --> 00:07:54,030 Sean Aylmer: on Twitter using the handle The Kouk. I'm Sean Aylmer, and 153 00:07:54,360 --> 00:07:56,190 Sean Aylmer: this is Fear and Greed - The Week Ahead.