1 00:00:05,490 --> 00:00:08,040 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean Aylmer 2 00:00:08,070 --> 00:00:11,908 Sean Aylmer: and as always I'm joined by economist Stephen Koukoulas. You'll 3 00:00:11,910 --> 00:00:14,639 Sean Aylmer: find him at thekouk. com and on X using the 4 00:00:14,639 --> 00:00:16,439 Sean Aylmer: handle, TheKouk. Stephen, good morning. 5 00:00:16,799 --> 00:00:18,570 Stephen Koukoulas: And a good Monday morning to you, Sean. 6 00:00:18,570 --> 00:00:22,800 Sean Aylmer: Been a pretty busy kind of week or so and we've got 7 00:00:22,800 --> 00:00:24,630 Sean Aylmer: plenty more coming this week, but I just want to 8 00:00:24,630 --> 00:00:27,030 Sean Aylmer: talk about what happened last week. We had those monthly 9 00:00:27,030 --> 00:00:30,660 Sean Aylmer: inflation numbers, which were higher than expected, retail trade building 10 00:00:30,660 --> 00:00:34,138 Sean Aylmer: approvals, which were lower, business investment, which was higher. Where 11 00:00:34,139 --> 00:00:35,490 Sean Aylmer: do we stand after all that? 12 00:00:35,820 --> 00:00:39,540 Stephen Koukoulas: That's a nice summary in 20 words. Your backgrounding of 13 00:00:39,540 --> 00:00:42,180 Stephen Koukoulas: what happened last week is really very, very interesting. So 14 00:00:42,180 --> 00:00:44,040 Stephen Koukoulas: I think net- net, when we cut through the issue 15 00:00:44,040 --> 00:00:46,109 Stephen Koukoulas: in the big picture sense, and of course we'll get 16 00:00:46,110 --> 00:00:48,689 Stephen Koukoulas: more data this week, which we'll talk about shortly, is 17 00:00:48,690 --> 00:00:50,969 Stephen Koukoulas: the economy is weak. There's no doubt about that. And 18 00:00:50,969 --> 00:00:53,910 Stephen Koukoulas: that came through in that retail spending. So again, we 19 00:00:53,910 --> 00:00:56,400 Stephen Koukoulas: consumers, we were reacting to cost of living, to rate 20 00:00:56,400 --> 00:00:59,430 Stephen Koukoulas: hikes, and maybe just the early stages of a weakening 21 00:00:59,430 --> 00:01:02,819 Stephen Koukoulas: in the labor market. So retail spending's been very poor 22 00:01:02,820 --> 00:01:05,220 Stephen Koukoulas: and continued to be poor in the month of April. 23 00:01:05,520 --> 00:01:10,049 Stephen Koukoulas: Building approvals, oh, we're not building houses for this population 24 00:01:10,049 --> 00:01:13,289 Stephen Koukoulas: growth. That's not changing. They were basically dead flat at 25 00:01:13,289 --> 00:01:16,649 Stephen Koukoulas: an 11- year low. So we hear the government talking 26 00:01:16,650 --> 00:01:19,560 Stephen Koukoulas: about we want to build 1. 2 million new dwellings 27 00:01:19,560 --> 00:01:23,490 Stephen Koukoulas: over five years. That's a monthly average for five straight 28 00:01:23,490 --> 00:01:27,120 Stephen Koukoulas: years of 20,000 dwellings per month. We're currently running at 29 00:01:27,120 --> 00:01:30,690 Stephen Koukoulas: about 13,000, so massively short. But the big news, of 30 00:01:30,690 --> 00:01:34,470 Stephen Koukoulas: course, was the inflation number, the monthly inflation number, and 31 00:01:34,470 --> 00:01:37,620 Stephen Koukoulas: it got people a little excited. It ticked up from 32 00:01:37,620 --> 00:01:42,328 Stephen Koukoulas: 3.5% in March to 3. 6% in April and a little 33 00:01:42,330 --> 00:01:46,650 Stephen Koukoulas: above the market forecast. And it rekindled that discussion, well 34 00:01:46,650 --> 00:01:49,830 Stephen Koukoulas: first of all, rate cuts will be pushed way back, 35 00:01:50,250 --> 00:01:53,640 Stephen Koukoulas: possibly to 2025, but it also sparked a few rate 36 00:01:53,640 --> 00:01:56,760 Stephen Koukoulas: hike hawks out there to think, well maybe, just maybe 37 00:01:56,760 --> 00:02:00,210 Stephen Koukoulas: the RBA might hike if we don't get that little 38 00:02:00,210 --> 00:02:02,490 Stephen Koukoulas: gentle uptick in inflation the last couple of months being 39 00:02:02,490 --> 00:02:05,580 Stephen Koukoulas: reversed very soon. So jury's out on inflation. 40 00:02:06,180 --> 00:02:08,610 Sean Aylmer: Okay, this week GDP is a big one, March quarter. 41 00:02:08,880 --> 00:02:11,130 Stephen Koukoulas: March quarter, that's the big one. And in a sense, 42 00:02:11,610 --> 00:02:14,100 Stephen Koukoulas: as you said, March quarter, here we are in, well 43 00:02:14,160 --> 00:02:17,249 Stephen Koukoulas: early June, so March quarter is a long time ago, 44 00:02:17,309 --> 00:02:21,719 Stephen Koukoulas: but it does provide a nice foundation for everybody, economists 45 00:02:21,719 --> 00:02:26,430 Stephen Koukoulas: at the Reserve Bank, treasury, markets, to rebuild their forecast. 46 00:02:26,430 --> 00:02:28,950 Stephen Koukoulas: Because if you get a particularly strong result, obviously the 47 00:02:28,950 --> 00:02:31,380 Stephen Koukoulas: economy was better than (inaudible) performing, weak result, the 48 00:02:31,380 --> 00:02:34,139 Stephen Koukoulas: opposite of course. But, that said, we know a lot 49 00:02:34,139 --> 00:02:37,499 Stephen Koukoulas: of the building blocks on GDP. We've got net exports, 50 00:02:37,500 --> 00:02:40,679 Stephen Koukoulas: we've got retail sales as we've said. We've got construction 51 00:02:40,680 --> 00:02:43,950 Stephen Koukoulas: activity, which was also out recently, so it's likely to 52 00:02:43,950 --> 00:02:48,268 Stephen Koukoulas: be a very soft result, something around about 0.2 or 0. 3 53 00:02:48,840 --> 00:02:53,040 Stephen Koukoulas: for quarterly GDP growth. The annual figure heading towards 1%. 54 00:02:53,429 --> 00:02:55,080 Stephen Koukoulas: And this is the thing that I think most people 55 00:02:55,080 --> 00:02:57,569 Stephen Koukoulas: will do, and rightly so, is look at it in 56 00:02:57,570 --> 00:03:01,260 Stephen Koukoulas: per capita terms. That population growth's currently running at 0. 57 00:03:01,620 --> 00:03:05,910 Stephen Koukoulas: 5, 0. 6 per quarter through that high immigration, so 58 00:03:05,910 --> 00:03:09,209 Stephen Koukoulas: unless we get a number that high, we've got another negative on 59 00:03:09,210 --> 00:03:13,020 Stephen Koukoulas: per capita GDP. So the economy is weak. That'll be 60 00:03:13,020 --> 00:03:16,440 Stephen Koukoulas: confirmed on data this week and that will feed into 61 00:03:16,440 --> 00:03:19,170 Stephen Koukoulas: the RBA deliberations in the middle of June. 62 00:03:19,889 --> 00:03:23,460 Sean Aylmer: I bet they don't cut rates though, Stephen, just because 63 00:03:23,460 --> 00:03:24,540 Sean Aylmer: we're all hurting out here. 64 00:03:24,600 --> 00:03:27,690 Stephen Koukoulas: No, look, I think that's the issue. And we heard 65 00:03:27,690 --> 00:03:30,301 Stephen Koukoulas: from the, well relatively new, I think her title is the chief economist. 66 00:03:30,301 --> 00:03:32,880 Sean Aylmer: She's chief economist, Sarah Hunter. Yeah. 67 00:03:32,880 --> 00:03:34,859 Stephen Koukoulas: Sarah Hunter, she's terrific. And she gave a couple of 68 00:03:34,859 --> 00:03:37,140 Stephen Koukoulas: little speeches in the last little while. One was on 69 00:03:37,140 --> 00:03:40,320 Stephen Koukoulas: housing, the other one was more on the economy more 70 00:03:40,320 --> 00:03:43,950 Stephen Koukoulas: broadly, and she highlighted a few things, which say to 71 00:03:43,950 --> 00:03:48,690 Stephen Koukoulas: me that they're not totally spooked by this inflation picture. 72 00:03:49,170 --> 00:03:53,460 Stephen Koukoulas: They did embrace, to some extent, the budget measures which 73 00:03:53,609 --> 00:03:57,810 Stephen Koukoulas: mechanically lower the inflation rate, so the electricity subsidies and 74 00:03:57,810 --> 00:04:00,030 Stephen Koukoulas: the rental assistance. She didn't say that that's going to 75 00:04:00,030 --> 00:04:03,780 Stephen Koukoulas: force them to change materially their mind on interest rates. 76 00:04:03,780 --> 00:04:06,030 Stephen Koukoulas: And she said, " Look, we are still wanting inflation to 77 00:04:06,030 --> 00:04:07,440 Stephen Koukoulas: come down." But it was just a little bit of 78 00:04:07,440 --> 00:04:11,400 Stephen Koukoulas: an insight that I think reinforced what the government, Michele 79 00:04:11,400 --> 00:04:14,670 Stephen Koukoulas: Bullock, said at her most recent press conference, which was " 80 00:04:16,110 --> 00:04:18,570 Stephen Koukoulas: We don't want to hike rates. We know the economy's 81 00:04:18,570 --> 00:04:21,389 Stephen Koukoulas: slow and we don't want to inflict pain on the 82 00:04:21,389 --> 00:04:24,389 Stephen Koukoulas: household sector, which feeds into higher unemployment, but we would 83 00:04:24,389 --> 00:04:27,000 Stephen Koukoulas: like inflation to be lower sooner than we're currently planning." 84 00:04:27,000 --> 00:04:30,359 Stephen Koukoulas: So the RBA's got a really difficult dilemma right now. 85 00:04:30,690 --> 00:04:35,190 Sean Aylmer: House prices also, we ended the month on Friday, so I 86 00:04:35,190 --> 00:04:37,169 Sean Aylmer: haven't really looked at that data. What's it look like? 87 00:04:37,560 --> 00:04:41,400 Stephen Koukoulas: The daily numbers, the high frequency numbers from both CoreLogic and PropTrack, 88 00:04:41,400 --> 00:04:44,520 Stephen Koukoulas: who produce that series too, just by the by, it's 89 00:04:44,520 --> 00:04:50,880 Stephen Koukoulas: up about 0.7, 0. 8% for the month of May, annualize around 90 00:04:50,880 --> 00:04:55,080 Stephen Koukoulas: about 8%, but the divergence from city to city is 91 00:04:55,680 --> 00:04:59,789 Stephen Koukoulas: massive. Perth is up over 20% in annual terms. Perth 92 00:04:59,790 --> 00:05:04,409 Stephen Koukoulas: is absolutely booming. Adelaide, Brisbane, approximately 15% in annual terms. 93 00:05:04,889 --> 00:05:09,240 Stephen Koukoulas: Again, booming. Sydney doing okay, probably about 8% in annual terms. 94 00:05:09,510 --> 00:05:11,910 Stephen Koukoulas: And then you get the laggards, Melbourne where there's this 95 00:05:12,180 --> 00:05:15,599 Stephen Koukoulas: land tax, which is discouraging investors, house prices is probably 96 00:05:15,599 --> 00:05:18,479 Stephen Koukoulas: only up two or 3% in annual terms that is. 97 00:05:18,839 --> 00:05:23,190 Stephen Koukoulas: Whereas good old Hobart, Darwin, Canberra, pretty soggy, not much 98 00:05:23,190 --> 00:05:26,670 Stephen Koukoulas: growth at all. But a really interesting debate about what's 99 00:05:26,670 --> 00:05:30,750 Stephen Koukoulas: driving Perth. Why is Perth going up 20% when we've got the 100 00:05:30,750 --> 00:05:33,390 Stephen Koukoulas: rest of the economy under a huge pressure from interest rates? 101 00:05:33,570 --> 00:05:35,550 Sean Aylmer: Yeah, you have to think there's a bubble or something 102 00:05:36,178 --> 00:05:36,780 Sean Aylmer: emerging there. 103 00:05:37,349 --> 00:05:40,559 Stephen Koukoulas: Could be. Look, I've seen a few explanations. Perth had 104 00:05:40,559 --> 00:05:42,690 Stephen Koukoulas: its borders shut during COVID, so there was no fly in 105 00:05:42,690 --> 00:05:44,880 Stephen Koukoulas: or fly out. And when the borders opened, a lot 106 00:05:44,880 --> 00:05:47,400 Stephen Koukoulas: of people flew in and there was a shortage of 107 00:05:47,400 --> 00:05:49,920 Stephen Koukoulas: housing, plain and simple. And the mining sector is doing 108 00:05:49,920 --> 00:05:53,789 Stephen Koukoulas: well. There's still a bit of mining CapEx picking up as well. 109 00:05:53,790 --> 00:05:55,589 Stephen Koukoulas: So they need a few flying workers, but if you 110 00:05:55,589 --> 00:05:59,219 Stephen Koukoulas: ain't got no houses, the rents go up, which they 111 00:05:59,219 --> 00:06:00,779 Stephen Koukoulas: are, and prices go up. 112 00:06:00,779 --> 00:06:02,130 Sean Aylmer: Fascinating. Stephen, enjoy the week. 113 00:06:02,640 --> 00:06:03,450 Stephen Koukoulas: Thank you, mate. Thank you, Sean. 114 00:06:03,839 --> 00:06:06,599 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk, T- H- 115 00:06:06,660 --> 00:06:10,050 Sean Aylmer: E K- O- U- K. You can find him at thekouk. 116 00:06:10,050 --> 00:06:12,569 Sean Aylmer: com and follow him on X using the handle, TheKouk. 117 00:06:12,570 --> 00:06:14,880 Sean Aylmer: I'm Sean Aylmer, and this is Fear and Greed - The Week Ahead.