1 00:00:08,130 --> 00:00:10,260 Speaker 1: Welcome to Fear and Greed, The Week Ahead. I'm Sean 2 00:00:10,260 --> 00:00:13,439 Speaker 1: Aylmer and as always, I'm joined by economist Stephen Koukoulas. 3 00:00:13,440 --> 00:00:16,979 Speaker 1: You'll find him at thekouk. com, T- H- E- K- O- U- 4 00:00:16,980 --> 00:00:20,850 Speaker 1: K, thekouk. com, and on Twitter using the handle, The 5 00:00:20,850 --> 00:00:22,470 Speaker 1: Kouk. Stephen, good morning. 6 00:00:23,040 --> 00:00:24,930 Speaker 2: And a very good morning and what's going to be 7 00:00:24,930 --> 00:00:26,820 Speaker 2: another great week for the economy. 8 00:00:27,000 --> 00:00:28,439 Speaker 1: It is going to be a great week for the 9 00:00:28,440 --> 00:00:31,080 Speaker 1: economy with the Reserve Bank meeting tomorrow. But let's start 10 00:00:31,080 --> 00:00:34,109 Speaker 1: with what happened last week. Were you exhausted by the 11 00:00:34,109 --> 00:00:38,458 Speaker 1: end of it? So much, GDP, retail sales, building approvals, 12 00:00:38,550 --> 00:00:39,659 Speaker 1: monthly CPI. 13 00:00:39,930 --> 00:00:42,330 Speaker 2: The house prices numbers. There was a lot of stuff 14 00:00:42,479 --> 00:00:45,839 Speaker 2: and look, and I think on balance, most of the 15 00:00:45,840 --> 00:00:48,299 Speaker 2: numbers, if not all of them actually were weaker than 16 00:00:48,300 --> 00:00:51,840 Speaker 2: expected. They were confirming a couple of things, that the 17 00:00:52,080 --> 00:00:55,110 Speaker 2: economy did start to slow down through the course of 18 00:00:55,110 --> 00:00:59,070 Speaker 2: 2022. Obviously the effect of interest rate hikes, which commenced 19 00:00:59,070 --> 00:01:02,220 Speaker 2: in May last year were starting to have an impact. 20 00:01:02,220 --> 00:01:05,279 Speaker 2: Cost of living pressures were very real, so the economy 21 00:01:05,280 --> 00:01:09,899 Speaker 2: was slowing. The biggest shock arguably was the wages numbers, 22 00:01:09,900 --> 00:01:13,800 Speaker 2: confirming that well, wages are edging up, not galloping away. 23 00:01:14,250 --> 00:01:18,000 Speaker 2: The wage price index at 3.3% is certainly higher than 24 00:01:18,000 --> 00:01:20,399 Speaker 2: it was during the pandemic, there's no question. But 3.3% 25 00:01:21,059 --> 00:01:23,190 Speaker 2: wages growth is not the sort of thing that would 26 00:01:23,610 --> 00:01:27,480 Speaker 2: spark anyone's concern about that feeding into the inflation outlook. 27 00:01:27,480 --> 00:01:29,850 Speaker 2: And even on the monthly inflation, even though there's a 28 00:01:29,850 --> 00:01:33,330 Speaker 2: lot of caveats around exactly the methodology that the ABAs 29 00:01:33,750 --> 00:01:36,390 Speaker 2: used to compile it, it's still a pretty good indicator. 30 00:01:36,660 --> 00:01:39,270 Speaker 2: Actually was a big shock on the downside with a 31 00:01:40,380 --> 00:01:44,549 Speaker 2: clear and discernible peaking and an edging lower in the 32 00:01:44,549 --> 00:01:45,750 Speaker 2: rate of annual inflation. 33 00:01:46,289 --> 00:01:48,750 Speaker 1: House prices Stephen, I've got to ask you about them. 34 00:01:48,990 --> 00:01:51,900 Speaker 1: Sydney house prices last month actually rose. 35 00:01:52,290 --> 00:01:55,740 Speaker 2: Sydney house prices rose 0. 3% according to the core 36 00:01:55,740 --> 00:01:58,740 Speaker 2: logic numbers and all of the other capital cities were 37 00:01:58,740 --> 00:02:04,049 Speaker 2: either recording basically a flat outcome or smallish falls, 0.3s, 0. 4s 38 00:02:04,049 --> 00:02:08,610 Speaker 2: on the month. Whereas during the course of 2022, most 39 00:02:08,610 --> 00:02:12,210 Speaker 2: of the monthly declines were give or take 1%. So 40 00:02:12,660 --> 00:02:14,490 Speaker 2: there's something happening there and it sort of fits with 41 00:02:14,490 --> 00:02:17,040 Speaker 2: a couple of things. The narrative around this house price 42 00:02:17,219 --> 00:02:20,729 Speaker 2: scenario is that clearly there's negative effects coming from the 43 00:02:20,730 --> 00:02:23,669 Speaker 2: rate hiking cycle. No question, everybody knows that and that's 44 00:02:23,669 --> 00:02:27,840 Speaker 2: partly why they fell. But there's no evidence yet at 45 00:02:27,840 --> 00:02:30,660 Speaker 2: least of any forced selling. So the amount of new 46 00:02:30,660 --> 00:02:33,809 Speaker 2: properties on the market, according to all the people who 47 00:02:33,809 --> 00:02:36,840 Speaker 2: measure these things is very low. Even though there's a 48 00:02:37,320 --> 00:02:40,319 Speaker 2: bit of a seasonal uptick, the amount of properties that 49 00:02:40,799 --> 00:02:42,419 Speaker 2: we can go and have a look at to inspect and 50 00:02:42,538 --> 00:02:44,970 Speaker 2: to make an offer on, aren't that many, and that's 51 00:02:44,970 --> 00:02:47,790 Speaker 2: creating a bit of a scarcity. And the other thing 52 00:02:47,790 --> 00:02:51,990 Speaker 2: of course is demographics are working in favor of housing 53 00:02:51,990 --> 00:02:55,740 Speaker 2: getting some support, because we've had this really big lift 54 00:02:55,740 --> 00:02:58,440 Speaker 2: in immigration. We know skilled migrants are coming in at 55 00:02:58,440 --> 00:03:01,350 Speaker 2: a rapid clip now, and by definition, skilled migrants have 56 00:03:01,350 --> 00:03:03,780 Speaker 2: a job. They earn good money, they tend to be 57 00:03:03,780 --> 00:03:07,710 Speaker 2: house buyers rather than renters. But even the foreign students 58 00:03:07,710 --> 00:03:09,989 Speaker 2: and these sorts of people who rent while they're studying 59 00:03:09,990 --> 00:03:13,829 Speaker 2: here at Australian universities, they're demanding property as well. So 60 00:03:14,130 --> 00:03:17,669 Speaker 2: yeah, just the early signs that maybe the worst is 61 00:03:17,669 --> 00:03:19,590 Speaker 2: behind us in terms of the house price falls. 62 00:03:19,950 --> 00:03:22,770 Speaker 1: Righto, big week this week, tomorrow of course the Reserve 63 00:03:22,770 --> 00:03:26,400 Speaker 1: Bank board meets. It's likely to lift interest rates, I'm 64 00:03:26,400 --> 00:03:28,620 Speaker 1: saying this as a statement Stephen, I'm asking you- 65 00:03:28,620 --> 00:03:28,710 Speaker 2: Yes. 66 00:03:28,830 --> 00:03:30,600 Speaker 1: Is it likely to lift interest rates tomorrow? 67 00:03:31,200 --> 00:03:33,540 Speaker 2: It is likely to increase them, but it probably doesn't need 68 00:03:33,540 --> 00:03:36,270 Speaker 2: to. I think that that hawkish rhetoric that we saw 69 00:03:36,270 --> 00:03:38,760 Speaker 2: from the last RBA board meeting when they did deliver 70 00:03:38,760 --> 00:03:42,210 Speaker 2: that 25 point hike, it has to be followed through. 71 00:03:42,510 --> 00:03:44,310 Speaker 2: And even though as we were just sort of saying, 72 00:03:44,400 --> 00:03:48,330 Speaker 2: GDP was a bit slower, inflation probably has topped out. 73 00:03:48,509 --> 00:03:51,690 Speaker 2: Building approvals are down, wages growth really isn't picking up. 74 00:03:51,690 --> 00:03:56,490 Speaker 2: The RBA probably would like to validate what the market 75 00:03:56,490 --> 00:03:59,040 Speaker 2: pricing is. And as I checked the market pricing this 76 00:03:59,040 --> 00:04:03,210 Speaker 2: morning, a 25 point hike is fully priced in. So 77 00:04:03,210 --> 00:04:05,249 Speaker 2: it'd be a shock if they didn't deliver it. So 78 00:04:05,250 --> 00:04:07,739 Speaker 2: in a sense, the question might be, look here's a 79 00:04:07,740 --> 00:04:12,750 Speaker 2: 25 point rate hike. So we've delivered 350 basis points 80 00:04:12,750 --> 00:04:17,250 Speaker 2: of rate hikes in total. And I'm speculating that some 81 00:04:17,250 --> 00:04:19,229 Speaker 2: of the wording that they put in the statement that 82 00:04:19,230 --> 00:04:21,928 Speaker 2: Dr. Lo puts in his statement, will be just a 83 00:04:21,928 --> 00:04:24,509 Speaker 2: little bit more cautious than the ultra hawkish sort of 84 00:04:24,509 --> 00:04:26,759 Speaker 2: wording that he put in February. That he will have 85 00:04:26,759 --> 00:04:30,000 Speaker 2: to acknowledge that the unemployment rate has ticked up, wages 86 00:04:30,059 --> 00:04:32,700 Speaker 2: aren't picking up that much. And even the GDP numbers 87 00:04:32,700 --> 00:04:36,330 Speaker 2: were probably tracking lower. As the RBA wanted to see, 88 00:04:36,540 --> 00:04:38,639 Speaker 2: but the fact that they're actually seeing it says to 89 00:04:38,639 --> 00:04:41,520 Speaker 2: me that there's no need to panic with a series 90 00:04:41,940 --> 00:04:42,988 Speaker 2: of further rate hikes. 91 00:04:43,620 --> 00:04:46,860 Speaker 1: Okay, what is the, what they call the neutral rate? 92 00:04:47,609 --> 00:04:49,860 Speaker 1: What's a neutral cash rate? Are we kind of in 93 00:04:50,610 --> 00:04:54,719 Speaker 1: the territory where we're pulling the economy back a lot, 94 00:04:55,020 --> 00:04:57,268 Speaker 1: not much, not at all? Where are we? 95 00:04:57,270 --> 00:05:01,799 Speaker 2: Yeah, and one's an absolutely tremendous question, and it really 96 00:05:01,799 --> 00:05:04,830 Speaker 2: forms the basis of all of the RBA's decision. Because 97 00:05:05,580 --> 00:05:08,010 Speaker 2: if the economy's overheating, they need to move policy rates 98 00:05:08,010 --> 00:05:09,779 Speaker 2: to a restrictive level. If the economy is weak, they 99 00:05:09,779 --> 00:05:12,870 Speaker 2: move them to an accommodative level. And like the Goldilocks 100 00:05:12,870 --> 00:05:14,700 Speaker 2: porridge, if it's just right, they just want to keep 101 00:05:14,700 --> 00:05:17,490 Speaker 2: them in that neutral zone. So it's always a hard 102 00:05:17,490 --> 00:05:19,919 Speaker 2: one to pinpoint and it is a moving feast based 103 00:05:19,920 --> 00:05:24,868 Speaker 2: on productivity changes, technology, these sorts of things. But that 104 00:05:24,870 --> 00:05:26,580 Speaker 2: was my intro and giving you a caveat if you 105 00:05:26,580 --> 00:05:32,130 Speaker 2: like, but it does appear that in the current structure 106 00:05:32,130 --> 00:05:35,459 Speaker 2: of the economy, the structure of household finances with debt, 107 00:05:36,000 --> 00:05:39,178 Speaker 2: even the corporate debt levels that are out there, something in 108 00:05:39,178 --> 00:05:43,890 Speaker 2: the low 3% region is about neutral. So if we 109 00:05:43,890 --> 00:05:45,720 Speaker 2: get the rate hike tomorrow and they lift the cash 110 00:05:45,720 --> 00:05:49,440 Speaker 2: rate to around about 3. 6%, that will be into 111 00:05:49,440 --> 00:05:52,469 Speaker 2: the restrictive area. So it'll be the sort of interest 112 00:05:52,469 --> 00:05:56,219 Speaker 2: rate settings that actually do bite a little harder, and 113 00:05:56,219 --> 00:05:59,639 Speaker 2: they do deliver slower growth and with the normal lag, 114 00:06:00,240 --> 00:06:04,860 Speaker 2: deceleration in inflation. So policy is sort of little bit 115 00:06:04,860 --> 00:06:08,039 Speaker 2: tight today, it'll be a little bit tighter tomorrow. 116 00:06:08,610 --> 00:06:12,659 Speaker 1: Okay. The major economic release this week, at least from 117 00:06:12,660 --> 00:06:16,560 Speaker 1: the bureau statistics, is international trade, another surplus I'd imagine? 118 00:06:16,709 --> 00:06:19,980 Speaker 2: Oh yes, it looks like it. Even though some commodity 119 00:06:19,980 --> 00:06:21,960 Speaker 2: prices have come off the boil in the last few 120 00:06:21,960 --> 00:06:25,860 Speaker 2: months, the reopening of China from the COVID lockdowns that 121 00:06:25,860 --> 00:06:29,070 Speaker 2: it had is probably going to be sparking a pretty 122 00:06:29,070 --> 00:06:32,309 Speaker 2: decent lift in export volumes. A slowdown in the domestic 123 00:06:32,309 --> 00:06:34,769 Speaker 2: economy means that import levels are probably going to be 124 00:06:35,010 --> 00:06:37,859 Speaker 2: broadly flat. We're not importing heaps of stuff because the 125 00:06:37,860 --> 00:06:41,549 Speaker 2: economy here is booming. So look, a surplus of the 126 00:06:41,550 --> 00:06:46,919 Speaker 2: order of $12, $ 13 billion for the month, these staggeringly, large 127 00:06:47,219 --> 00:06:51,510 Speaker 2: international trade surpluses keep coming through. We're exporting heaps of 128 00:06:51,750 --> 00:06:54,960 Speaker 2: raw materials and minerals and the like, and we're not 129 00:06:54,960 --> 00:06:58,320 Speaker 2: importing all that much. So we're running these huge surpluses. 130 00:06:58,770 --> 00:07:00,029 Speaker 1: Stephen, have a good week. 131 00:07:00,450 --> 00:07:01,349 Speaker 2: Thank you mate, I will. 132 00:07:01,890 --> 00:07:04,169 Speaker 1: That was economist Stephen Koukoulas, better known as The Kouk. 133 00:07:04,170 --> 00:07:06,540 Speaker 1: You can find him at thekouk. com and follow him 134 00:07:06,540 --> 00:07:08,969 Speaker 1: on Twitter using the handle The Kouk. I'm Sean Aylmer 135 00:07:08,969 --> 00:07:10,859 Speaker 1: and this is Fear and Greed, The Week Ahead.