1 00:00:08,099 --> 00:00:10,229 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. I'm Sean 2 00:00:10,230 --> 00:00:14,039 Sean Aylmer: Aylmer, and as always, I'm joined by economist, Stephen Koukoulas. 3 00:00:14,340 --> 00:00:17,340 Sean Aylmer: You'll find him at thekouk. com, and on X, using 4 00:00:17,340 --> 00:00:20,940 Sean Aylmer: the handle TheKouk, T-H-E-K-O-U-K. Stephen, good morning. 5 00:00:21,420 --> 00:00:22,260 Stephen Koukoulas: Good morning, Sean. 6 00:00:22,860 --> 00:00:24,930 Sean Aylmer: Now, I know you had a bad day at the track. 7 00:00:25,170 --> 00:00:25,380 Stephen Koukoulas: Well, I don't- 8 00:00:26,000 --> 00:00:26,610 Sean Aylmer: (inaudible) know whether you were at the track. I 9 00:00:26,610 --> 00:00:27,990 Sean Aylmer: know you didn't have a win on the Melbourne Cup, 10 00:00:27,990 --> 00:00:28,800 Sean Aylmer: should we say that? 11 00:00:29,490 --> 00:00:32,280 Stephen Koukoulas: I got hosed. It was a sad day. 12 00:00:32,490 --> 00:00:34,499 Sean Aylmer: Hmm, but none of us really had a win that 13 00:00:34,500 --> 00:00:36,750 Sean Aylmer: day, no matter where you stood, even if you did 14 00:00:36,779 --> 00:00:40,830 Sean Aylmer: pick the winner, because interest rates, they went up again. 15 00:00:40,830 --> 00:00:44,940 Stephen Koukoulas: They went up again. Michele Bullock, in her second month as governor, as 16 00:00:45,059 --> 00:00:48,479 Stephen Koukoulas: chairperson of the RBA board, in their collective wisdom, they 17 00:00:48,479 --> 00:00:51,629 Stephen Koukoulas: decided to hike 25 basis points, having been on hold for, 18 00:00:51,990 --> 00:00:56,310 Stephen Koukoulas: what was it, four months previously. Clearly they're frustrated that 19 00:00:56,970 --> 00:01:00,150 Stephen Koukoulas: inflation is not coming down quickly enough. Clearly inflation's coming 20 00:01:00,150 --> 00:01:03,450 Stephen Koukoulas: down. They reiterated that in their forecasts last week that 21 00:01:03,450 --> 00:01:05,040 Stephen Koukoulas: it's going to be three and a half percent at 22 00:01:05,490 --> 00:01:08,518 Stephen Koukoulas: the end of 2024, somewhere just a touch below 3% 23 00:01:08,789 --> 00:01:11,609 Stephen Koukoulas: at the end of 2025, so gosh, that's still two 24 00:01:11,609 --> 00:01:14,730 Stephen Koukoulas: years into the future, but not fast enough. They want 25 00:01:14,730 --> 00:01:16,560 Stephen Koukoulas: it to be back in the target range a little 26 00:01:16,560 --> 00:01:20,340 Stephen Koukoulas: earlier, hence the bold decision, I guess, when the economy 27 00:01:20,340 --> 00:01:23,039 Stephen Koukoulas: is slowing, when the rest of the world's slowing, to 28 00:01:23,039 --> 00:01:23,880 Stephen Koukoulas: hike yet again. 29 00:01:24,450 --> 00:01:27,509 Sean Aylmer: We are one of the few economies that are still 30 00:01:27,569 --> 00:01:29,759 Sean Aylmer: lifting rates. Well, maybe that's a bit unfair to say, 31 00:01:29,760 --> 00:01:32,430 Sean Aylmer: because there are a bunch of economies on pause and 32 00:01:32,430 --> 00:01:35,279 Sean Aylmer: maybe they will lift again, but actually over the last 33 00:01:35,280 --> 00:01:37,290 Sean Aylmer: six weeks or so, not many of the major economies 34 00:01:37,290 --> 00:01:38,130 Sean Aylmer: have lifted rates. 35 00:01:38,610 --> 00:01:41,610 Stephen Koukoulas: No, they haven't. If we look at the US, Eurozone, 36 00:01:42,120 --> 00:01:45,569 Stephen Koukoulas: Canada, New Zealand, the countries that are comparable to us, 37 00:01:46,020 --> 00:01:47,879 Stephen Koukoulas: they've all been on hold, and it's one of these 38 00:01:47,879 --> 00:01:49,890 Stephen Koukoulas: funny things, I love looking at the money market future 39 00:01:49,890 --> 00:01:52,950 Stephen Koukoulas: strip, which is people putting their money where their mouth 40 00:01:52,950 --> 00:01:55,770 Stephen Koukoulas: is when it comes to forecasting interest rates, and in 41 00:01:55,770 --> 00:01:59,820 Stephen Koukoulas: each of those countries, in the Eurozone, rate cuts are 42 00:01:59,820 --> 00:02:02,999 Stephen Koukoulas: being priced into 2024. Now, a little early, not in 43 00:02:03,000 --> 00:02:05,340 Stephen Koukoulas: the next few months, but more the middle of next 44 00:02:05,340 --> 00:02:08,880 Stephen Koukoulas: year, so six to nine months' time the people are 45 00:02:08,880 --> 00:02:12,210 Stephen Koukoulas: putting their money where their mouth is, is saying, " Yeah, there's 46 00:02:12,210 --> 00:02:14,969 Stephen Koukoulas: a probability that the next move will be down," and 47 00:02:14,970 --> 00:02:17,250 Stephen Koukoulas: here we are with the Reserve Bank hiking. Now, we 48 00:02:17,250 --> 00:02:19,439 Stephen Koukoulas: didn't hike as much as most of those other central 49 00:02:19,440 --> 00:02:22,500 Stephen Koukoulas: banks in this rate- hiking cycle, so maybe there was 50 00:02:22,500 --> 00:02:25,290 Stephen Koukoulas: a little bit of extra catch- up to do, but 51 00:02:25,290 --> 00:02:28,049 Stephen Koukoulas: maybe we've just gone a bit too far too fast, 52 00:02:28,050 --> 00:02:30,210 Stephen Koukoulas: but all will play out in the next few months 53 00:02:30,210 --> 00:02:33,480 Stephen Koukoulas: when we see the hard data on growth, on wages, 54 00:02:33,480 --> 00:02:35,880 Stephen Koukoulas: on inflation and on unemployment. 55 00:02:35,880 --> 00:02:38,460 Sean Aylmer: Oh, what a segue, wages. We've got the wage price 56 00:02:38,460 --> 00:02:40,019 Sean Aylmer: index out this week, Stephen. 57 00:02:40,288 --> 00:02:43,079 Stephen Koukoulas: It is. It's for the September quarter, and given wages 58 00:02:43,080 --> 00:02:45,990 Stephen Koukoulas: are such a critical input into the inflation outlook, and 59 00:02:45,990 --> 00:02:49,380 Stephen Koukoulas: indeed what Michele Bullock was talking about last week when 60 00:02:49,380 --> 00:02:52,470 Stephen Koukoulas: she did hike rates, it's services inflation that is that 61 00:02:53,160 --> 00:02:57,240 Stephen Koukoulas: sticky, in inverted commas. The bit of inflation that's not coming 62 00:02:57,240 --> 00:03:00,239 Stephen Koukoulas: down as rapidly as they would like, and the biggest 63 00:03:00,240 --> 00:03:05,280 Stephen Koukoulas: component of services inflation, things like haircuts, are wages costs, 64 00:03:05,730 --> 00:03:07,950 Stephen Koukoulas: and so we want to see that wage price index 65 00:03:08,490 --> 00:03:11,370 Stephen Koukoulas: being well contained. Now, this is the quarter that included 66 00:03:11,370 --> 00:03:14,130 Stephen Koukoulas: the pretty hefty increase in the minimum wage from the 67 00:03:14,130 --> 00:03:19,260 Stephen Koukoulas: Fair Work Commission, the 5. 75% increase in minimum wages. Now, 68 00:03:19,710 --> 00:03:23,010 Stephen Koukoulas: not many people get the minimum wage, but nonetheless the 69 00:03:23,010 --> 00:03:26,220 Stephen Koukoulas: current forecasts are for a quarterly rise of about 1. 4%, 70 00:03:27,930 --> 00:03:32,069 Stephen Koukoulas: which would mean the annual figure would be just under 4%. 71 00:03:33,120 --> 00:03:37,649 Stephen Koukoulas: It's still okay, still not really that wage price blowout 72 00:03:37,680 --> 00:03:40,680 Stephen Koukoulas: that we fear, but any upside to that will certainly 73 00:03:40,680 --> 00:03:42,630 Stephen Koukoulas: validate what the RBA did last week. 74 00:03:43,170 --> 00:03:46,589 Sean Aylmer: Okay. Labour Force, we also have that out on Thursday, 75 00:03:46,590 --> 00:03:46,920 Sean Aylmer: I think. 76 00:03:47,099 --> 00:03:49,860 Stephen Koukoulas: Oh, yeah indeed, and what a week it is for 77 00:03:49,860 --> 00:03:53,549 Stephen Koukoulas: data coming up, the Labour Force critically important. Well, we've 78 00:03:53,549 --> 00:03:55,800 Stephen Koukoulas: had a bit of choppiness, I suppose, in the recent 79 00:03:55,800 --> 00:04:00,150 Stephen Koukoulas: monthly Labour Force releases. We've had weaker employment growth in 80 00:04:00,150 --> 00:04:03,059 Stephen Koukoulas: trend terms that's been edging lower, but the unemployment rate 81 00:04:03,059 --> 00:04:06,780 Stephen Koukoulas: also fell. That big drop in the participation rate caused 82 00:04:06,780 --> 00:04:09,210 Stephen Koukoulas: that strange thing that happens every now and then where 83 00:04:09,509 --> 00:04:13,650 Stephen Koukoulas: weak employment and a falling unemployment rate. Current market thinking 84 00:04:13,650 --> 00:04:15,570 Stephen Koukoulas: is that we're going to see a moderate increase in 85 00:04:15,570 --> 00:04:20,309 Stephen Koukoulas: employment, around about 25 to 30,000 people, so just about all that's 86 00:04:20,309 --> 00:04:22,770 Stephen Koukoulas: needed to keep the unemployment rate steady in normal terms, 87 00:04:22,770 --> 00:04:25,380 Stephen Koukoulas: but because people are thinking the part rate might jump 88 00:04:25,380 --> 00:04:28,410 Stephen Koukoulas: up a bit, the unemployment rate's likely to tick back 89 00:04:28,410 --> 00:04:32,460 Stephen Koukoulas: up to 3. 7 or maybe even 3.8%, so in 90 00:04:32,460 --> 00:04:34,830 Stephen Koukoulas: absolute terms still pretty good, but clearly there's a turning 91 00:04:34,830 --> 00:04:36,599 Stephen Koukoulas: point going on in the labour market. 92 00:04:37,080 --> 00:04:39,719 Sean Aylmer: Okay, we also... this is the week we have the 93 00:04:40,380 --> 00:04:43,109 Sean Aylmer: monthly surveys, the first one being the National Australia Bank 94 00:04:43,170 --> 00:04:47,099 Sean Aylmer: survey on business conditions and business sentiment, and then we 95 00:04:47,100 --> 00:04:50,310 Sean Aylmer: have the Westpac Consumer Sentiment Survey. We're still going to 96 00:04:50,310 --> 00:04:52,440 Sean Aylmer: be a dreary bunch of consumers and a happy bunch 97 00:04:52,440 --> 00:04:53,340 Sean Aylmer: of businesses, Stephen? 98 00:04:54,060 --> 00:04:56,368 Stephen Koukoulas: Yeah. Well Sean, I know how much you love the 99 00:04:56,370 --> 00:04:57,839 Stephen Koukoulas: NAB Survey of business conditions. 100 00:04:57,990 --> 00:04:58,200 Sean Aylmer: Oh, I love it. 101 00:04:58,200 --> 00:05:00,960 Stephen Koukoulas: Yep, it is such a good indicator. 102 00:05:00,960 --> 00:05:01,229 Sean Aylmer: It is. 103 00:05:02,250 --> 00:05:04,738 Stephen Koukoulas: A couple of reasons. It's contemporary, like they asked businesses 104 00:05:05,039 --> 00:05:07,409 Stephen Koukoulas: literally in the last couple of weeks, " How's business going? 105 00:05:07,710 --> 00:05:11,159 Stephen Koukoulas: Are you optimistic, pessimistic. What's happening to your employment plans, 106 00:05:11,160 --> 00:05:14,819 Stephen Koukoulas: your selling prices, your profitability?" so that's why it's such 107 00:05:14,820 --> 00:05:17,999 Stephen Koukoulas: a contemporary indicator, and indeed, the questions that are framed 108 00:05:18,450 --> 00:05:22,289 Stephen Koukoulas: tell us, with a pretty good track record, of not 109 00:05:22,289 --> 00:05:26,130 Stephen Koukoulas: so much levels, but certainly turning points in employment, in 110 00:05:26,670 --> 00:05:29,910 Stephen Koukoulas: economic activity, profits and sales, so we're going to be 111 00:05:29,910 --> 00:05:32,309 Stephen Koukoulas: watching that carefully, and as you alluded to, the business 112 00:05:32,309 --> 00:05:35,729 Stephen Koukoulas: sector's been a lot more upbeat about the economy than 113 00:05:35,730 --> 00:05:40,198 Stephen Koukoulas: we poor consumers, so hopefully that trend continues, but on 114 00:05:40,199 --> 00:05:43,950 Stephen Koukoulas: the consumer sentiment side, well, particularly with this rate hike, 115 00:05:43,950 --> 00:05:47,159 Stephen Koukoulas: because of course the survey has been conducted over the 116 00:05:47,160 --> 00:05:51,448 Stephen Koukoulas: past few days, so it'll incorporate the effect of the 117 00:05:51,690 --> 00:05:54,270 Stephen Koukoulas: interest rate hike, so it'd be no surprise if we 118 00:05:54,270 --> 00:05:58,409 Stephen Koukoulas: see another gloomy consumer sentiment index, and of course as 119 00:05:58,410 --> 00:06:01,140 Stephen Koukoulas: we know, when consumers are gloomy they tend to scale 120 00:06:01,140 --> 00:06:04,080 Stephen Koukoulas: back their spending, and so it probably doesn't bode well 121 00:06:04,080 --> 00:06:08,669 Stephen Koukoulas: for the Christmas summer holiday spending period that's coming up. 122 00:06:08,970 --> 00:06:11,310 Sean Aylmer: Hmm. Stephen, enjoy your week. 123 00:06:11,670 --> 00:06:13,020 Stephen Koukoulas: I will, Sean. Thank you. 124 00:06:13,469 --> 00:06:16,139 Sean Aylmer: That was economist, Stephen Koukoulas, better known as TheKouk. You can 125 00:06:16,139 --> 00:06:19,200 Sean Aylmer: find him at thekouk. com and follow him on X, 126 00:06:19,290 --> 00:06:21,990 Sean Aylmer: using the handle TheKouk. I'm Sean Aylmer, and this is Fear and 127 00:06:21,990 --> 00:06:22,919 Sean Aylmer: Greed, The Week Ahead.