1 00:00:08,010 --> 00:00:10,648 Jennifer Duke: Welcome to Fear and Greed - The Week Ahead. I'm Jennifer 2 00:00:10,650 --> 00:00:13,770 Jennifer Duke: Duke and I'm joined by economist Stephen Koukoulas. You'll find 3 00:00:13,770 --> 00:00:16,499 Jennifer Duke: him at thekouk. com, that's T- H- E- K- O- U- K. 4 00:00:16,590 --> 00:00:20,459 Jennifer Duke: com, and on X using the handle TheKouk. Stephen, good morning. 5 00:00:21,060 --> 00:00:21,779 Stephen Koukoulas: Good morning, Jen. 6 00:00:22,710 --> 00:00:25,020 Jennifer Duke: First of all, last week there was a little bit 7 00:00:25,020 --> 00:00:27,149 Jennifer Duke: of data out, quite a lot of talk. Can you 8 00:00:27,150 --> 00:00:27,900 Jennifer Duke: talk us through it? 9 00:00:28,710 --> 00:00:32,130 Stephen Koukoulas: Yeah, look, the highlight, I think, was the monthly inflation 10 00:00:32,190 --> 00:00:35,219 Stephen Koukoulas: number for the month of July. Came in lower than 11 00:00:35,219 --> 00:00:40,470 Stephen Koukoulas: market expectations, confirming that we're getting this deceleration in inflation. 12 00:00:40,860 --> 00:00:44,130 Stephen Koukoulas: So from the peak that we saw in December 2022, 13 00:00:44,610 --> 00:00:48,540 Stephen Koukoulas: which hit 8. 4% in monthly terms... Gosh, that was 14 00:00:48,540 --> 00:00:51,119 Stephen Koukoulas: a real problem on inflation. But now here we are 15 00:00:51,120 --> 00:00:54,059 Stephen Koukoulas: in July with the July data showing that the annual 16 00:00:54,059 --> 00:00:58,290 Stephen Koukoulas: inflation rate's eased to 4. 9%. So we've lost 3. 17 00:00:58,530 --> 00:01:02,550 Stephen Koukoulas: 5 percentage points off the annual inflation rate. And again, 18 00:01:03,210 --> 00:01:05,340 Stephen Koukoulas: I don't mean to torture the data or manipulate it 19 00:01:05,340 --> 00:01:08,130 Stephen Koukoulas: too badly, but if you look at what has happened 20 00:01:08,130 --> 00:01:12,298 Stephen Koukoulas: to the monthly run rate since January, so the seven 21 00:01:12,300 --> 00:01:15,660 Stephen Koukoulas: months since January, and you annualize that, so divide it 22 00:01:16,050 --> 00:01:18,990 Stephen Koukoulas: by seven, multiply it by 12, you're getting an inflation 23 00:01:18,990 --> 00:01:22,709 Stephen Koukoulas: rate that's around about 3%. And so it's sort of 24 00:01:22,709 --> 00:01:26,908 Stephen Koukoulas: suggesting to me that the inflation momentum has certainly come 25 00:01:26,910 --> 00:01:29,490 Stephen Koukoulas: off the ball, that we're heading towards the target. Yeah, 26 00:01:29,490 --> 00:01:32,580 Stephen Koukoulas: the economy's weakening. Last week we saw building approvals down 27 00:01:32,580 --> 00:01:36,839 Stephen Koukoulas: again. So I think we're not going to be seeing 28 00:01:36,840 --> 00:01:39,209 Stephen Koukoulas: a lot of new construction activity in the near term, 29 00:01:39,389 --> 00:01:42,509 Stephen Koukoulas: is one of the other concerns on the economy. Retail 30 00:01:42,509 --> 00:01:45,959 Stephen Koukoulas: sales, they were moderate after a couple of falls. So 31 00:01:46,260 --> 00:01:48,450 Stephen Koukoulas: the economy's sort of muddling along, which says to me 32 00:01:48,450 --> 00:01:50,850 Stephen Koukoulas: that the inflation rate's going to be falling, continue to 33 00:01:50,850 --> 00:01:54,360 Stephen Koukoulas: fall through the remainder of this year and into 2024, 34 00:01:54,360 --> 00:01:56,370 Stephen Koukoulas: even though things like petrol prices have jumped a bit 35 00:01:56,370 --> 00:01:57,810 Stephen Koukoulas: in the last few weeks. 36 00:01:58,320 --> 00:02:01,230 Jennifer Duke: That sounds like really, really good news. And it seems 37 00:02:01,230 --> 00:02:03,059 Jennifer Duke: like there's quite a bit happening in housing as well. 38 00:02:03,059 --> 00:02:03,930 Jennifer Duke: Can you talk us through that? 39 00:02:05,070 --> 00:02:08,940 Stephen Koukoulas: Yes. Well, the CoreLogic numbers came out on Friday for 40 00:02:08,940 --> 00:02:11,910 Stephen Koukoulas: the month of August, they have that comprehensive set of 41 00:02:11,910 --> 00:02:14,940 Stephen Koukoulas: numbers. And as we were able to deduce from their 42 00:02:14,940 --> 00:02:19,230 Stephen Koukoulas: high frequency daily data, house prices rose 0. 8% -- this 43 00:02:19,230 --> 00:02:22,919 Stephen Koukoulas: is a nationwide figure -- 0. 8% in the month. And 44 00:02:22,919 --> 00:02:26,940 Stephen Koukoulas: that's six consecutive months of increases. From the low point 45 00:02:26,940 --> 00:02:30,000 Stephen Koukoulas: that was recorded in February, they've increased by around about 46 00:02:30,000 --> 00:02:34,589 Stephen Koukoulas: 5%. So roughly half of that 9% drop that we 47 00:02:34,590 --> 00:02:38,400 Stephen Koukoulas: saw in 2022 and very early 2023 has been reversed 48 00:02:38,400 --> 00:02:42,629 Stephen Koukoulas: and the momentum still seems to be pretty solid. Those supply 49 00:02:42,629 --> 00:02:45,869 Stephen Koukoulas: and demand dynamics are still in place. We've got still 50 00:02:46,050 --> 00:02:48,090 Stephen Koukoulas: strong population growth, and as we alluded to with the 51 00:02:48,090 --> 00:02:51,660 Stephen Koukoulas: building approval numbers, we're not building many houses. So good old- 52 00:02:51,660 --> 00:02:55,410 Stephen Koukoulas: fashioned supply and demand are just continuing to dominate the 53 00:02:55,410 --> 00:02:57,960 Stephen Koukoulas: interest rate hikes that we've been seeing. So prices still 54 00:02:57,960 --> 00:03:00,870 Stephen Koukoulas: going up and not really showing a lot of signs 55 00:03:00,900 --> 00:03:02,489 Stephen Koukoulas: that they're losing momentum. 56 00:03:02,910 --> 00:03:05,490 Jennifer Duke: I'm really amazed at how resilient the housing market's been, 57 00:03:05,490 --> 00:03:07,470 Jennifer Duke: actually, through this cycle. I don't know if you feel 58 00:03:07,470 --> 00:03:08,070 Jennifer Duke: the same way. 59 00:03:08,340 --> 00:03:11,969 Stephen Koukoulas: Yes. Look, I'm surprised at how strong it's been. I 60 00:03:11,969 --> 00:03:14,400 Stephen Koukoulas: was never in the camp that prices would dropped 20 or 30%. 61 00:03:14,400 --> 00:03:16,920 Stephen Koukoulas: I didn't think that was realistic, it's never happened. And 62 00:03:17,609 --> 00:03:22,048 Stephen Koukoulas: again, somewhat apparent that post- COVID we would be reopening 63 00:03:22,050 --> 00:03:24,450 Stephen Koukoulas: the borders and the like. So it was always going 64 00:03:24,450 --> 00:03:26,520 Stephen Koukoulas: to be a weak period, but this rebound is something 65 00:03:26,520 --> 00:03:29,520 Stephen Koukoulas: that I think's been much stronger than anyone, even the 66 00:03:29,520 --> 00:03:34,109 Stephen Koukoulas: most optimistic house price bull would've been thinking. And again, 67 00:03:34,770 --> 00:03:36,960 Stephen Koukoulas: it's one of these ones, obviously there's an intergenerational issue 68 00:03:37,230 --> 00:03:40,619 Stephen Koukoulas: or people who really are being squeezed out of buying 69 00:03:40,620 --> 00:03:42,450 Stephen Koukoulas: the property market, and of course it's tightest in the 70 00:03:42,450 --> 00:03:45,540 Stephen Koukoulas: housing market. It's showing up in rents, which are still increasing 71 00:03:45,540 --> 00:03:47,099 Stephen Koukoulas: at a rapid pace. That was one thing in the 72 00:03:47,099 --> 00:03:51,090 Stephen Koukoulas: inflation numbers last week that was still accelerating, dwelling rents. 73 00:03:51,389 --> 00:03:54,150 Stephen Koukoulas: So we've got this issue that's coming through. However, as 74 00:03:54,150 --> 00:03:56,760 Stephen Koukoulas: the Reserve Bank have noted many times in the past, 75 00:03:57,210 --> 00:03:59,160 Stephen Koukoulas: there is a wealth effect from housing. So if house 76 00:03:59,160 --> 00:04:02,549 Stephen Koukoulas: prices go up, on average -- this is not everybody -- but 77 00:04:02,550 --> 00:04:05,969 Stephen Koukoulas: on average Australians are wealthier, and when they're feeling wealthier 78 00:04:05,969 --> 00:04:09,179 Stephen Koukoulas: they tend to spend more. So again, as we've discussed 79 00:04:09,179 --> 00:04:14,010 Stephen Koukoulas: many times, the interlinkages on housing, the economy, interest rates, population 80 00:04:14,010 --> 00:04:16,320 Stephen Koukoulas: growth are many and varied. 81 00:04:17,130 --> 00:04:18,928 Jennifer Duke: I think that's a great point. And we've obviously got 82 00:04:18,930 --> 00:04:22,230 Jennifer Duke: the Reserve Bank meeting this week. Can you give us 83 00:04:22,230 --> 00:04:23,610 Jennifer Duke: a bit of a sense of what you're thinking they 84 00:04:23,610 --> 00:04:24,030 Jennifer Duke: might do? 85 00:04:24,839 --> 00:04:27,719 Stephen Koukoulas: Yes. I think this is a relatively straightforward one, or 86 00:04:27,719 --> 00:04:30,330 Stephen Koukoulas: I hope it is. No change tomorrow when the Reserve 87 00:04:30,330 --> 00:04:32,880 Stephen Koukoulas: Bank board meet. It's the last meeting for Dr. Lowe 88 00:04:32,880 --> 00:04:35,729 Stephen Koukoulas: as governor before Michele Bullock takes over in the middle 89 00:04:35,730 --> 00:04:39,178 Stephen Koukoulas: of September, so roughly two weeks away. No change, and 90 00:04:39,178 --> 00:04:41,070 Stephen Koukoulas: for the reasons that we've just discussed, I suspect. And 91 00:04:41,070 --> 00:04:44,279 Stephen Koukoulas: that's because inflation is tracking lower and we are yet 92 00:04:44,279 --> 00:04:47,099 Stephen Koukoulas: to feel the full impact of the 400 points of 93 00:04:47,100 --> 00:04:48,720 Stephen Koukoulas: rate hikes. That's the other thing, again, that the Reserve 94 00:04:48,720 --> 00:04:50,580 Stephen Koukoulas: Bank's been talking about. They've delivered a lot of rate 95 00:04:50,580 --> 00:04:54,180 Stephen Koukoulas: hikes. And while there's a sort of a knee- jerk reaction, " 96 00:04:54,180 --> 00:04:56,490 Stephen Koukoulas: Oh, they hiked yesterday," and there's an impact on consumer 97 00:04:56,490 --> 00:04:59,460 Stephen Koukoulas: sentiment, the actual effect on the economy, as we know, 98 00:04:59,460 --> 00:05:03,479 Stephen Koukoulas: takes... Well, they call it a long and variable lag. 99 00:05:03,480 --> 00:05:05,819 Stephen Koukoulas: And I think that's sort of code for somewhere between 100 00:05:05,820 --> 00:05:08,640 Stephen Koukoulas: six and 12 and 18 months before it really hits the economy. 101 00:05:08,640 --> 00:05:11,310 Stephen Koukoulas: And so we had four rate hikes in the first half 102 00:05:11,310 --> 00:05:15,389 Stephen Koukoulas: of 2023. Here we are in September. The effect is 103 00:05:15,389 --> 00:05:17,969 Stephen Koukoulas: still to come through. So for the RBA tomorrow, no 104 00:05:17,969 --> 00:05:21,479 Stephen Koukoulas: change. They'll still probably sound a little bit hawkish. They'll 105 00:05:21,480 --> 00:05:25,080 Stephen Koukoulas: be expressing a few concerns. The inflation at 4. 9, 106 00:05:25,080 --> 00:05:28,529 Stephen Koukoulas: yes, in headline terms it's too high. So they'll kill 107 00:05:28,529 --> 00:05:32,160 Stephen Koukoulas: any discussion of rate cuts, and I agree, there's no 108 00:05:32,160 --> 00:05:35,940 Stephen Koukoulas: chance of rate cuts anytime soon. But they'll probably say 109 00:05:35,940 --> 00:05:37,409 Stephen Koukoulas: that, yeah, we need to keep a steady hand at 110 00:05:37,410 --> 00:05:40,920 Stephen Koukoulas: that narrow path to lower inflation while maintaining a good 111 00:05:40,920 --> 00:05:44,010 Stephen Koukoulas: labor market. We're on that path still, but we just 112 00:05:44,010 --> 00:05:47,220 Stephen Koukoulas: need to be careful not to over- tighten anymore. So 113 00:05:47,550 --> 00:05:49,409 Stephen Koukoulas: no change from our friends at the RBA. 114 00:05:50,490 --> 00:05:52,919 Jennifer Duke: And Dr. Lowe's also due to give a speech, I 115 00:05:53,040 --> 00:05:56,640 Jennifer Duke: believe it's called his final remarks, at the Anika Foundation. 116 00:05:56,910 --> 00:05:59,430 Jennifer Duke: What do you think he might remark on in his 117 00:05:59,430 --> 00:06:00,360 Jennifer Duke: final speech? 118 00:06:00,930 --> 00:06:05,099 Stephen Koukoulas: Look, if I was Dr Lowe, I would be acknowledging 119 00:06:05,100 --> 00:06:07,080 Stephen Koukoulas: some of the errors that have been made, of course. 120 00:06:07,410 --> 00:06:10,800 Stephen Koukoulas: You can't not do that if you've been presiding over 121 00:06:11,160 --> 00:06:14,428 Stephen Koukoulas: very low inflation, very high inflation and giving... What do 122 00:06:14,428 --> 00:06:16,829 Stephen Koukoulas: we call it? Misleading guidance on where rates are going. 123 00:06:16,889 --> 00:06:19,140 Stephen Koukoulas: But having said that, I would also point to the 124 00:06:19,140 --> 00:06:21,900 Stephen Koukoulas: fact that here we are, we've got through a pandemic 125 00:06:21,990 --> 00:06:27,960 Stephen Koukoulas: with reasonably good economic outcomes. Here we are discussing the 126 00:06:27,960 --> 00:06:31,649 Stephen Koukoulas: unemployment rate at a three point something level. And that's 127 00:06:31,650 --> 00:06:34,470 Stephen Koukoulas: a wonderful legacy. Full employment, we've sort of got it, 128 00:06:34,980 --> 00:06:38,039 Stephen Koukoulas: and it occurred without wages breaking out. Wages have lifted too, 129 00:06:38,100 --> 00:06:40,500 Stephen Koukoulas: that's another good thing that he could emphasize, but that 130 00:06:40,500 --> 00:06:42,330 Stephen Koukoulas: they're not too hot, if you know what I mean. 131 00:06:43,800 --> 00:06:45,990 Stephen Koukoulas: The scorecard, if you like, on the economy, while there 132 00:06:45,990 --> 00:06:48,779 Stephen Koukoulas: are a few question marks and a few little hiccups 133 00:06:48,779 --> 00:06:51,900 Stephen Koukoulas: and things and a few unpleasantries in the scorecard on 134 00:06:51,900 --> 00:06:57,180 Stephen Koukoulas: the economy, full employment's a mighty good thing. Moderate wage growth 135 00:06:57,180 --> 00:07:00,450 Stephen Koukoulas: that's sustainable in that 3. 5 to 4% level, which 136 00:07:00,450 --> 00:07:03,178 Stephen Koukoulas: appears to be where wages growth is being maintained at 137 00:07:03,178 --> 00:07:06,089 Stephen Koukoulas: the moment, is a good thing as well. So I'd 138 00:07:06,089 --> 00:07:10,289 Stephen Koukoulas: expect him to be reasonably positive whilst acknowledging a couple 139 00:07:10,289 --> 00:07:12,299 Stephen Koukoulas: of missteps in recent years. 140 00:07:13,050 --> 00:07:14,550 Jennifer Duke: And what else do we have to look forward to 141 00:07:14,550 --> 00:07:15,360 Jennifer Duke: for the rest of the week? 142 00:07:15,960 --> 00:07:18,239 Stephen Koukoulas: The other big one is on Wednesday we get the 143 00:07:18,240 --> 00:07:22,860 Stephen Koukoulas: June quarter GDP results, and everybody loves the GDP results. It's going 144 00:07:22,860 --> 00:07:25,980 Stephen Koukoulas: to be a soft number. I guess that feeds back 145 00:07:25,980 --> 00:07:29,129 Stephen Koukoulas: into the RBA decision. They obviously meet before the GDP 146 00:07:29,129 --> 00:07:31,590 Stephen Koukoulas: number comes out and, as I understand it, they don't 147 00:07:31,590 --> 00:07:34,260 Stephen Koukoulas: actually have it before them when they discuss interest rate 148 00:07:34,260 --> 00:07:35,400 Stephen Koukoulas: settings, as I understand it. 149 00:07:35,400 --> 00:07:35,489 Jennifer Duke: Oh, that's awkward. 150 00:07:35,490 --> 00:07:39,389 Stephen Koukoulas: Yes. It's a bit of a funny one. But it's probably going to be 151 00:07:39,389 --> 00:07:40,830 Stephen Koukoulas: a pretty soft number. We know a lot of the 152 00:07:40,830 --> 00:07:44,759 Stephen Koukoulas: partial indicators. Retail sales went backwards. We had good CapEx 153 00:07:44,759 --> 00:07:48,330 Stephen Koukoulas: numbers last week too. Business investment, which was going to 154 00:07:48,330 --> 00:07:50,130 Stephen Koukoulas: be adding a bit of a floor to bottom line 155 00:07:50,130 --> 00:07:54,030 Stephen Koukoulas: GDP. Net exports are probably neither here nor there. So 156 00:07:54,390 --> 00:07:59,039 Stephen Koukoulas: GDP probably around about 0.4, 0. 5, quarter on quarter. In per 157 00:07:59,040 --> 00:08:02,939 Stephen Koukoulas: capita terms, probably close to zero. In angle terms, probably 158 00:08:02,940 --> 00:08:07,800 Stephen Koukoulas: dipping below 2%. So a soft result, but we are not in 159 00:08:07,800 --> 00:08:10,500 Stephen Koukoulas: free fall in terms of how the economy is going. 160 00:08:10,500 --> 00:08:14,640 Stephen Koukoulas: So a lot to digest later this week. RBA, GDP numbers, 161 00:08:15,179 --> 00:08:17,880 Stephen Koukoulas: Governor Lowe's speech. I love it. I love it. 162 00:08:18,120 --> 00:08:21,480 Jennifer Duke: I think it's going to be a really, really busy one. Is there anything 163 00:08:21,480 --> 00:08:22,859 Jennifer Duke: else that we should be expecting coming up? 164 00:08:23,850 --> 00:08:25,590 Stephen Koukoulas: Look, there's a couple of bits and bobs too. We 165 00:08:25,590 --> 00:08:28,890 Stephen Koukoulas: do get the Melbourne Institute Monthly Inflation Gauge. Not a 166 00:08:28,890 --> 00:08:32,219 Stephen Koukoulas: bad leading indicator on the official inflation numbers. The A 167 00:08:33,059 --> 00:08:36,630 Stephen Koukoulas: and Z Indeed job ad series comes out. With the 168 00:08:36,630 --> 00:08:38,849 Stephen Koukoulas: slowing economy, of course there's been a dip in demand for 169 00:08:38,849 --> 00:08:42,690 Stephen Koukoulas: labor, so probably another moderate fall in the number of 170 00:08:42,690 --> 00:08:45,330 Stephen Koukoulas: job advertisements coming through. And then we've got things like 171 00:08:45,330 --> 00:08:48,569 Stephen Koukoulas: new motor vehicle sales and the international trade data. We're going 172 00:08:48,690 --> 00:08:52,500 Stephen Koukoulas: to be recording another big international trade surplus. Even though 173 00:08:52,500 --> 00:08:55,200 Stephen Koukoulas: some of the commodity prices have come down, export volumes 174 00:08:55,200 --> 00:08:58,920 Stephen Koukoulas: are still pretty resilient and imports are probably pretty weak 175 00:08:58,920 --> 00:09:03,000 Stephen Koukoulas: as domestic demand in Australia's slowing. So another 10 odd 176 00:09:03,000 --> 00:09:04,949 Stephen Koukoulas: billion monthly trade surplus. 177 00:09:05,250 --> 00:09:07,199 Jennifer Duke: Good grief. It's going to be a very busy week. 178 00:09:07,200 --> 00:09:09,120 Jennifer Duke: Stephen, I hope you have a really good one for 179 00:09:09,120 --> 00:09:09,870 Jennifer Duke: the rest of the week. 180 00:09:10,230 --> 00:09:12,088 Stephen Koukoulas: I will, Jen. You, too. Thanks very much. 181 00:09:12,509 --> 00:09:15,089 Jennifer Duke: And that was economist Stephen Koukoulas, better known as The 182 00:09:15,480 --> 00:09:17,549 Jennifer Duke: Kouk. You can find him at thekouk. com and follow 183 00:09:17,549 --> 00:09:21,179 Jennifer Duke: him on X using the handle TheKouk. I'm Jennifer Duke, economics 184 00:09:21,179 --> 00:09:23,970 Jennifer Duke: correspondent at Capital Brief. I'm filling in for Sean Aylmer, 185 00:09:24,179 --> 00:09:25,828 Jennifer Duke: and this is Fear and Greed - The Week Ahead.