1 00:00:08,070 --> 00:00:10,200 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. I'm Sean 2 00:00:10,200 --> 00:00:14,010 Sean Aylmer: Aylmer, and as always, I'm joined by economist Stephen Koukoulas. 3 00:00:14,340 --> 00:00:16,650 Sean Aylmer: You'll find him at thekouk. com and on Twitter using 4 00:00:16,650 --> 00:00:18,750 Sean Aylmer: the handle TheKouk. Stephen, good morning. 5 00:00:19,200 --> 00:00:20,730 Stephen Koukoulas: And a very good morning to you, Sean. 6 00:00:21,300 --> 00:00:23,550 Sean Aylmer: Massive week coming up. Before we get that, we better 7 00:00:23,550 --> 00:00:26,579 Sean Aylmer: have a quick check in on credit and retail sales 8 00:00:26,579 --> 00:00:29,969 Sean Aylmer: and building approvals and stuff like that. Last week, I 9 00:00:29,969 --> 00:00:31,620 Sean Aylmer: mean, I suppose actually the big news last week, really 10 00:00:31,620 --> 00:00:32,820 Sean Aylmer: was the US Fed decision. 11 00:00:33,360 --> 00:00:36,029 Stephen Koukoulas: It was, and that sparked a rally in stocks, that 12 00:00:36,029 --> 00:00:38,520 Stephen Koukoulas: sparked a rally in the bond market. The bond market, which had 13 00:00:38,520 --> 00:00:42,900 Stephen Koukoulas: been absolutely hammered for the last couple of months, took 14 00:00:42,900 --> 00:00:45,149 Stephen Koukoulas: relief from the fact, not so much that they were 15 00:00:45,150 --> 00:00:47,370 Stephen Koukoulas: on hold, everybody thought that they weren't going to be 16 00:00:47,429 --> 00:00:51,120 Stephen Koukoulas: adjusting interest rates at the meeting, but the chairperson of 17 00:00:51,120 --> 00:00:54,150 Stephen Koukoulas: the Federal Reserve Jerome Powell, came out and while he 18 00:00:54,150 --> 00:00:57,000 Stephen Koukoulas: said that there's still a possibility of a rate hike, 19 00:00:57,000 --> 00:01:00,120 Stephen Koukoulas: it was seen to be quite dovish. And given the 20 00:01:00,120 --> 00:01:02,280 Stephen Koukoulas: extent of the selloff in the bond market, given that 21 00:01:02,280 --> 00:01:06,630 Stephen Koukoulas: equities had been tracking sideways to down for some period 22 00:01:06,630 --> 00:01:10,739 Stephen Koukoulas: of time, there was this proverbial relief rally and we 23 00:01:10,740 --> 00:01:13,740 Stephen Koukoulas: saw bond yields come back down. We saw the stock 24 00:01:13,740 --> 00:01:16,380 Stephen Koukoulas: market have a couple of powerful days as well, which 25 00:01:16,380 --> 00:01:19,740 Stephen Koukoulas: was good news I suppose. But we also had the 26 00:01:19,740 --> 00:01:24,690 Stephen Koukoulas: likes of the ECB, the European Central Bank, the Bank of England, all 27 00:01:24,690 --> 00:01:28,650 Stephen Koukoulas: on hold as well. So we've got this growing probability 28 00:01:28,650 --> 00:01:32,819 Stephen Koukoulas: and quite a high probability the rate hiking cycle globally 29 00:01:33,390 --> 00:01:35,610 Stephen Koukoulas: in general terms, it's reaching an end. 30 00:01:36,720 --> 00:01:39,779 Sean Aylmer: That would be exciting. We've got a big week coming 31 00:01:39,780 --> 00:01:41,160 Sean Aylmer: up, so I want to get onto that, but just 32 00:01:41,160 --> 00:01:43,920 Sean Aylmer: the local data last week, was there anything of particular interest? 33 00:01:44,009 --> 00:01:47,219 Stephen Koukoulas: The local data? Yes, retail sales, a touch stronger than 34 00:01:47,219 --> 00:01:50,670 Stephen Koukoulas: expected, and it was linked to warmer weather, so people 35 00:01:50,850 --> 00:01:53,100 Stephen Koukoulas: checked their wardrobe and found out that their old clothes 36 00:01:53,220 --> 00:01:55,080 Stephen Koukoulas: either didn't fit or were so much out of fashion that 37 00:01:55,080 --> 00:01:57,630 Stephen Koukoulas: we had a bit of an uptick in department store 38 00:01:57,630 --> 00:02:01,500 Stephen Koukoulas: sales. Not a terribly strong number, but it was just 39 00:02:01,500 --> 00:02:05,220 Stephen Koukoulas: a little bit better than the market was really assuming. 40 00:02:05,850 --> 00:02:08,160 Stephen Koukoulas: The credit numbers, again, a touch stronger, but mainly it 41 00:02:08,160 --> 00:02:10,830 Stephen Koukoulas: was business credit. So it's in line with the business 42 00:02:10,830 --> 00:02:12,840 Stephen Koukoulas: sector ramping up some of its CapEx, which is a 43 00:02:12,840 --> 00:02:15,240 Stephen Koukoulas: theme that we've spoken about in the past, that one 44 00:02:15,240 --> 00:02:17,490 Stephen Koukoulas: of the reasons the economy is holding up reasonably well 45 00:02:17,490 --> 00:02:20,669 Stephen Koukoulas: in Australia is that businesses are investing and they're buying 46 00:02:20,669 --> 00:02:22,919 Stephen Koukoulas: machinery and equipment. And that was showing up in the 47 00:02:22,980 --> 00:02:29,820 Stephen Koukoulas: international goods trade balance, which saw a much narrower surplus, 48 00:02:29,820 --> 00:02:33,179 Stephen Koukoulas: down to about $ 6 billion down from 9 billion, and 49 00:02:33,179 --> 00:02:36,150 Stephen Koukoulas: it was all due to imports getting higher, imports of 50 00:02:36,300 --> 00:02:40,320 Stephen Koukoulas: machinery and equipment. Which dovetails perfectly into this scenario where 51 00:02:40,320 --> 00:02:42,990 Stephen Koukoulas: the CapEx side of the economy, private sector business investment, 52 00:02:42,990 --> 00:02:43,828 Stephen Koukoulas: is doing okay. 53 00:02:44,340 --> 00:02:47,820 Sean Aylmer: We like that. Let's move on. Well, a couple of 54 00:02:47,820 --> 00:02:49,440 Sean Aylmer: big things tomorrow, obviously the Reserve Bank, but who are 55 00:02:49,440 --> 00:02:50,550 Sean Aylmer: you going for in the Melbourne Cup? 56 00:02:50,820 --> 00:02:51,990 Stephen Koukoulas: Melbourne Cup, Gold Trip, 57 00:02:52,710 --> 00:02:53,100 Sean Aylmer: Ooh. Two in a row, you reckon? 58 00:02:53,100 --> 00:02:57,089 Stephen Koukoulas: Two in a row. It's just a fabulous horse that 59 00:02:57,089 --> 00:03:00,209 Stephen Koukoulas: ran well in the wonderful Cox Plate. So Gold Trip's 60 00:03:00,209 --> 00:03:01,919 Stephen Koukoulas: it, and I'm just looking through some of the other 61 00:03:01,919 --> 00:03:06,329 Stephen Koukoulas: Maher Eustace horses. I've got a sneaking suspicion that tomorrow 62 00:03:06,330 --> 00:03:08,969 Stephen Koukoulas: they may get close to training the trifecta, which would 63 00:03:08,970 --> 00:03:13,530 Stephen Koukoulas: be a phenomenal thing for those absolute wonderful horse whisperers. Yeah. 64 00:03:14,849 --> 00:03:17,939 Sean Aylmer: We digress somewhat. We've also got a Reserve Bank decision tomorrow. 65 00:03:17,940 --> 00:03:19,530 Stephen Koukoulas: Oh, that's right. We do too. Yes. I've almost forgotten 66 00:03:19,530 --> 00:03:23,669 Stephen Koukoulas: about that. And look, that's a fascinating one because I 67 00:03:23,669 --> 00:03:27,780 Stephen Koukoulas: think on the last survey that I saw from Bloomberg, 68 00:03:27,870 --> 00:03:31,679 Stephen Koukoulas: 33 out of 35 respondents to the survey thought that 69 00:03:31,679 --> 00:03:34,859 Stephen Koukoulas: the RBA would hike 25 basis points. There were two 70 00:03:34,859 --> 00:03:38,670 Stephen Koukoulas: sort of stragglers who thought probably possibly no change, but 71 00:03:38,670 --> 00:03:42,930 Stephen Koukoulas: the curious thing through the course of the week after 72 00:03:42,930 --> 00:03:45,779 Stephen Koukoulas: that CPI result 10 days ago or so, which sort 73 00:03:45,780 --> 00:03:48,839 Stephen Koukoulas: of sparked that rate hiking forecast frenzy, if we can 74 00:03:48,840 --> 00:03:52,559 Stephen Koukoulas: call it that, is that the probability just got scaled 75 00:03:52,619 --> 00:03:55,980 Stephen Koukoulas: back a little bit. So for tomorrow it's about a 76 00:03:55,980 --> 00:04:01,740 Stephen Koukoulas: 60/40, approximately. 60/ 40 proposition that they'll hike. So it's by 77 00:04:01,740 --> 00:04:05,999 Stephen Koukoulas: no means that (inaudible) certainty that usually we go 78 00:04:06,000 --> 00:04:08,129 Stephen Koukoulas: into RBA meetings, oh, they're definitely going to hold or 79 00:04:08,130 --> 00:04:12,780 Stephen Koukoulas: they're definitely going to hike. This one is it's likely, 80 00:04:12,780 --> 00:04:15,900 Stephen Koukoulas: but by no means certain. So it's an absolutely fascinating 81 00:04:15,900 --> 00:04:18,900 Stephen Koukoulas: one because the Reserve Bank, as we just mentioned, that 82 00:04:19,320 --> 00:04:20,940 Stephen Koukoulas: other central banks are on hold and have been on 83 00:04:20,940 --> 00:04:24,510 Stephen Koukoulas: hold for a few months, the economy here is slowing, 84 00:04:24,928 --> 00:04:27,449 Stephen Koukoulas: and even though that inflation number was a little higher 85 00:04:27,570 --> 00:04:32,700 Stephen Koukoulas: than expected, they could hold. They might just hold knowing and put 86 00:04:32,700 --> 00:04:35,400 Stephen Koukoulas: out the commentary that yes, the rest of the world 87 00:04:35,400 --> 00:04:38,729 Stephen Koukoulas: is seeing lower inflation, we're seeing lower inflation, we're on 88 00:04:38,730 --> 00:04:41,940 Stephen Koukoulas: track to get inflation back to that two to three 89 00:04:41,940 --> 00:04:44,580 Stephen Koukoulas: target range. Labor markets starting to soften a little bit 90 00:04:44,940 --> 00:04:47,760 Stephen Koukoulas: and they, oh gee, it's a tough call. It's genuinely 91 00:04:47,760 --> 00:04:51,960 Stephen Koukoulas: line ball from the chatter that's going around. The board 92 00:04:51,960 --> 00:04:54,928 Stephen Koukoulas: papers, the papers that the reserve bank present and give 93 00:04:54,930 --> 00:04:57,719 Stephen Koukoulas: to the board members, well, at the end of last 94 00:04:57,719 --> 00:05:01,888 Stephen Koukoulas: week, had a recommendation of either on hold or a 25 point 95 00:05:01,889 --> 00:05:03,960 Stephen Koukoulas: hike. Of course, that's what they're going to be discussing. 96 00:05:04,440 --> 00:05:07,350 Stephen Koukoulas: The weight of the board, tough call, a really tough 97 00:05:07,350 --> 00:05:07,919 Stephen Koukoulas: call this one. 98 00:05:08,400 --> 00:05:11,130 Sean Aylmer: Damned if they do, because rates going up, damned if 99 00:05:11,130 --> 00:05:13,409 Sean Aylmer: they don't. Because all those economists out there will be 100 00:05:13,410 --> 00:05:15,808 Sean Aylmer: upset that they saying that they haven't signaled what they're 101 00:05:15,809 --> 00:05:16,380 Sean Aylmer: going to do. 102 00:05:16,740 --> 00:05:19,678 Stephen Koukoulas: Correct. It's one of those ones, well, there's a little 103 00:05:19,678 --> 00:05:22,199 Stephen Koukoulas: bit of a fanciful call that given that the cash rate 104 00:05:22,199 --> 00:05:26,789 Stephen Koukoulas: is 4. 10%, so not in those nice quarter percentage 105 00:05:26,790 --> 00:05:30,210 Stephen Koukoulas: point increments, they might hike 15. You heard it here 106 00:05:30,210 --> 00:05:31,830 Stephen Koukoulas: first. I wouldn't put my money on that. I'll put 107 00:05:31,830 --> 00:05:33,481 Stephen Koukoulas: it on Gold Trip instead. 108 00:05:33,481 --> 00:05:36,150 Sean Aylmer: I'll put it on Gold Trip instead. The other really interesting thing this week of course 109 00:05:36,150 --> 00:05:38,190 Sean Aylmer: is that the Reserve Bank's going to release its statement 110 00:05:38,190 --> 00:05:41,010 Sean Aylmer: on monetary policy. It's going to have its updated forecast 111 00:05:41,010 --> 00:05:42,990 Sean Aylmer: for inflation and unemployment. Stephen. 112 00:05:43,170 --> 00:05:45,330 Stephen Koukoulas: Yes they do. So on Friday this week, they put 113 00:05:45,330 --> 00:05:49,020 Stephen Koukoulas: out their detailed analysis of the economy. They usually use 114 00:05:49,020 --> 00:05:51,119 Stephen Koukoulas: that as an opportunity to really put a lot of 115 00:05:51,120 --> 00:05:56,370 Stephen Koukoulas: flesh on the economic debate, international economy, financial conditions, inflation 116 00:05:56,370 --> 00:05:59,190 Stephen Koukoulas: pressures and the like. So the critical thing for the 117 00:05:59,190 --> 00:06:02,820 Stephen Koukoulas: markets will be, particularly after the decision tomorrow, hike or 118 00:06:02,910 --> 00:06:06,029 Stephen Koukoulas: no hike, will be what's its forecast for inflation? Have 119 00:06:06,029 --> 00:06:09,990 Stephen Koukoulas: they dramatically changed those from the August statement on monetary 120 00:06:09,990 --> 00:06:13,080 Stephen Koukoulas: policy? What's the outlook for unemployment? Is it still expecting 121 00:06:13,080 --> 00:06:16,500 Stephen Koukoulas: unemployment to hit 4.5%? So we'll see not only the 122 00:06:16,500 --> 00:06:20,460 Stephen Koukoulas: detailed analysis of the minute details of the economy, but 123 00:06:20,460 --> 00:06:23,190 Stephen Koukoulas: the hard and fast forecast. What are they actually saying 124 00:06:24,120 --> 00:06:27,479 Stephen Koukoulas: is their view that for 2024 and 2025, where the economy will 125 00:06:27,480 --> 00:06:30,209 Stephen Koukoulas: go? So statement on monetary policy is always a good 126 00:06:30,210 --> 00:06:33,779 Stephen Koukoulas: read. It's always about 60, 70 pages of stuff for us 127 00:06:33,779 --> 00:06:35,190 Stephen Koukoulas: economists to digest. 128 00:06:35,670 --> 00:06:37,830 Sean Aylmer: Stephen, have a great week and good luck on Gold 129 00:06:37,830 --> 00:06:38,430 Sean Aylmer: Trip tomorrow. 130 00:06:39,210 --> 00:06:40,799 Stephen Koukoulas: I'll be cheering it home and I'll be cheering home 131 00:06:40,800 --> 00:06:42,660 Stephen Koukoulas: the rates on hold decision from the RBA too. 132 00:06:43,740 --> 00:06:46,050 Sean Aylmer: We all would cheer that one home. That was economist 133 00:06:46,050 --> 00:06:48,238 Sean Aylmer: Stephen Koukoulas, better known as The Kouk. You can find 134 00:06:48,240 --> 00:06:50,820 Sean Aylmer: him at thekouk. com and follow him on Twitter using 135 00:06:50,820 --> 00:06:53,849 Sean Aylmer: the handle TheKouk. I'm Sean Aylmer and this is Fear and Greed, The 136 00:06:53,850 --> 00:06:54,390 Sean Aylmer: Week Ahead.