1 00:00:08,160 --> 00:00:10,680 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. I'm Sean 2 00:00:10,740 --> 00:00:13,980 Sean Aylmer: Aylmer and as always I'm joined by economist, Stephen Koukoulas. 3 00:00:14,340 --> 00:00:17,580 Sean Aylmer: You'll find him at thekouk. com T- H- E- K- O- U- K. 4 00:00:17,820 --> 00:00:21,870 Sean Aylmer: com and on Twitter using the handle, thekouk. Stephen, good morning. 5 00:00:22,410 --> 00:00:25,110 Stephen Koukoulas: Good morning, Sean. I think I'm just recovering from what 6 00:00:25,110 --> 00:00:28,740 Stephen Koukoulas: was an extraordinary week for the economy last week. 7 00:00:29,220 --> 00:00:31,620 Sean Aylmer: Well, look, before we get into that, what was more 8 00:00:31,620 --> 00:00:34,559 Sean Aylmer: extraordinary was the debate that you had with Chris Joy 9 00:00:34,620 --> 00:00:36,780 Sean Aylmer: on Fear and Greed about what's going to happen in 10 00:00:36,780 --> 00:00:39,750 Sean Aylmer: the housing market, the reserve bank and the economy? Did 11 00:00:39,750 --> 00:00:40,229 Sean Aylmer: you enjoy it? 12 00:00:40,680 --> 00:00:42,870 Stephen Koukoulas: I thoroughly enjoyed it and it was a good half an 13 00:00:42,870 --> 00:00:45,120 Stephen Koukoulas: hour. In fact, funnily enough, Sean, and I don't know quite 14 00:00:45,120 --> 00:00:46,290 Stephen Koukoulas: how you're up for this, but a lot of the 15 00:00:46,290 --> 00:00:48,300 Stephen Koukoulas: feedback was we wish it went longer. 16 00:00:48,510 --> 00:00:49,050 Sean Aylmer: Is that right? 17 00:00:49,770 --> 00:00:51,659 Stephen Koukoulas: Yeah. People wanted to sort of explore some of the 18 00:00:51,659 --> 00:00:55,800 Stephen Koukoulas: details and issues there. Now, that might just be a 19 00:00:55,800 --> 00:00:58,050 Stephen Koukoulas: narrow number of people, but hey, people loved it from 20 00:00:58,050 --> 00:00:59,730 Stephen Koukoulas: what I can gather. And I did too. 21 00:01:00,000 --> 00:01:02,220 Sean Aylmer: If anyone wants to listen to it, it will be on 22 00:01:02,220 --> 00:01:06,090 Sean Aylmer: your playlist. And the fear ingredient was the housing debate. 23 00:01:06,090 --> 00:01:08,430 Sean Aylmer: It came out on Wednesday last week and it was 24 00:01:08,430 --> 00:01:12,929 Sean Aylmer: a debate between Stephen and Chris Joy. Now, let's talk 25 00:01:12,930 --> 00:01:16,080 Sean Aylmer: about last week quickly. It was pretty big in terms 26 00:01:16,080 --> 00:01:19,500 Sean Aylmer: of the June quarter inflation though, that number wasn't quite 27 00:01:19,500 --> 00:01:21,000 Sean Aylmer: as high as some had expected. 28 00:01:21,630 --> 00:01:23,640 Stephen Koukoulas: Yes, it was one of those ones where a bad 29 00:01:23,640 --> 00:01:26,520 Stephen Koukoulas: number, because it wasn't even worse, actually seemed to be 30 00:01:26,520 --> 00:01:30,990 Stephen Koukoulas: good. So annual inflation 6. 1%, so equal to its 31 00:01:30,990 --> 00:01:33,840 Stephen Koukoulas: highest level in 20 years when the GST was introduced 32 00:01:33,840 --> 00:01:36,270 Stephen Koukoulas: all those years ago. The trimmed mean, which is sort 33 00:01:36,270 --> 00:01:39,119 Stephen Koukoulas: of the underlying measure was 4. 9%. So a very 34 00:01:39,120 --> 00:01:42,720 Stephen Koukoulas: high result. But the curious thing was because it wasn't 35 00:01:42,720 --> 00:01:45,990 Stephen Koukoulas: as high as expected the markets scaled back a little 36 00:01:45,990 --> 00:01:48,900 Stephen Koukoulas: bit their expectations for the number of rate hikes that 37 00:01:48,900 --> 00:01:50,760 Stephen Koukoulas: the RBA will have to deliver over the course of 38 00:01:50,760 --> 00:01:52,890 Stephen Koukoulas: the next six to nine months. So look, we've still 39 00:01:52,890 --> 00:01:56,130 Stephen Koukoulas: got an inflation problem. It's still very high. It'll get 40 00:01:56,130 --> 00:02:00,240 Stephen Koukoulas: higher before it gets lower, hopefully in 2023. But there 41 00:02:00,240 --> 00:02:01,410 Stephen Koukoulas: is a little bit of light at the end of 42 00:02:01,410 --> 00:02:04,020 Stephen Koukoulas: the tunnel on the inflation outlook even though this one 43 00:02:04,020 --> 00:02:06,390 Stephen Koukoulas: was a slightly better than expected result. 44 00:02:06,810 --> 00:02:09,450 Sean Aylmer: And Jim Chalmers, the federal treasurer, was talking last week 45 00:02:09,450 --> 00:02:13,200 Sean Aylmer: too. He gave us an update on the economic projections 46 00:02:13,200 --> 00:02:14,880 Sean Aylmer: of the government. What did they tell us? 47 00:02:15,510 --> 00:02:18,960 Stephen Koukoulas: Look, they were a really interesting set of numbers. He 48 00:02:18,960 --> 00:02:22,200 Stephen Koukoulas: painted them I think, politically rather than economically as grim 49 00:02:22,200 --> 00:02:24,240 Stephen Koukoulas: news, we've got tough conditions ahead. And I think the 50 00:02:24,330 --> 00:02:26,850 Stephen Koukoulas: focus quite rightly for the electorate, I suppose, is the 51 00:02:26,850 --> 00:02:30,419 Stephen Koukoulas: cost of living and the inflation rate. So in reverse 52 00:02:30,419 --> 00:02:33,600 Stephen Koukoulas: order, in a sense, what the treasury is now forecasting, 53 00:02:33,600 --> 00:02:36,840 Stephen Koukoulas: which will presumably be feeding into RBA and treasury thinking 54 00:02:36,840 --> 00:02:40,200 Stephen Koukoulas: for the next few months. GDP is slowing from three 55 00:02:40,200 --> 00:02:43,740 Stephen Koukoulas: and three quarter percent last year to 3% this current 56 00:02:43,770 --> 00:02:46,860 Stephen Koukoulas: year to 2% next year, which is exactly what tight 57 00:02:46,889 --> 00:02:50,070 Stephen Koukoulas: monetary policy is meant to achieve. Inflation, as a result, 58 00:02:50,070 --> 00:02:52,770 Stephen Koukoulas: does get higher. It hits a peak of seven and 59 00:02:52,770 --> 00:02:55,110 Stephen Koukoulas: three quarter percent at the end of this year, before 60 00:02:55,110 --> 00:02:58,380 Stephen Koukoulas: it drops to three and a quarter percent next year 61 00:02:58,380 --> 00:03:02,430 Stephen Koukoulas: and drops below 3% into 2024. And the good news 62 00:03:02,430 --> 00:03:05,490 Stephen Koukoulas: is that the unemployment rate hangs around 3.5% for the 63 00:03:05,490 --> 00:03:08,940 Stephen Koukoulas: short term. And even when the economy slows it doesn't 64 00:03:08,940 --> 00:03:12,330 Stephen Koukoulas: get above 4%. So if you to sort of say to 65 00:03:12,330 --> 00:03:14,610 Stephen Koukoulas: me that if we could have an economy in 2024 66 00:03:14,610 --> 00:03:18,930 Stephen Koukoulas: with inflation in the target unemployment at 4% and the effect 67 00:03:18,930 --> 00:03:21,570 Stephen Koukoulas: of the full effect of the rate hiking cycle, having 68 00:03:21,570 --> 00:03:24,390 Stephen Koukoulas: the economy slow to a soft landing of 2% GDP growth, 69 00:03:24,480 --> 00:03:25,170 Stephen Koukoulas: you'd take it. 70 00:03:25,500 --> 00:03:28,770 Sean Aylmer: Yeah, absolutely. Absolutely. The other news last week, which was 71 00:03:28,800 --> 00:03:32,400 Sean Aylmer: interesting internationally is the US Fed lifted interest rates by 72 00:03:32,400 --> 00:03:33,690 Sean Aylmer: 75 basis points. 73 00:03:34,590 --> 00:03:37,500 Stephen Koukoulas: As expected, the Fed who've got a much bigger inflation 74 00:03:37,500 --> 00:03:41,640 Stephen Koukoulas: problem than Australia. Their CPI is 9%. They did hike 75 00:03:41,640 --> 00:03:45,840 Stephen Koukoulas: by 75 basis points to their cash rate band. The 76 00:03:45,840 --> 00:03:50,730 Stephen Koukoulas: top end of the band's to 2.5%. So two 75 basis point 77 00:03:50,730 --> 00:03:53,490 Stephen Koukoulas: rate hikes in a row, they're serious about hiking rates. 78 00:03:53,790 --> 00:03:56,850 Stephen Koukoulas: But then again, the market liked that result. Normally you 79 00:03:56,850 --> 00:04:00,360 Stephen Koukoulas: think a 75 point hike would be pretty disconcerting, but the 80 00:04:00,360 --> 00:04:04,350 Stephen Koukoulas: rhetoric from Jerome Powell, the chairperson of the Federal Reserve 81 00:04:04,350 --> 00:04:08,010 Stephen Koukoulas: was that we probably don't need to hike as aggressively 82 00:04:08,010 --> 00:04:11,640 Stephen Koukoulas: in the months ahead. That there are tentative signs that 83 00:04:11,640 --> 00:04:14,400 Stephen Koukoulas: inflation's toping out. Oil prices are coming off the peak. 84 00:04:14,610 --> 00:04:17,099 Stephen Koukoulas: Some of the labor market indicators in the US are 85 00:04:17,339 --> 00:04:21,570 Stephen Koukoulas: weakening suggesting that the wages will start to moderate a 86 00:04:21,570 --> 00:04:23,790 Stephen Koukoulas: bit in the US as well. So the market thought, 87 00:04:23,790 --> 00:04:25,350 Stephen Koukoulas: oh, okay, there might be a couple more rate hikes, 88 00:04:25,350 --> 00:04:28,890 Stephen Koukoulas: but not too many more. And the bond market rallied 89 00:04:28,890 --> 00:04:32,130 Stephen Koukoulas: and stocks had a nice pick up immediately after that announcement. 90 00:04:32,460 --> 00:04:34,830 Sean Aylmer: So it was a pretty big week last week, Stephen, but this 91 00:04:34,830 --> 00:04:36,330 Sean Aylmer: week I reckon matches it. 92 00:04:36,660 --> 00:04:39,120 Stephen Koukoulas: Yes, I'm afraid so. There's no rest for the wicked 93 00:04:39,120 --> 00:04:40,589 Stephen Koukoulas: as they say, but it's a corker. 94 00:04:41,430 --> 00:04:43,380 Sean Aylmer: Let's start with tomorrow. The Reserve Bank board meets. 95 00:04:43,830 --> 00:04:46,000 Stephen Koukoulas: Tomorrow's board meeting. Yeah, look, it's a (inaudible) item 96 00:04:46,110 --> 00:04:48,540 Stephen Koukoulas: that's there that they go 50 basis points on the back 97 00:04:48,540 --> 00:04:51,570 Stephen Koukoulas: of that inflation result from last week. And even the 98 00:04:51,570 --> 00:04:53,820 Stephen Koukoulas: labor force numbers from a few weeks ago, which confirmed 99 00:04:53,820 --> 00:04:58,770 Stephen Koukoulas: unemployment at 3. 5%. There's a bit of chatter probably dying 100 00:04:58,770 --> 00:05:01,349 Stephen Koukoulas: down in the last couple of days that they might 101 00:05:01,350 --> 00:05:04,110 Stephen Koukoulas: go 75 points sort of use the Fed's action as 102 00:05:04,110 --> 00:05:05,969 Stephen Koukoulas: a bit of cover for them to sort of get a bit 103 00:05:05,970 --> 00:05:08,160 Stephen Koukoulas: more ahead of the curve. But I think at this 104 00:05:08,160 --> 00:05:12,270 Stephen Koukoulas: stage with effectively 50 points priced into the future's market, 105 00:05:12,600 --> 00:05:15,839 Stephen Koukoulas: they hike 50, their commentary on the inflation outlook, the 106 00:05:15,839 --> 00:05:18,000 Stephen Koukoulas: labor market outlook, and all of the above, the things 107 00:05:18,000 --> 00:05:20,880 Stephen Koukoulas: that Jim Chalmers was talking about last week will be 108 00:05:20,880 --> 00:05:21,900 Stephen Koukoulas: there for us all to read. 109 00:05:22,589 --> 00:05:24,450 Sean Aylmer: I mean, the Reserve Bank also comes out with its 110 00:05:24,540 --> 00:05:28,289 Sean Aylmer: quarterly statement on monetary policy. Does the Reserve Bank and 111 00:05:28,290 --> 00:05:31,109 Sean Aylmer: Treasury tend to agree with each other 'cause they're the 112 00:05:31,110 --> 00:05:34,140 Sean Aylmer: two main economic bodies in the economy? 113 00:05:34,440 --> 00:05:36,330 Stephen Koukoulas: Well, the interesting thing about the quarterly statement on monetary 114 00:05:36,330 --> 00:05:38,880 Stephen Koukoulas: policy, in addition to the sort of detail analysis, it's 115 00:05:38,880 --> 00:05:41,250 Stephen Koukoulas: a fabulous read, is they do put out a summary 116 00:05:41,250 --> 00:05:45,180 Stephen Koukoulas: table of their macroeconomic forecast each quarter, and we saw 117 00:05:45,180 --> 00:05:48,480 Stephen Koukoulas: treasuries from Jim Chalmers last week. Now, they don't always 118 00:05:48,480 --> 00:05:51,420 Stephen Koukoulas: see eye to eye, but having said that there's rarely 119 00:05:51,420 --> 00:05:53,580 Stephen Koukoulas: more than say a quarter of a point difference on 120 00:05:53,580 --> 00:05:57,360 Stephen Koukoulas: the GDP forecast or for the inflation forecast. So if 121 00:05:57,480 --> 00:06:00,780 Stephen Koukoulas: Treasury's forecasting this year's GDP growth to be 3% and the RBA said 2. 122 00:06:01,440 --> 00:06:05,520 Stephen Koukoulas: 75%, you would sort of say, well, that's basically the 123 00:06:05,520 --> 00:06:07,920 Stephen Koukoulas: same number. It's probably just a rounding error. So they 124 00:06:07,920 --> 00:06:10,470 Stephen Koukoulas: do tend to match one another. So I'd expect that 125 00:06:10,470 --> 00:06:14,220 Stephen Koukoulas: statement to confirm the economy's starting to slow. That there 126 00:06:14,220 --> 00:06:17,760 Stephen Koukoulas: are more rate hikes to come. The economy's actually doing 127 00:06:17,790 --> 00:06:20,789 Stephen Koukoulas: relatively well, that we've got a little bit of momentum occurring 128 00:06:20,790 --> 00:06:24,299 Stephen Koukoulas: in some of the activity indicators through to the end 129 00:06:24,300 --> 00:06:26,370 Stephen Koukoulas: of the June quarter and perhaps even into the start 130 00:06:26,370 --> 00:06:27,300 Stephen Koukoulas: of the September quarter. 131 00:06:27,570 --> 00:06:29,670 Sean Aylmer: We're going to get lots of data also this week 132 00:06:29,670 --> 00:06:32,100 Sean Aylmer: that might just confirm what you're talking about. Let's just 133 00:06:32,100 --> 00:06:34,560 Sean Aylmer: run through them quickly. CoreLogic house prices. 134 00:06:35,250 --> 00:06:37,770 Stephen Koukoulas: For the month of July, they'll confirm that house prices 135 00:06:37,770 --> 00:06:41,700 Stephen Koukoulas: dropped around about 1.2%. So one of the largest falls 136 00:06:41,700 --> 00:06:43,560 Stephen Koukoulas: in quite a while on a month on month basis. 137 00:06:43,890 --> 00:06:46,020 Stephen Koukoulas: Sydney leading the way. It's probably going to be down 138 00:06:46,470 --> 00:06:49,830 Stephen Koukoulas: something around 2% month on month and 5% over the 139 00:06:49,830 --> 00:06:53,940 Stephen Koukoulas: last three months. Melbourne continuing to weaken. But curiously, the 140 00:06:54,180 --> 00:06:57,930 Stephen Koukoulas: smaller capital cities, Perth still going up, Adelaide's going up 141 00:06:58,230 --> 00:06:59,310 Stephen Koukoulas: and we'll have to wait and see a bit more 142 00:06:59,310 --> 00:07:02,940 Stephen Koukoulas: detail from the likes of Canberra, Hobart and Darwin. But 143 00:07:03,300 --> 00:07:05,460 Stephen Koukoulas: housing is definitely calling and prices are just starting to 144 00:07:05,460 --> 00:07:07,260 Stephen Koukoulas: wedge a little bit lower, and in reaction to the 145 00:07:07,260 --> 00:07:08,880 Stephen Koukoulas: rate hikes and cost of living pressures. 146 00:07:09,660 --> 00:07:11,790 Sean Aylmer: What about job ads? We get data on that this 147 00:07:11,790 --> 00:07:14,520 Sean Aylmer: week too. Certainly, the labor market is tied. And last 148 00:07:14,520 --> 00:07:18,150 Sean Aylmer: week we had a few big companies, Fortesque being one, 149 00:07:18,150 --> 00:07:20,760 Sean Aylmer: National Australia Bank boss, Ross McEwan came out being another 150 00:07:21,000 --> 00:07:24,870 Sean Aylmer: saying, we need more immigration because we need more workers. 151 00:07:25,110 --> 00:07:27,090 Stephen Koukoulas: Yes. Look, I think the job ads which have been 152 00:07:27,450 --> 00:07:32,190 Stephen Koukoulas: frankly booming in a way with the economy just starting 153 00:07:32,190 --> 00:07:34,590 Stephen Koukoulas: to cool, perhaps that we might get a small fall, 154 00:07:34,590 --> 00:07:37,200 Stephen Koukoulas: but it'll only be a small form of fall from an incredibly high 155 00:07:37,200 --> 00:07:40,800 Stephen Koukoulas: base. But your point about what the various CEOs are 156 00:07:40,800 --> 00:07:43,020 Stephen Koukoulas: saying about their ability to hire labor, that there's a 157 00:07:43,020 --> 00:07:46,230 Stephen Koukoulas: real labor market problem there that you don't fix quickly. 158 00:07:46,260 --> 00:07:49,110 Stephen Koukoulas: That's the first thing. The only medium term fix I 159 00:07:49,110 --> 00:07:51,210 Stephen Koukoulas: suppose is immigration. So perhaps in the next couple of 160 00:07:51,210 --> 00:07:52,470 Stephen Koukoulas: months, we'll have a bit more of a hot debate 161 00:07:52,470 --> 00:07:53,220 Stephen Koukoulas: about immigration 162 00:07:53,610 --> 00:07:56,880 Sean Aylmer: And we get data on building approvals, retail sales, international 163 00:07:56,880 --> 00:07:58,560 Sean Aylmer: trade. A fair bit this week, Stephen. 164 00:07:58,620 --> 00:08:01,200 Stephen Koukoulas: A lot of information. Billing approvals will probably be weaker. 165 00:08:01,200 --> 00:08:04,020 Stephen Koukoulas: We've got the sort of hangover of the ending of 166 00:08:04,020 --> 00:08:07,890 Stephen Koukoulas: the housing construction stimulus during the COVID lockdowns. We know 167 00:08:07,890 --> 00:08:10,830 Stephen Koukoulas: that that's probably likely. Retail sales, we had the preliminary 168 00:08:10,830 --> 00:08:12,960 Stephen Koukoulas: numbers last week for the month of June. It was 169 00:08:12,960 --> 00:08:16,020 Stephen Koukoulas: a small rise of 0. 2%. We do get the quarterly 170 00:08:16,020 --> 00:08:18,540 Stephen Koukoulas: numbers for the June quarter, probably a strong result. So 171 00:08:18,870 --> 00:08:20,820 Stephen Koukoulas: in the June quarter, before the full effect of these 172 00:08:21,150 --> 00:08:24,690 Stephen Koukoulas: rate hikes hit us, we were spending. International trade. We 173 00:08:24,720 --> 00:08:28,740 Stephen Koukoulas: had a record surplus of 16 billion last month, probably 174 00:08:28,740 --> 00:08:30,900 Stephen Koukoulas: down. There's been the floods that have affected some of 175 00:08:30,900 --> 00:08:33,209 Stephen Koukoulas: the mining output and their ability to get it to 176 00:08:33,210 --> 00:08:35,550 Stephen Koukoulas: the export market. So a bit of a dip in 177 00:08:35,550 --> 00:08:38,790 Stephen Koukoulas: the international trade surplus, but it'll still be a surplus 178 00:08:38,790 --> 00:08:41,010 Stephen Koukoulas: of 10 or $12 billion, a really big number 179 00:08:41,429 --> 00:08:42,390 Sean Aylmer: Enjoy the week, Stephen. 180 00:08:42,660 --> 00:08:43,230 Stephen Koukoulas: Thank you, Sean. 181 00:08:43,590 --> 00:08:46,650 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. You 182 00:08:46,650 --> 00:08:48,660 Sean Aylmer: can find him at thekouk. com and follow him on 183 00:08:48,660 --> 00:08:52,559 Sean Aylmer: Twitter using the handle, thekouk. I'm Sean Aylmer and this is Fear and Greed, 184 00:08:52,559 --> 00:08:53,220 Sean Aylmer: The Week Ahead.