1 00:00:09,210 --> 00:00:11,790 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. This is 2 00:00:11,789 --> 00:00:13,800 Sean Aylmer: where we take a look at the big events, reports 3 00:00:13,800 --> 00:00:16,500 Sean Aylmer: and releases coming up this week that give insight into 4 00:00:16,500 --> 00:00:18,540 Sean Aylmer: the economy and a look back at what happened last 5 00:00:18,540 --> 00:00:21,390 Sean Aylmer: week too. I'm Sean Aylmer and every Monday, I'm joined for 6 00:00:21,390 --> 00:00:24,540 Sean Aylmer: The Week Ahead by economist Stephen Koukoulas. You'll find him 7 00:00:24,540 --> 00:00:30,270 Sean Aylmer: at thekouk.com and on Twitter using the handle @TheKouk. Stephen, 8 00:00:30,270 --> 00:00:30,820 Sean Aylmer: good morning. 9 00:00:31,020 --> 00:00:31,930 Stephen Koukoulas: Good morning, Sean. 10 00:00:32,250 --> 00:00:33,870 Sean Aylmer: I spoke to you during the week and I actually 11 00:00:33,870 --> 00:00:35,820 Sean Aylmer: called you Kouk. And I do not think that I 12 00:00:35,820 --> 00:00:38,640 Sean Aylmer: normally call you Kouk. I normally call you Stephen. But 13 00:00:38,640 --> 00:00:40,800 Sean Aylmer: then it just occurred to me that when you spell 14 00:00:40,800 --> 00:00:44,159 Sean Aylmer: out T-H-E-K-O-U-K so often, I'm going to start calling you 15 00:00:44,159 --> 00:00:45,080 Sean Aylmer: Kouk now, you know that! 16 00:00:45,450 --> 00:00:47,220 Stephen Koukoulas: That's alright. A lot of people do and I've been called worse. 17 00:00:47,950 --> 00:00:50,670 Sean Aylmer: Stephen, in the last week we had a sort of interesting 18 00:00:50,670 --> 00:00:52,919 Sean Aylmer: week in financial markets in many ways, though, on the 19 00:00:52,920 --> 00:00:56,520 Sean Aylmer: economics front, there was perhaps a little less interest, the 20 00:00:56,520 --> 00:00:59,640 Sean Aylmer: RBA board minutes, not anything that I mean, I suppose 21 00:00:59,640 --> 00:01:01,830 Sean Aylmer: people read into that, that there's still uncertainty about what 22 00:01:01,830 --> 00:01:02,730 Sean Aylmer: the bank's going to do. 23 00:01:03,240 --> 00:01:05,280 Stephen Koukoulas: There is indeed. And I think the critical thing from 24 00:01:05,280 --> 00:01:07,919 Stephen Koukoulas: the board minutes is that a week is a long 25 00:01:07,920 --> 00:01:11,040 Stephen Koukoulas: time in economics I can assure you, that a lot 26 00:01:11,040 --> 00:01:13,080 Stephen Koukoulas: of people sort of read that with interest and saying 27 00:01:13,080 --> 00:01:16,740 Stephen Koukoulas: that the bank is optimistic or they were optimistic about 28 00:01:16,740 --> 00:01:20,729 Stephen Koukoulas: the outlook for the economy. That growth was still continuing. 29 00:01:20,730 --> 00:01:23,880 Stephen Koukoulas: The labour market was continuing to improve as well. But 30 00:01:24,090 --> 00:01:26,250 Stephen Koukoulas: they put in there a couple of sentences as they 31 00:01:26,250 --> 00:01:28,290 Stephen Koukoulas: have for the last 18 months, of course, the uncertainty 32 00:01:28,290 --> 00:01:31,530 Stephen Koukoulas: around COVID is the biggest issue for them or one 33 00:01:31,530 --> 00:01:33,270 Stephen Koukoulas: of the big issues for them. And lo and behold, 34 00:01:33,270 --> 00:01:37,259 Stephen Koukoulas: in these last few weeks, the escalation of the lockdowns 35 00:01:37,260 --> 00:01:41,100 Stephen Koukoulas: in New South Wales, Victoria, South Australia now has called 36 00:01:41,100 --> 00:01:44,459 Stephen Koukoulas: off just about every person's forecast on from a month ago. 37 00:01:44,459 --> 00:01:46,920 Stephen Koukoulas: And the good news that was there on the economy, 38 00:01:46,920 --> 00:01:48,450 Stephen Koukoulas: I was actually listening back to a couple of our 39 00:01:48,450 --> 00:01:50,970 Stephen Koukoulas: podcasts of a month or so ago and we were really 40 00:01:50,970 --> 00:01:56,640 Stephen Koukoulas: upbeat and rightly so. Now you've got the army of bank 41 00:01:56,640 --> 00:02:01,710 Stephen Koukoulas: economists forecasting a negative quarter for September quarter GDP because 42 00:02:01,710 --> 00:02:04,650 Stephen Koukoulas: these lockdowns are happening right now. And there's a question of, well, 43 00:02:04,770 --> 00:02:07,440 Stephen Koukoulas: how much will GDP fall and then will we get 44 00:02:07,440 --> 00:02:10,230 Stephen Koukoulas: a rebound in the December quarter? And the jury's out 45 00:02:10,230 --> 00:02:10,980 Stephen Koukoulas: on that, to be frank. 46 00:02:11,250 --> 00:02:13,500 Sean Aylmer: What else? Last week, there was international trade figures, another 47 00:02:13,500 --> 00:02:14,280 Sean Aylmer: huge surplus. 48 00:02:14,520 --> 00:02:18,300 Stephen Koukoulas: Oh, another absolutely fabulous surplus. Again, it looks to be driven 49 00:02:18,300 --> 00:02:21,720 Stephen Koukoulas: by resources, you know, the iron ore price. While it's a bit choppy, 50 00:02:21,720 --> 00:02:24,900 Stephen Koukoulas: just literally in the latter part of last week it's 51 00:02:24,900 --> 00:02:28,380 Stephen Koukoulas: still well above 200 US dollars a tonne. The surplus, 52 00:02:28,380 --> 00:02:32,520 Stephen Koukoulas: not seasonally adjusted, was about 13 billion dollars for a month. 53 00:02:32,520 --> 00:02:37,260 Stephen Koukoulas: So that is providing a real lifebuoy, I suppose, for 54 00:02:37,260 --> 00:02:39,840 Stephen Koukoulas: our economy when we've got these COVID things unfolding. 55 00:02:40,080 --> 00:02:42,180 Sean Aylmer: And then you mentioned a moment ago that there really 56 00:02:42,180 --> 00:02:44,070 Sean Aylmer: is a sense at the moment and kind of by 57 00:02:44,070 --> 00:02:48,650 Sean Aylmer: the end of last week that the V-shaped recovery wasn't happening. Hopefully, 58 00:02:48,650 --> 00:02:51,420 Sean Aylmer: it won't be a W shaped recovery, but there really 59 00:02:51,419 --> 00:02:55,980 Sean Aylmer: was just such a cloud hanging over everyone's everyone's forecasts. 60 00:02:56,350 --> 00:02:58,310 Stephen Koukoulas: Yes. And I think that was the issue. And, you know, 61 00:02:58,320 --> 00:03:01,770 Stephen Koukoulas: the really clever economists out there who do have what 62 00:03:02,100 --> 00:03:05,130 Stephen Koukoulas: I might call microdata, they have weekly data on credit card 63 00:03:05,130 --> 00:03:09,090 Stephen Koukoulas: turnover and their internal balance sheet. They can sort of 64 00:03:09,090 --> 00:03:11,850 Stephen Koukoulas: see what's happening and they are all detecting, the New 65 00:03:11,850 --> 00:03:14,130 Stephen Koukoulas: South Wales economy, in particular, has hit a brick wall 66 00:03:14,310 --> 00:03:17,450 Stephen Koukoulas: with the lockdown's that are occurring now, the construction sector 67 00:03:17,700 --> 00:03:20,520 Stephen Koukoulas: closing or is it or isn't closing, these sorts of things. 68 00:03:20,530 --> 00:03:24,389 Stephen Koukoulas: So and again, we have, unfortunately, the experience of 2020 69 00:03:24,389 --> 00:03:28,399 Stephen Koukoulas: when we had lockdowns in the June quarter predominantly, and 70 00:03:28,410 --> 00:03:30,630 Stephen Koukoulas: we know GDP fell seven per cent in that quarter. Now, 71 00:03:30,750 --> 00:03:33,389 Stephen Koukoulas: nobody's going that far because, of course, it's not quite 72 00:03:33,389 --> 00:03:37,200 Stephen Koukoulas: as extreme as that. But, you know, I've seen many 73 00:03:37,200 --> 00:03:42,690 Stephen Koukoulas: people putting out forecasts, the Westpacs, the NABs, CBA, really, 74 00:03:42,690 --> 00:03:46,290 Stephen Koukoulas: really good people suggesting that GDP could be minus one, 75 00:03:46,290 --> 00:03:48,660 Stephen Koukoulas: minus one and a half per cent for the September quarter. 76 00:03:48,660 --> 00:03:51,840 Stephen Koukoulas: And whether that's a W is unclear because, again, as 77 00:03:51,840 --> 00:03:54,750 Stephen Koukoulas: we just mentioned, that bounce back in the December quarter 78 00:03:54,750 --> 00:03:58,920 Stephen Koukoulas: is going to be really much predicated on lockdowns ending 79 00:03:59,070 --> 00:04:01,770 Stephen Koukoulas: and just getting back to normal business, which, of course, 80 00:04:02,220 --> 00:04:04,930 Stephen Koukoulas: is still a huge amount of uncertainty around that. 81 00:04:05,130 --> 00:04:07,050 Sean Aylmer: Well, that's last week. We'll be back in a moment 82 00:04:07,050 --> 00:04:08,370 Sean Aylmer: and get into the week ahead. 83 00:04:13,240 --> 00:04:17,109 Sean Aylmer: I'm with economist, Stephen Koukoulas, a.k.a. The Kouk. Stephen, big one 84 00:04:17,110 --> 00:04:18,790 Sean Aylmer: this week, of course, is inflation data. 85 00:04:18,940 --> 00:04:21,610 Stephen Koukoulas: Oh yes, we've been waiting for this and Australia is 86 00:04:21,610 --> 00:04:23,740 Stephen Koukoulas: one of the few countries that doesn't have monthly inflation. 87 00:04:23,740 --> 00:04:25,660 Stephen Koukoulas: So we've got to wait three months to get our 88 00:04:25,870 --> 00:04:28,210 Stephen Koukoulas: inflation updates. And, you know, I think as we discussed 89 00:04:28,210 --> 00:04:31,540 Stephen Koukoulas: recently as well, you know, the US inflation rate has accelerated. 90 00:04:31,540 --> 00:04:34,330 Stephen Koukoulas: Their monthly run rate, if you like, on inflation saw it 91 00:04:34,330 --> 00:04:37,870 Stephen Koukoulas: spike above five per cent. Now, in Australia, our June 92 00:04:37,870 --> 00:04:41,990 Stephen Koukoulas: quarter CPI (Consumer Price Index), the headline figure, will be around about 0.7, 0.8 93 00:04:43,089 --> 00:04:45,370 Stephen Koukoulas: for the quarter and just under four per cent for 94 00:04:45,370 --> 00:04:47,690 Stephen Koukoulas: the annual figures. So four per cent, wow, you know, 95 00:04:47,700 --> 00:04:49,719 Stephen Koukoulas: you might think that's a bit of a problem, but 96 00:04:50,320 --> 00:04:52,000 Stephen Koukoulas: I think we've got to just take a bit of 97 00:04:52,000 --> 00:04:53,920 Stephen Koukoulas: a chill pill on that one, because a lot of 98 00:04:53,920 --> 00:04:56,700 Stephen Koukoulas: the effect is a base effect. So this time last year, 99 00:04:56,980 --> 00:05:01,630 Stephen Koukoulas: prices of things like childcare fell to zero. So there's 100 00:05:01,630 --> 00:05:04,000 Stephen Koukoulas: a bit of a statistical quirk in those headline numbers. 101 00:05:04,240 --> 00:05:07,239 Stephen Koukoulas: That said, if we look at what matters and that's 102 00:05:07,240 --> 00:05:11,169 Stephen Koukoulas: the underlying inflation, the trimmed mean and these sorts of 103 00:05:11,170 --> 00:05:13,900 Stephen Koukoulas: core measures of inflation in Australia, they will show a 104 00:05:13,900 --> 00:05:17,980 Stephen Koukoulas: pickup in inflation, probably a 0.5, 0.6 for the quarter. 105 00:05:18,310 --> 00:05:22,480 Stephen Koukoulas: Annual inflation, picking up to about 1.6, 1.7. Still below 106 00:05:22,480 --> 00:05:26,700 Stephen Koukoulas: the target. But maybe there was in the June quarter, 107 00:05:26,710 --> 00:05:29,200 Stephen Koukoulas: just a bit of inflation momentum. That'll be really interesting 108 00:05:29,200 --> 00:05:32,830 Stephen Koukoulas: to sort of just see whether the RBA (Reserve Bank of Australia) has got 109 00:05:32,830 --> 00:05:35,020 Stephen Koukoulas: any hope of getting inflation to within the band in 110 00:05:35,020 --> 00:05:36,640 Stephen Koukoulas: the next year or two, which, of course, it hopes 111 00:05:36,640 --> 00:05:37,010 Stephen Koukoulas: to do. 112 00:05:37,310 --> 00:05:40,660 Sean Aylmer: So, I mean, just recapping that, so the transitory effect 113 00:05:40,660 --> 00:05:43,570 Sean Aylmer: will wash itself out potentially in the current quarter or 114 00:05:43,570 --> 00:05:45,370 Sean Aylmer: in the December quarter for sure. Is that right? 115 00:05:45,580 --> 00:05:48,400 Stephen Koukoulas: Yes, that's right. And I think once we get the September, 116 00:05:48,400 --> 00:05:51,580 Stephen Koukoulas: December quarter numbers, the headline figure will drop to about 117 00:05:51,580 --> 00:05:56,080 Stephen Koukoulas: 2.5 per cent. We've got to remember, too, that the petrol price is elevated at 118 00:05:56,080 --> 00:05:58,560 Stephen Koukoulas: the moment and that feeds into headline CPI more than 119 00:05:58,580 --> 00:06:01,540 Stephen Koukoulas: underlying inflation. And then the critical issue will be, well, 120 00:06:01,540 --> 00:06:04,180 Stephen Koukoulas: what is happening to these underlying measures? Are they getting 121 00:06:04,180 --> 00:06:06,669 Stephen Koukoulas: back to two per cent, which would be nice, hasn't been 122 00:06:06,670 --> 00:06:08,589 Stephen Koukoulas: there for quite a while, but still a long way 123 00:06:08,740 --> 00:06:11,080 Stephen Koukoulas: from even the midpoint of the two to three target band. 124 00:06:11,440 --> 00:06:12,940 Sean Aylmer: Yeah, and the bank has said that it needs to 125 00:06:12,940 --> 00:06:16,510 Sean Aylmer: be sustainably within that target band and wages have to 126 00:06:16,510 --> 00:06:19,690 Sean Aylmer: be growing sustainably at a certain pace before they'll do 127 00:06:19,690 --> 00:06:20,460 Sean Aylmer: anything on rates. 128 00:06:20,770 --> 00:06:23,290 Stephen Koukoulas: Correct. Correct. And they've made that very clear for the 129 00:06:23,290 --> 00:06:24,729 Stephen Koukoulas: last few months. And, you know, a few of us 130 00:06:24,730 --> 00:06:27,339 Stephen Koukoulas: have got quite excited when we saw a sub five 131 00:06:27,339 --> 00:06:31,600 Stephen Koukoulas: per cent unemployment rate and the anecdotes of skill shortages occurring 132 00:06:31,839 --> 00:06:34,239 Stephen Koukoulas: quite rapidly around the economy, thought, well, gee, this is it. 133 00:06:34,270 --> 00:06:36,370 Stephen Koukoulas: This is the pick up that we've been hoping to 134 00:06:36,370 --> 00:06:39,549 Stephen Koukoulas: see in terms of wages growth and, of course, inflation. But, yeah, 135 00:06:39,580 --> 00:06:41,410 Stephen Koukoulas: the banks made it very clear and again, this was 136 00:06:41,410 --> 00:06:44,770 Stephen Koukoulas: in the minutes that were out last week that the 137 00:06:44,770 --> 00:06:46,630 Stephen Koukoulas: RBA is saying that they want to see not just 138 00:06:46,630 --> 00:06:49,840 Stephen Koukoulas: a quarter or two of inflation and wages picking up. 139 00:06:50,020 --> 00:06:51,490 Stephen Koukoulas: They want to see it entrenched. They want to see 140 00:06:51,490 --> 00:06:54,700 Stephen Koukoulas: an acceleration to the upper part of the band of 141 00:06:54,940 --> 00:06:56,950 Stephen Koukoulas: the inflation target. They want to see wages with a 142 00:06:56,950 --> 00:07:00,310 Stephen Koukoulas: three handle on it. So annual wages growth at or 143 00:07:00,310 --> 00:07:03,670 Stephen Koukoulas: above three per cent. Currently they're running around about two 144 00:07:03,670 --> 00:07:04,050 Stephen Koukoulas: per cent. 145 00:07:04,270 --> 00:07:06,580 Sean Aylmer: OK, and then also this week, we've got credit data 146 00:07:06,580 --> 00:07:09,550 Sean Aylmer: and also Guy Debelle, the deputy governor of the Reserve Bank. 147 00:07:09,580 --> 00:07:10,480 Sean Aylmer: He's speaking too. 148 00:07:10,960 --> 00:07:12,610 Stephen Koukoulas: Yeah, something for us to look at. The credit numbers, 149 00:07:12,880 --> 00:07:16,660 Stephen Koukoulas: they're always semi-important, I suppose. The interesting thing there will 150 00:07:16,660 --> 00:07:18,940 Stephen Koukoulas: be housing credit. We know we know the housing market 151 00:07:18,940 --> 00:07:21,900 Stephen Koukoulas: was running along at a great rate of knots. So 152 00:07:21,910 --> 00:07:25,030 Stephen Koukoulas: we're probably going to see the housing credit picking up again. 153 00:07:25,240 --> 00:07:29,350 Stephen Koukoulas: The interest is always whether its owner-occupiers or investors. Until 154 00:07:29,350 --> 00:07:31,660 Stephen Koukoulas: very recently, investors have been on the sidelines a bit. 155 00:07:31,660 --> 00:07:34,810 Stephen Koukoulas: So maybe they're starting to get back into the market. 156 00:07:35,020 --> 00:07:38,560 Stephen Koukoulas: And of course, Deputy Governor Guy Debelle giving a talk. Well, 157 00:07:38,950 --> 00:07:40,630 Stephen Koukoulas: not quite sure what he's going to be talking about 158 00:07:40,630 --> 00:07:43,570 Stephen Koukoulas: other than perhaps highlighting some of the risks to their forecasts. 159 00:07:43,570 --> 00:07:46,960 Stephen Koukoulas: And with this COVID lockdown impacting, you know, what the 160 00:07:46,960 --> 00:07:49,630 Stephen Koukoulas: forecasts were a couple of months ago and remembering just 161 00:07:49,630 --> 00:07:52,239 Stephen Koukoulas: in a week or two, they've got their statement on 162 00:07:52,240 --> 00:07:55,690 Stephen Koukoulas: monetary policy coming out in early August. So that will 163 00:07:55,690 --> 00:07:57,970 Stephen Koukoulas: be perhaps a bit of a precursor to what they're 164 00:07:57,970 --> 00:08:02,080 Stephen Koukoulas: thinking of, you know, where unemployment, inflation and wages, as 165 00:08:02,080 --> 00:08:04,330 Stephen Koukoulas: we've just been discussing, are likely to go. Are they 166 00:08:04,330 --> 00:08:07,660 Stephen Koukoulas: going to be materially adjusting those forecasts? Always interesting to 167 00:08:07,660 --> 00:08:08,650 Stephen Koukoulas: hear what the RBA is saying. 168 00:08:08,950 --> 00:08:10,420 Sean Aylmer: For the next two weeks, Stephen, do you give out 169 00:08:10,420 --> 00:08:11,950 Sean Aylmer: the horse racing for the Olympics? We had a good 170 00:08:11,950 --> 00:08:13,840 Sean Aylmer: start on the weekend. Will you be watching a lot 171 00:08:13,840 --> 00:08:14,080 Sean Aylmer: of it? 172 00:08:14,260 --> 00:08:17,620 Stephen Koukoulas: I'm addicted to all these wonderful things and a couple 173 00:08:17,620 --> 00:08:20,860 Stephen Koukoulas: of early wins late last week in the soccer, the softball, 174 00:08:20,860 --> 00:08:24,490 Stephen Koukoulas: the men's and women's. And, you know, the swimming's absolutely fabulous. 175 00:08:24,490 --> 00:08:26,710 Stephen Koukoulas: I'll be, I'll be watching it all still. And in 176 00:08:26,710 --> 00:08:28,480 Stephen Koukoulas: between that, just keeping a bit of an eye on 177 00:08:28,480 --> 00:08:30,640 Stephen Koukoulas: what's happening at Rosehill and down at Flemington. 178 00:08:32,080 --> 00:08:32,290 Sean Aylmer: Fantastic! 179 00:08:32,559 --> 00:08:36,010 Stephen Koukoulas: The TV channel will be changing all the time. It'll be hard to 180 00:08:36,010 --> 00:08:36,370 Stephen Koukoulas: keep up. 181 00:08:36,490 --> 00:08:37,670 Sean Aylmer: Thanks, Stephen. Have a great week. 182 00:08:37,929 --> 00:08:38,530 Stephen Koukoulas: Thank you, Sean. See you mate. 183 00:08:39,250 --> 00:08:41,800 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 184 00:08:41,860 --> 00:08:44,380 Sean Aylmer: You can find him at thekouk.com and follow him on 185 00:08:44,380 --> 00:08:48,220 Sean Aylmer: Twitter using the handle @TheKouk. I'm Sean Aylmer and this is Fear and Greed, 186 00:08:48,230 --> 00:08:48,970 Sean Aylmer: The Week Ahead.