1 00:00:08,860 --> 00:00:11,080 Sean Aylmer: Welcome to the Fear and Greed, The Week Ahead. This 2 00:00:11,080 --> 00:00:12,459 Sean Aylmer: is where we take a look at the big events, 3 00:00:12,460 --> 00:00:15,160 Sean Aylmer: reports and releases coming up this week that give insight 4 00:00:15,160 --> 00:00:16,930 Sean Aylmer: into the economy and a look back at what happened 5 00:00:16,930 --> 00:00:20,080 Sean Aylmer: last week too. I'm Sean Aylmer and every Monday I'm joined for 6 00:00:20,079 --> 00:00:23,230 Sean Aylmer: The Week Ahead by economist Stephen Koukoulas. You'll find him 7 00:00:23,230 --> 00:00:29,400 Sean Aylmer: at thekouk.com and on Twitter using the handle @TheKouk. Stephen, 8 00:00:29,430 --> 00:00:30,889 Sean Aylmer: good morning. You're in lockdown. 9 00:00:31,390 --> 00:00:34,570 Stephen Koukoulas: Canberra's in lockdown. We're on day three or four. I'm 10 00:00:34,570 --> 00:00:38,290 Stephen Koukoulas: losing track of it already. But yes, COVID's here. And 11 00:00:38,290 --> 00:00:39,610 Stephen Koukoulas: we've got to be very, very careful. 12 00:00:40,930 --> 00:00:43,420 Sean Aylmer: It really is, I mean, I noticed Shane Oliver from AMP Capital is 13 00:00:43,420 --> 00:00:45,790 Sean Aylmer: putting it at about $17 billion dollars a week at 14 00:00:45,790 --> 00:00:48,940 Sean Aylmer: the moment, the cost to the economy. It really is 15 00:00:48,940 --> 00:00:51,250 Sean Aylmer: starting to get worrying that it is lasting as long 16 00:00:51,250 --> 00:00:51,700 Sean Aylmer: as it is. 17 00:00:52,360 --> 00:00:54,940 Stephen Koukoulas: That it's lasting and that it's spreading. You know, it's 18 00:00:54,940 --> 00:00:58,210 Stephen Koukoulas: gone to regional New South Wales. We know that Victoria 19 00:00:58,210 --> 00:01:02,980 Stephen Koukoulas: and south-eastern Queensland and now the ACT are all being impacted. 20 00:01:02,980 --> 00:01:06,550 Stephen Koukoulas: So they're the lion's share of the national economy. So 21 00:01:06,550 --> 00:01:08,560 Stephen Koukoulas: to the extent that we have a little bit of 22 00:01:08,560 --> 00:01:11,350 Stephen Koukoulas: a lesson from what happened in 2020, admittedly that was 23 00:01:11,350 --> 00:01:14,440 Stephen Koukoulas: a nationwide lockdown and probably with a great deal more 24 00:01:14,440 --> 00:01:17,800 Stephen Koukoulas: uncertainty than we're seeing now. I think Shane's estimates are 25 00:01:18,190 --> 00:01:21,670 Stephen Koukoulas: certainly pretty robust. They're in the ballpark. And when you 26 00:01:21,670 --> 00:01:24,280 Stephen Koukoulas: have a look at what that implies for September quarter GDP, 27 00:01:24,280 --> 00:01:26,530 Stephen Koukoulas: the quarter we're in right now, it looks as though 28 00:01:26,530 --> 00:01:29,290 Stephen Koukoulas: GDP could be down two and a half or three 29 00:01:29,290 --> 00:01:31,920 Stephen Koukoulas: per cent in the quarter, which would be, you know, 30 00:01:31,930 --> 00:01:34,990 Stephen Koukoulas: a really, really disappointing outcome given just how well the 31 00:01:34,990 --> 00:01:37,360 Stephen Koukoulas: economy was going up until about two months ago. 32 00:01:37,840 --> 00:01:39,759 Sean Aylmer: It has come off the boil and we saw that 33 00:01:39,760 --> 00:01:42,790 Sean Aylmer: last week with both the business and the consumer sentiment figures. 34 00:01:43,360 --> 00:01:46,539 Stephen Koukoulas: Yeah, both took a bath. Consumer sentiment was down about 4.5 35 00:01:46,540 --> 00:01:50,800 Stephen Koukoulas: per cent, the NAB survey of business conditions, business confidence, 36 00:01:50,800 --> 00:01:53,950 Stephen Koukoulas: and with a myriad of other sort of smaller questions 37 00:01:53,950 --> 00:01:57,160 Stephen Koukoulas: relating to capacity utilisation and employment plans and the like 38 00:01:57,370 --> 00:02:01,300 Stephen Koukoulas: were down sharply. So there's no surprise really that consumers 39 00:02:01,300 --> 00:02:04,930 Stephen Koukoulas: are feeling much less optimistic about the near term outlook. 40 00:02:04,930 --> 00:02:08,440 Stephen Koukoulas: They're locked down. The many people who are losing work. 41 00:02:08,440 --> 00:02:11,800 Stephen Koukoulas: They're having their hours curtailed for obvious reasons in hospitality 42 00:02:11,800 --> 00:02:15,010 Stephen Koukoulas: and other related industries. And the business sector is feeling 43 00:02:15,010 --> 00:02:17,900 Stephen Koukoulas: it as well, that the whole supply chain issues are 44 00:02:18,010 --> 00:02:21,760 Stephen Koukoulas: being very disruptive. And interestingly, we've got that decline in 45 00:02:21,820 --> 00:02:25,000 Stephen Koukoulas: some commodity prices occurring. And to the extent that that 46 00:02:25,000 --> 00:02:27,760 Stephen Koukoulas: feeds into business confidence, we might just be seeing something 47 00:02:27,760 --> 00:02:29,530 Stephen Koukoulas: occurring in that space as well. 48 00:02:29,800 --> 00:02:32,889 Sean Aylmer: It's incredible how it can turn on a dime. And 49 00:02:32,889 --> 00:02:34,810 Sean Aylmer: an outbreak of the virus has always been the risk 50 00:02:34,810 --> 00:02:36,670 Sean Aylmer: to the economy in the last ever since, you know, 51 00:02:37,120 --> 00:02:39,010 Sean Aylmer: 2021 started, I suppose, in the last eight months or so. 52 00:02:39,490 --> 00:02:41,950 Sean Aylmer: But it really has, the mood has just changed totally 53 00:02:41,950 --> 00:02:42,820 Sean Aylmer: in the last four weeks. 54 00:02:43,360 --> 00:02:47,800 Stephen Koukoulas: Yes. And up until that poor limousine driver picked up 55 00:02:47,800 --> 00:02:50,110 Stephen Koukoulas: the passengers from the Sydney airport, what was that two 56 00:02:50,110 --> 00:02:51,020 Stephen Koukoulas: months ago or so? 57 00:02:51,040 --> 00:02:52,210 Sean Aylmer: Seven or eight weeks ago, yeah. 58 00:02:52,210 --> 00:02:56,230 Stephen Koukoulas: We've had the spread slowly but steadily expanding in New 59 00:02:56,230 --> 00:02:58,000 Stephen Koukoulas: South Wales. And, you know, even at the end of 60 00:02:58,000 --> 00:03:00,730 Stephen Koukoulas: last week and over the weekend, we had near record 61 00:03:00,730 --> 00:03:04,030 Stephen Koukoulas: numbers of cases. Many of them in the community, unknown 62 00:03:04,300 --> 00:03:08,320 Stephen Koukoulas: where they are. And that creates a sense of uncertainty, 63 00:03:08,680 --> 00:03:12,700 Stephen Koukoulas: of fear. There's a frustration about how difficult or how 64 00:03:12,700 --> 00:03:14,770 Stephen Koukoulas: slow it is to get vaccinated. I think many people 65 00:03:14,770 --> 00:03:16,960 Stephen Koukoulas: are keen to do it and many people are just 66 00:03:16,960 --> 00:03:19,480 Stephen Koukoulas: doing it anyway. But I think we're getting to the 67 00:03:19,480 --> 00:03:22,149 Stephen Koukoulas: point and I don't want to be too gloomy because we're getting 68 00:03:22,150 --> 00:03:25,120 Stephen Koukoulas: millions of these different sorts of vaccinations into the country 69 00:03:25,120 --> 00:03:28,149 Stephen Koukoulas: right now. And you'd like to think that over the next, 70 00:03:28,330 --> 00:03:30,940 Stephen Koukoulas: I don't know, four, six weeks we're going to have 71 00:03:30,940 --> 00:03:32,890 Stephen Koukoulas: a lot of people vaccinated. And certainly, by the end 72 00:03:32,889 --> 00:03:34,750 Stephen Koukoulas: of the year, we will. And that will be a 73 00:03:34,750 --> 00:03:37,780 Stephen Koukoulas: real catalyst for a bit of optimism returning to the economy. 74 00:03:37,960 --> 00:03:42,280 Sean Aylmer: I tell you who's not pessimistic. Investors. The ASX, you know, 75 00:03:42,280 --> 00:03:45,430 Sean Aylmer: Wall Street, European markets, they are flying. And some of 76 00:03:45,430 --> 00:03:48,490 Sean Aylmer: our earnings last week, places like Commonwealth Bank was a 77 00:03:48,490 --> 00:03:52,180 Sean Aylmer: real standout last week. And even Telstra and even AMP, 78 00:03:52,180 --> 00:03:55,150 Sean Aylmer: believe it or not like that, they actually were reasonably okay earnings. 79 00:03:56,200 --> 00:03:58,060 Stephen Koukoulas: They are and you just look at the level of 80 00:03:58,060 --> 00:04:00,160 Stephen Koukoulas: the ASX and, as you said, some of these global 81 00:04:00,160 --> 00:04:03,640 Stephen Koukoulas: markets are doing particularly well. And I think investors are 82 00:04:03,640 --> 00:04:06,580 Stephen Koukoulas: sort of looking more at the bigger picture, the fact 83 00:04:06,580 --> 00:04:10,270 Stephen Koukoulas: that also alternative investment classes have got very either low 84 00:04:10,270 --> 00:04:12,010 Stephen Koukoulas: or risky returns. You would just look at the government 85 00:04:12,010 --> 00:04:16,750 Stephen Koukoulas: bond yields, for example, which are still incredibly low. So 86 00:04:16,750 --> 00:04:19,990 Stephen Koukoulas: for people looking to get some sort of yield, some 87 00:04:19,990 --> 00:04:22,420 Stephen Koukoulas: sort of return, when they look at the safety, admittedly, 88 00:04:22,420 --> 00:04:25,150 Stephen Koukoulas: of the bond market, and they're getting lucky to be getting 89 00:04:25,150 --> 00:04:27,970 Stephen Koukoulas: half a per cent for a three, five year investment. 90 00:04:28,390 --> 00:04:31,270 Stephen Koukoulas: They look at the alternative equities and sort of say, well, 91 00:04:31,270 --> 00:04:33,820 Stephen Koukoulas: hang on, they're doing okay, they're making money. The profits 92 00:04:33,820 --> 00:04:36,280 Stephen Koukoulas: you just mentioned in those big companies are pretty good. 93 00:04:36,550 --> 00:04:39,610 Stephen Koukoulas: Dividends are pretty healthy. So why don't they allocate a 94 00:04:39,610 --> 00:04:41,770 Stephen Koukoulas: bit more cash there? And of course, that's a self-fulfilling 95 00:04:41,770 --> 00:04:43,540 Stephen Koukoulas: driver of a rising market. 96 00:04:43,540 --> 00:04:46,000 Sean Aylmer: Indeed. That was last week. In a moment, I'll be 97 00:04:46,000 --> 00:04:48,610 Sean Aylmer: back with Stephen Koukoulas to talk about what's coming up 98 00:04:48,610 --> 00:04:49,029 Sean Aylmer: this week. 99 00:04:53,930 --> 00:04:58,250 Sean Aylmer: I'm with economist Stephen Koukoulas, a.k.a. The Kouk. So Stephen, the 100 00:04:58,250 --> 00:04:59,779 Sean Aylmer: big one this week is the labour market. 101 00:05:00,120 --> 00:05:03,080 Stephen Koukoulas: Yes, all eyes on the labour market issues. This is 102 00:05:03,080 --> 00:05:05,960 Stephen Koukoulas: for the month of July. It'll capture just a part 103 00:05:05,960 --> 00:05:08,330 Stephen Koukoulas: of the New South Wales lock down the ABS survey, 104 00:05:08,330 --> 00:05:11,180 Stephen Koukoulas: the labour market data in the first half of each 105 00:05:11,180 --> 00:05:14,900 Stephen Koukoulas: calendar month. So really, these intensified lockdowns in the latter 106 00:05:14,900 --> 00:05:18,290 Stephen Koukoulas: part of July and of course, into August would not 107 00:05:18,290 --> 00:05:20,120 Stephen Koukoulas: be captured there. So in a sense, the markets actually 108 00:05:20,120 --> 00:05:24,140 Stephen Koukoulas: looking for employment to be reasonably robust, broadly steady for 109 00:05:24,140 --> 00:05:26,810 Stephen Koukoulas: the month of July. For the unemployment rate maybe just to 110 00:05:26,810 --> 00:05:29,570 Stephen Koukoulas: tick up from 4.9 to around 5 per cent. So 111 00:05:29,839 --> 00:05:33,620 Stephen Koukoulas: they probably won't capture a lot of the weakness that 112 00:05:33,620 --> 00:05:35,570 Stephen Koukoulas: we're seeing now in the economy. That'll probably be in the 113 00:05:35,570 --> 00:05:38,510 Stephen Koukoulas: next couple of months. But nonetheless, we've been shocked so 114 00:05:38,510 --> 00:05:41,480 Stephen Koukoulas: many times by these labour force numbers that they'll be 115 00:05:41,480 --> 00:05:44,630 Stephen Koukoulas: closely watched by the Reserve Bank, by financial markets just 116 00:05:44,630 --> 00:05:47,450 Stephen Koukoulas: to see whether there are any other snippets of news 117 00:05:47,720 --> 00:05:51,050 Stephen Koukoulas: in terms of participation, employment and those sorts of things. 118 00:05:51,260 --> 00:05:54,710 Sean Aylmer: I suppose we're fortunate that the labour market bounced back 119 00:05:54,710 --> 00:05:58,340 Sean Aylmer: so hard ahead of this latest outbreak because I'd hate 120 00:05:58,339 --> 00:06:00,650 Sean Aylmer: the unemployment rate going into this to be, you know, seven, 121 00:06:00,650 --> 00:06:01,640 Sean Aylmer: seven and a half per cent. 122 00:06:02,300 --> 00:06:04,969 Stephen Koukoulas: Indeed. And in fact, that's what the good news up until, 123 00:06:05,210 --> 00:06:07,940 Stephen Koukoulas: you know, the end of June, just before the lockdowns 124 00:06:07,940 --> 00:06:10,310 Stephen Koukoulas: became more serious in New South Wales and of course, 125 00:06:10,310 --> 00:06:13,070 Stephen Koukoulas: spread to the other areas, was that the economy was 126 00:06:13,070 --> 00:06:16,880 Stephen Koukoulas: doing really well. We were discussing the possibility that the 127 00:06:16,880 --> 00:06:19,130 Stephen Koukoulas: RBA might have to change its view on when it 128 00:06:19,130 --> 00:06:21,950 Stephen Koukoulas: was going to be starting a hiking cycle because the 129 00:06:21,950 --> 00:06:24,350 Stephen Koukoulas: news was just so good. And it was a lovely 130 00:06:24,350 --> 00:06:27,830 Stephen Koukoulas: problem to be having so, you know, going into this current, whether 131 00:06:27,830 --> 00:06:29,360 Stephen Koukoulas: we call it a recession or not, I'm not sure. 132 00:06:29,360 --> 00:06:32,810 Stephen Koukoulas: But this current weakness in GDP, the unemployment rate was 133 00:06:32,810 --> 00:06:35,810 Stephen Koukoulas: 4.9 per cent. It was the lowest it had been 134 00:06:35,810 --> 00:06:38,270 Stephen Koukoulas: in a decade. So you're quite right to think that, OK, 135 00:06:38,450 --> 00:06:41,060 Stephen Koukoulas: we're getting a hit from the lockdowns now. We will 136 00:06:41,060 --> 00:06:43,340 Stephen Koukoulas: see job losses over the next few months. We will 137 00:06:43,339 --> 00:06:45,230 Stephen Koukoulas: see the unemployment rate go up, but it's better that 138 00:06:45,230 --> 00:06:47,900 Stephen Koukoulas: it's going up from 4.9 than, well, as you said, than 139 00:06:47,900 --> 00:06:49,190 Stephen Koukoulas: six or seven or eight per cent. 140 00:06:49,370 --> 00:06:51,890 Sean Aylmer: Yeah, and wage data is out this week, too. 141 00:06:52,170 --> 00:06:55,600 Stephen Koukoulas: Yeah. Look, this will be a more pure number. It's 142 00:06:55,610 --> 00:07:00,920 Stephen Koukoulas: for the June quarter. And if the anecdotes of skills shortages, 143 00:07:00,920 --> 00:07:04,190 Stephen Koukoulas: of people having to pay up to attract talent and 144 00:07:04,190 --> 00:07:06,950 Stephen Koukoulas: to retain talent in their workplaces, and that was evident 145 00:07:06,950 --> 00:07:10,400 Stephen Koukoulas: in earlier business surveys that were relating to the June quarter, 146 00:07:10,730 --> 00:07:14,370 Stephen Koukoulas: we could actually see some moderate pick up in wages growth. 147 00:07:14,460 --> 00:07:17,060 Stephen Koukoulas: The market is looking for a quarterly increase in the wage 148 00:07:17,060 --> 00:07:20,720 Stephen Koukoulas: price index of about 0.7, 0.8 per cent, which, if it 149 00:07:20,720 --> 00:07:23,870 Stephen Koukoulas: comes to pass, will lift the annual figure towards two 150 00:07:23,870 --> 00:07:25,790 Stephen Koukoulas: per cent. Now, there's still a problem with the data 151 00:07:25,790 --> 00:07:27,710 Stephen Koukoulas: of a year ago, but if you analyse the 0.7, 0.8 152 00:07:28,550 --> 00:07:30,860 Stephen Koukoulas: quarter on quarter, you get a figure of close to 153 00:07:30,860 --> 00:07:33,170 Stephen Koukoulas: three per cent. That would be actually really encouraging news 154 00:07:33,170 --> 00:07:35,870 Stephen Koukoulas: on the wages front. But again, these numbers do predate 155 00:07:35,870 --> 00:07:37,880 Stephen Koukoulas: the current lockdown period that we're going through. 156 00:07:38,330 --> 00:07:40,750 Sean Aylmer: Mineral Resources came out last week and talked about a 157 00:07:40,760 --> 00:07:43,400 Sean Aylmer: shortage of labour, as you're talking about. They're a WA 158 00:07:43,400 --> 00:07:47,000 Sean Aylmer: based organisation and they can't get people into the state. It 159 00:07:47,000 --> 00:07:51,380 Sean Aylmer: just shows how important opening up of borders and intra Australia, 160 00:07:51,380 --> 00:07:55,010 Sean Aylmer: but also outside, is to move sort of the factors 161 00:07:55,010 --> 00:07:58,010 Sean Aylmer: of production, be it labour and those sorts of skills around 162 00:07:58,010 --> 00:08:00,770 Sean Aylmer: the country, or around the world, because you actually end up 163 00:08:00,770 --> 00:08:02,990 Sean Aylmer: with much better outcomes if you allow that to happen. 164 00:08:03,260 --> 00:08:06,440 Stephen Koukoulas: Oh, that flexibility in mobility is fantastic. You know, well we 165 00:08:06,440 --> 00:08:10,880 Stephen Koukoulas: call it colloquially fly-in, fly-out workers. And that's sort of an all-encompassing phrase 166 00:08:10,880 --> 00:08:12,770 Stephen Koukoulas: for people with the skills. You know, as you said, 167 00:08:12,770 --> 00:08:16,370 Stephen Koukoulas: these mining companies need skilled workers as well as a 168 00:08:16,370 --> 00:08:18,590 Stephen Koukoulas: volume of workers too to work on their mines. And if 169 00:08:18,590 --> 00:08:21,890 Stephen Koukoulas: we don't allow them to move from the eastern states 170 00:08:21,890 --> 00:08:25,280 Stephen Koukoulas: or let alone from overseas, obviously, to work there, then 171 00:08:25,280 --> 00:08:28,040 Stephen Koukoulas: you've got a constraint on the ability of those firms 172 00:08:28,040 --> 00:08:31,010 Stephen Koukoulas: to increase their output. It's actually negative for the rate 173 00:08:31,010 --> 00:08:34,220 Stephen Koukoulas: of growth in the economy. So that lack of flexibility 174 00:08:34,220 --> 00:08:36,380 Stephen Koukoulas: is something that I think when we're fully vaccinated at 175 00:08:36,380 --> 00:08:39,390 Stephen Koukoulas: the end of the year and, hopefully, these lockdowns are 176 00:08:39,800 --> 00:08:42,980 Stephen Koukoulas: an unpleasant memory and we kick off 2022 on a 177 00:08:42,980 --> 00:08:46,730 Stephen Koukoulas: much more positive outlook that that's something a real economic 178 00:08:46,730 --> 00:08:49,010 Stephen Koukoulas: reform that I think the federal government needs to really 179 00:08:49,010 --> 00:08:52,520 Stephen Koukoulas: get its teeth into and work out, you know, internal 180 00:08:52,520 --> 00:08:55,670 Stephen Koukoulas: movement within Australia, but also the overseas immigration. Because, again, 181 00:08:55,670 --> 00:08:58,760 Stephen Koukoulas: I'm hearing from a number of my contacts that getting 182 00:08:58,760 --> 00:09:01,729 Stephen Koukoulas: skilled workers is a real nightmare. And it's not just 183 00:09:01,730 --> 00:09:03,349 Stephen Koukoulas: the pay that they have to do to sort of 184 00:09:03,350 --> 00:09:05,390 Stephen Koukoulas: get workers. They just there are none around. They put 185 00:09:05,390 --> 00:09:08,179 Stephen Koukoulas: ads in the online newsletters and they get no replies. 186 00:09:08,480 --> 00:09:09,530 Sean Aylmer: Stephen, have a great week. 187 00:09:09,860 --> 00:09:10,340 Stephen Koukoulas: Thanks, Sean. 188 00:09:10,760 --> 00:09:13,579 Sean Aylmer: That's economist Stephen Koukoulas, better known as The Kouk. You 189 00:09:13,580 --> 00:09:16,010 Sean Aylmer: can find him at thekouk.com and follow him on Twitter 190 00:09:16,010 --> 00:09:19,910 Sean Aylmer: using the handle @TheKouk, not surprisingly! I'm Sean Aylmer and this 191 00:09:19,910 --> 00:09:21,679 Sean Aylmer: is Fear and Greed, The Week Ahead.