1 00:00:05,400 --> 00:00:07,470 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean 2 00:00:07,680 --> 00:00:10,918 Sean Aylmer: Aylmer, and as always, I'm joined by economist Stephen Koukoulas. 3 00:00:10,920 --> 00:00:13,380 Sean Aylmer: You'll find him at thekouk. com, T- H- E- K- O- U- 4 00:00:13,380 --> 00:00:16,439 Sean Aylmer: K, thekouk. com, and on X using the handle, TheKouk. 5 00:00:16,440 --> 00:00:17,249 Sean Aylmer: Stephen, good morning. 6 00:00:17,549 --> 00:00:20,160 Stephen Koukoulas: Good morning and happy new financial year. We're kicking off 24/ 7 00:00:20,730 --> 00:00:21,870 Stephen Koukoulas: 25. Hooray. 8 00:00:21,900 --> 00:00:25,380 Sean Aylmer: Yes. Let's hope that our superannuation returns this year are 9 00:00:25,380 --> 00:00:28,050 Sean Aylmer: just as good as our superannuation returns last year, because 10 00:00:28,050 --> 00:00:29,549 Sean Aylmer: it was a pretty good year, 2024. 11 00:00:29,550 --> 00:00:32,640 Stephen Koukoulas: They were pretty good. I'd take that today. Yep. 12 00:00:32,670 --> 00:00:36,479 Sean Aylmer: Yeah, totally. Bumper week in terms of economic data, which 13 00:00:36,479 --> 00:00:38,580 Sean Aylmer: is appropriate for the new financial year. But before we 14 00:00:38,580 --> 00:00:43,530 Sean Aylmer: jump into it, those monthly CPI figures last week. Fly ... 15 00:00:43,530 --> 00:00:44,879 Sean Aylmer: What is it? Fly in the ointment? 16 00:00:45,719 --> 00:00:48,900 Stephen Koukoulas: Look, we do want, and certainly the RBA wants to 17 00:00:48,900 --> 00:00:51,719 Stephen Koukoulas: see inflation falling more rapidly to their 2 to 3% 18 00:00:52,019 --> 00:00:55,590 Stephen Koukoulas: inflation target. So they did come in at 4% year- on- 19 00:00:55,590 --> 00:00:59,370 Stephen Koukoulas: year for the month of May, higher than market expectations. 20 00:00:59,370 --> 00:01:01,410 Stephen Koukoulas: But when we sort of dissect the numbers, it was 21 00:01:01,650 --> 00:01:06,119 Stephen Koukoulas: the usual suspects contributing to that high result. Petrol, rent, 22 00:01:07,049 --> 00:01:11,279 Stephen Koukoulas: tobacco prices, insurance, and this time we had the extra 23 00:01:11,879 --> 00:01:17,010 Stephen Koukoulas: little addition from holiday travel, so probably the boomers using 24 00:01:17,610 --> 00:01:20,309 Stephen Koukoulas: their great returns on their super to sort of jump 25 00:01:20,309 --> 00:01:23,250 Stephen Koukoulas: on a cruise and on an airline. So look, it 26 00:01:23,250 --> 00:01:27,119 Stephen Koukoulas: was higher than everyone would like, but as the RBA 27 00:01:27,120 --> 00:01:31,200 Stephen Koukoulas: deputy governor said in a speech last week, we look 28 00:01:31,200 --> 00:01:33,030 Stephen Koukoulas: at more than just one month of number. We look 29 00:01:33,030 --> 00:01:36,120 Stephen Koukoulas: at a whole range of numbers, and between now and 30 00:01:36,120 --> 00:01:39,630 Stephen Koukoulas: the next RBA meeting in early August, there's a lot 31 00:01:39,630 --> 00:01:44,970 Stephen Koukoulas: more data to come, including the mega important June quarter 32 00:01:45,150 --> 00:01:46,080 Stephen Koukoulas: inflation numbers. 33 00:01:46,770 --> 00:01:49,980 Sean Aylmer: Maybe hindsight's 2020, but even when it was happening last week, 34 00:01:50,040 --> 00:01:53,700 Sean Aylmer: I kind of got this feeling that on one number 35 00:01:53,700 --> 00:01:56,760 Sean Aylmer: there was almost an overreaction in markets. 36 00:01:56,820 --> 00:02:00,570 Stephen Koukoulas: Yeah, and I think markets tend to overshoot. 37 00:02:01,139 --> 00:02:01,529 Sean Aylmer: Yeah. 38 00:02:01,530 --> 00:02:04,319 Stephen Koukoulas: You and I have been around long enough to see markets spiking 39 00:02:04,320 --> 00:02:07,500 Stephen Koukoulas: higher and spiking low and then they return to normal. 40 00:02:07,500 --> 00:02:11,010 Stephen Koukoulas: And already in the couple of days after that inflation, 41 00:02:11,100 --> 00:02:13,080 Stephen Koukoulas: we've seen your bond yields come back down a bit. 42 00:02:13,080 --> 00:02:15,630 Stephen Koukoulas: They're still pricing in a probability of a rate hike. 43 00:02:15,630 --> 00:02:18,690 Stephen Koukoulas: Don't get me wrong. But some of that exaggerated reaction 44 00:02:18,690 --> 00:02:21,599 Stephen Koukoulas: to it has sort of dissipated somewhat because of course 45 00:02:21,599 --> 00:02:24,269 Stephen Koukoulas: last week we also saw things like job vacancies. So 46 00:02:25,020 --> 00:02:28,002 Stephen Koukoulas: the all- important labor market indicator tracking down (inaudible) 47 00:02:27,750 --> 00:02:30,450 Stephen Koukoulas: 26% over the last 2 years, which is a pretty 48 00:02:30,450 --> 00:02:33,630 Stephen Koukoulas: chunky fall and feeds into this narrative that the slow 49 00:02:33,630 --> 00:02:36,959 Stephen Koukoulas: economy is well and truly impacting the labor market. And 50 00:02:36,960 --> 00:02:38,939 Stephen Koukoulas: the unemployment rate, which has already gone from 3. 5 51 00:02:39,508 --> 00:02:42,600 Stephen Koukoulas: to around about 4% is probably going to increase further. 52 00:02:42,600 --> 00:02:44,250 Stephen Koukoulas: And I think that's again what the deputy governor was 53 00:02:44,250 --> 00:02:46,200 Stephen Koukoulas: alluding to. So what is it? In about a couple 54 00:02:46,200 --> 00:02:48,630 Stephen Koukoulas: of weeks, we get the next labor force number, and 55 00:02:48,630 --> 00:02:52,709 Stephen Koukoulas: if that shows unemployment ticking up again, that should be 56 00:02:52,950 --> 00:02:57,570 Stephen Koukoulas: accounted to that inflation quirk, that little blip that we saw. 57 00:02:58,020 --> 00:03:01,409 Sean Aylmer: Plenty of data out this week to mull over. Retail 58 00:03:01,409 --> 00:03:03,510 Sean Aylmer: sales, Stephen, what do you expect? We've had a very, 59 00:03:03,510 --> 00:03:04,858 Sean Aylmer: very soggy consumer. 60 00:03:05,040 --> 00:03:07,380 Stephen Koukoulas: Yeah, the soggy consumer. Again, last week we had the 61 00:03:07,380 --> 00:03:10,800 Stephen Koukoulas: consumer sentiment numbers, which track into the month of June. 62 00:03:10,800 --> 00:03:13,019 Stephen Koukoulas: These are for May retail sales, but consumer sentiment has 63 00:03:13,020 --> 00:03:15,330 Stephen Koukoulas: been crook for, oh, for a couple of years. It's 64 00:03:15,330 --> 00:03:18,540 Stephen Koukoulas: been occasionally up and occasionally down, but really the trend 65 00:03:18,540 --> 00:03:21,810 Stephen Koukoulas: is very poor. So expectations are for a broadly flat 66 00:03:21,810 --> 00:03:24,360 Stephen Koukoulas: result in dollar terms. These are not the real numbers, 67 00:03:24,360 --> 00:03:27,269 Stephen Koukoulas: these are dollar terms. So retail sales still flat. Us 68 00:03:27,270 --> 00:03:31,230 Stephen Koukoulas: consumers are reacting to cost of living, higher mortgages, higher 69 00:03:31,230 --> 00:03:35,070 Stephen Koukoulas: rents, and so we're sort of trimming our expenditure particularly on 70 00:03:35,070 --> 00:03:38,580 Stephen Koukoulas: discretionary items. So a lot of the small retailers are 71 00:03:38,610 --> 00:03:39,990 Stephen Koukoulas: going to be under a fair bit of pressure, but 72 00:03:40,050 --> 00:03:44,670 Stephen Koukoulas: again, confirming the sogginess has continued in the economy into 73 00:03:44,670 --> 00:03:45,360 Stephen Koukoulas: the June quarter. 74 00:03:45,840 --> 00:03:47,760 Sean Aylmer: Building approval figures are also out this week. 75 00:03:48,030 --> 00:03:52,829 Stephen Koukoulas: Oh, Sean, I'm wishing and hoping and praying that we get an 76 00:03:52,830 --> 00:03:55,800 Stephen Koukoulas: increase in building approvals. They've been really weak for the 77 00:03:55,800 --> 00:03:58,650 Stephen Koukoulas: last, again, the last year or so. They've been tracking 78 00:03:58,650 --> 00:04:01,260 Stephen Koukoulas: at their lowest level in 10 or 11 years. And look, it's 79 00:04:01,260 --> 00:04:03,840 Stephen Koukoulas: really difficult to forecast the monthly result because all it 80 00:04:03,840 --> 00:04:08,250 Stephen Koukoulas: takes is for one multi unit, high rise tower to be 81 00:04:08,250 --> 00:04:09,809 Stephen Koukoulas: approved, for there to be a big spike and a 82 00:04:09,809 --> 00:04:10,740 Stephen Koukoulas: big correction lower. 83 00:04:10,740 --> 00:04:10,800 Sean Aylmer: Yeah. 84 00:04:11,250 --> 00:04:13,170 Stephen Koukoulas: We are hoping that they pick up because again, the 85 00:04:13,170 --> 00:04:16,020 Stephen Koukoulas: issue of housing, which will take many years to fix, 86 00:04:16,200 --> 00:04:18,928 Stephen Koukoulas: does need new dwellings to be built. And so we 87 00:04:18,930 --> 00:04:21,360 Stephen Koukoulas: are hoping that we get a plus five or something 88 00:04:21,360 --> 00:04:24,210 Stephen Koukoulas: like that as start of this long process to recovery, 89 00:04:24,210 --> 00:04:25,319 Stephen Koukoulas: new housing construction. 90 00:04:25,770 --> 00:04:29,099 Sean Aylmer: I must say in my time watching the economy, which 91 00:04:29,850 --> 00:04:32,520 Sean Aylmer: alas I measure in decades just like you do, I've 92 00:04:32,520 --> 00:04:36,870 Sean Aylmer: never seen housing such a critical part of the economy 93 00:04:37,020 --> 00:04:40,529 Sean Aylmer: for many, many reasons. From inflation to people having somewhere 94 00:04:40,529 --> 00:04:44,520 Sean Aylmer: to live through to population growth, all that, just housing 95 00:04:44,520 --> 00:04:46,919 Sean Aylmer: right now seems more important than it ever has in 96 00:04:46,920 --> 00:04:47,490 Sean Aylmer: my time. 97 00:04:48,540 --> 00:04:50,400 Stephen Koukoulas: I think I would agree with you, and I've been 98 00:04:50,400 --> 00:04:52,349 Stephen Koukoulas: around approximately the same amount of time as you. Look 99 00:04:52,350 --> 00:04:55,440 Stephen Koukoulas: at my gray hair. But yes, I think it is, 100 00:04:55,620 --> 00:04:59,250 Stephen Koukoulas: and it's because it's coincided with this broader cost of 101 00:04:59,250 --> 00:05:02,729 Stephen Koukoulas: living issue that we were talking about previously, that I 102 00:05:02,730 --> 00:05:05,310 Stephen Koukoulas: think the fact that house prices are still going up 103 00:05:05,369 --> 00:05:09,779 Stephen Koukoulas: in most cities, the rental market's extremely tight, that tends 104 00:05:09,779 --> 00:05:11,969 Stephen Koukoulas: to impact lower income earners who tend to rent rather 105 00:05:11,970 --> 00:05:14,820 Stephen Koukoulas: than high income earners who tend to buy. That squeeze 106 00:05:14,820 --> 00:05:17,040 Stephen Koukoulas: and that inequality, I suppose you could call it from 107 00:05:17,040 --> 00:05:20,729 Stephen Koukoulas: the housing cycle, house prices high, rents being high is 108 00:05:20,730 --> 00:05:23,189 Stephen Koukoulas: something that's sort of just focusing the attention of many 109 00:05:23,190 --> 00:05:25,320 Stephen Koukoulas: people and think, well, gee, first of all it's very 110 00:05:25,320 --> 00:05:28,830 Stephen Koukoulas: unfair. And second, it's really bad for society. And three, 111 00:05:28,920 --> 00:05:31,290 Stephen Koukoulas: it's bad for the economy to have this sort of 112 00:05:31,529 --> 00:05:34,710 Stephen Koukoulas: problem occurring in such an important part of the economy. 113 00:05:35,250 --> 00:05:38,849 Sean Aylmer: Just staying in construction, kind of, house prices. We've got 114 00:05:38,849 --> 00:05:39,360 Sean Aylmer: the full (inaudible) coming. 115 00:05:39,960 --> 00:05:42,630 Stephen Koukoulas: Yeah. Well, as we just mentioned, going up, the core 116 00:05:42,630 --> 00:05:45,539 Stephen Koukoulas: logic numbers will show that house prices are up about 0. 117 00:05:45,539 --> 00:05:48,270 Stephen Koukoulas: 7% in the month of June. We know that from 118 00:05:48,270 --> 00:05:51,630 Stephen Koukoulas: their daily data, but again, a massive divergence from the 119 00:05:51,630 --> 00:05:55,799 Stephen Koukoulas: strong to the weak. Perth will be up about 22, 23% 120 00:05:55,830 --> 00:06:00,870 Stephen Koukoulas: annually. Wow. Adelaide, Brisbane up 15% give or take. Whereas Melbourne 121 00:06:01,080 --> 00:06:05,070 Stephen Koukoulas: flats to slightly down, we've got Darwin for those folks 122 00:06:05,070 --> 00:06:08,670 Stephen Koukoulas: there. Hobart, Canberra also pretty weak and Sydney sort of 123 00:06:08,670 --> 00:06:12,120 Stephen Koukoulas: in the middle. So house prices at a national basis 124 00:06:12,120 --> 00:06:12,779 Stephen Koukoulas: still going up. 125 00:06:13,440 --> 00:06:16,469 Sean Aylmer: And what about a couple of other ... Job ads will 126 00:06:16,469 --> 00:06:19,380 Sean Aylmer: be an interesting one given the issue about the labor market. 127 00:06:19,710 --> 00:06:22,110 Stephen Koukoulas: Job ads. Yep. Fascinating to see what happens to them. 128 00:06:22,110 --> 00:06:24,060 Stephen Koukoulas: As I said, with the job vacancy series, which is 129 00:06:24,060 --> 00:06:26,789 Stephen Koukoulas: a slightly different series, if you had a Venn diagram, 130 00:06:26,790 --> 00:06:29,130 Stephen Koukoulas: there's a big overlap, but they were weaker. So again, 131 00:06:29,130 --> 00:06:31,380 Stephen Koukoulas: we are waiting to see whether job ads are continuing 132 00:06:31,380 --> 00:06:34,710 Stephen Koukoulas: to track lower and things like the international trade balance, 133 00:06:34,740 --> 00:06:37,859 Stephen Koukoulas: really important. The net export side of the economy is 134 00:06:37,860 --> 00:06:39,600 Stephen Koukoulas: one part that tends not to be covered up. As you 135 00:06:39,630 --> 00:06:41,969 Stephen Koukoulas: said, we focus on housing and retail spending, but your 136 00:06:41,970 --> 00:06:45,900 Stephen Koukoulas: net exports can add or detract from economic growth. So 137 00:06:46,200 --> 00:06:50,279 Stephen Koukoulas: expecting another decent international trade surplus on goods, so about 138 00:06:50,279 --> 00:06:52,949 Stephen Koukoulas: 6 or $ 7 billion for the month. The iron ore 139 00:06:53,039 --> 00:06:55,109 Stephen Koukoulas: exports are booming even though the price has come down 140 00:06:55,110 --> 00:06:55,260 Stephen Koukoulas: a bit. 141 00:06:55,650 --> 00:06:56,580 Sean Aylmer: Stephen, enjoy your week. 142 00:06:56,880 --> 00:06:57,359 Stephen Koukoulas: Thanks Sean. 143 00:06:57,720 --> 00:06:59,909 Sean Aylmer: That was economist, Stephen Koukoulas, better known as The Kouk. 144 00:06:59,910 --> 00:07:02,339 Sean Aylmer: You can find him at thekouk. com and follow him 145 00:07:02,339 --> 00:07:05,428 Sean Aylmer: on X using the handle TheKouk. I'm Sean Aylmer and this is Fear and 146 00:07:05,428 --> 00:07:06,269 Sean Aylmer: Greed - The Week Ahead.