1 00:00:08,420 --> 00:00:11,280 Sean Aylmer: Welcome to Fear and Greed - The Week Ahead. I'm Sean Aylmer, 2 00:00:11,280 --> 00:00:14,750 Sean Aylmer: and as always I'm joined by economist, Stephen Koukoulas. You'll 3 00:00:14,750 --> 00:00:17,299 Sean Aylmer: find him at thekouk. com, T- H- E- K- O- U- K. 4 00:00:17,510 --> 00:00:22,060 Sean Aylmer: com, and on Twitter using the handle TheKouk. Stephen, did 5 00:00:22,060 --> 00:00:25,550 Sean Aylmer: you enjoy last week just a little bit less frantic post- 6 00:00:25,550 --> 00:00:26,590 Sean Aylmer: election or not? 7 00:00:27,420 --> 00:00:31,740 Stephen Koukoulas: I did. Well, I acknowledge I'm biased, of course, but 8 00:00:31,740 --> 00:00:34,360 Stephen Koukoulas: I actually got a bit of encouragement about how the 9 00:00:34,940 --> 00:00:38,530 Stephen Koukoulas: Treasurer, Jim Chalmers, and the Finance Minister, Katy Gallagher, were 10 00:00:38,530 --> 00:00:41,330 Stephen Koukoulas: approaching their jobs. Okay, they're going to be playing politics 11 00:00:41,330 --> 00:00:43,860 Stephen Koukoulas: for a while and blaming the coalition for some of 12 00:00:43,860 --> 00:00:45,830 Stephen Koukoulas: their ills. But to be fair, I think they're sort 13 00:00:45,830 --> 00:00:49,019 Stephen Koukoulas: of approaching their new jobs with a bit of gusto 14 00:00:49,020 --> 00:00:51,440 Stephen Koukoulas: and a bit of an attempt to fix things up, 15 00:00:51,440 --> 00:00:53,140 Stephen Koukoulas: so it was also an encouraged. 16 00:00:53,409 --> 00:00:55,400 Sean Aylmer: I reckon when you've been out of power for nine 17 00:00:55,400 --> 00:00:58,310 Sean Aylmer: years and you finally get the gig, wow, it must 18 00:00:58,310 --> 00:00:59,050 Sean Aylmer: be a good feeling. 19 00:00:59,470 --> 00:01:01,910 Stephen Koukoulas: Yeah. The temptation is to rush and do everything, too. 20 00:01:01,910 --> 00:01:04,610 Stephen Koukoulas: I'm almost sure that's the case. Obviously, with the things 21 00:01:04,610 --> 00:01:07,260 Stephen Koukoulas: that we were discussing last week and in prior weeks 22 00:01:08,310 --> 00:01:11,289 Stephen Koukoulas: we've got a situation where, look, the economy's growing nicely, 23 00:01:11,290 --> 00:01:13,459 Stephen Koukoulas: and that's a good thing. But we do have this 24 00:01:13,459 --> 00:01:16,830 Stephen Koukoulas: issue with high inflation, the almost certain interest rate hikes 25 00:01:16,830 --> 00:01:19,009 Stephen Koukoulas: coming down the pike, and the one, which is a 26 00:01:19,010 --> 00:01:22,270 Stephen Koukoulas: more structural issue for a treasurer and a finance minister, 27 00:01:22,270 --> 00:01:25,339 Stephen Koukoulas: is repairing the budget. We've got big budget deficits. So 28 00:01:25,890 --> 00:01:28,459 Stephen Koukoulas: there's lots they want to do, but approaching it with 29 00:01:28,459 --> 00:01:30,740 Stephen Koukoulas: a steady hand is probably the best approach at this stage. 30 00:01:31,190 --> 00:01:33,830 Sean Aylmer: Now, we'll find out this week exactly how fast the economy is 31 00:01:34,330 --> 00:01:36,530 Sean Aylmer: growing or at least how fast it grew during the 32 00:01:36,530 --> 00:01:40,179 Sean Aylmer: March quarter. But some of the data, which feeds into 33 00:01:40,180 --> 00:01:42,959 Sean Aylmer: that final number which we get this week, came out 34 00:01:42,959 --> 00:01:45,450 Sean Aylmer: last week, the big one being CapEx, capital expenditure. 35 00:01:46,420 --> 00:01:48,760 Stephen Koukoulas: It was a bit disappointing. It was actually a drop of 0. 36 00:01:48,760 --> 00:01:53,550 Stephen Koukoulas: 3%. So the machinery and equipment component grew by around 37 00:01:53,550 --> 00:01:56,760 Stephen Koukoulas: about 1. 25%, so that was good. But the buildings 38 00:01:56,760 --> 00:01:59,500 Stephen Koukoulas: and structures was weak. It actually fell in the quarter, 39 00:01:59,500 --> 00:02:02,810 Stephen Koukoulas: which dragged the bottom line CapEx number lower. When we 40 00:02:02,810 --> 00:02:05,150 Stephen Koukoulas: look at why that occurred, it was because there was 41 00:02:05,150 --> 00:02:09,359 Stephen Koukoulas: some floods, obviously, in southern Queensland, north New South Wales, 42 00:02:09,360 --> 00:02:12,359 Stephen Koukoulas: and other places, too, which limited the ability of builders 43 00:02:12,360 --> 00:02:15,130 Stephen Koukoulas: to construct, of course. So that was one reason. The 44 00:02:15,130 --> 00:02:18,020 Stephen Koukoulas: other reason was COVID, that people were unable to turn 45 00:02:18,020 --> 00:02:20,360 Stephen Koukoulas: up to work because either they had COVID or their 46 00:02:20,780 --> 00:02:23,650 Stephen Koukoulas: family members had COVID, so that lack of hours worked, 47 00:02:23,680 --> 00:02:25,810 Stephen Koukoulas: if you like, in the economy dragged on CapEx as 48 00:02:25,810 --> 00:02:28,450 Stephen Koukoulas: well. So a little bit of a disappointing number. Although 49 00:02:28,450 --> 00:02:32,290 Stephen Koukoulas: having said that, the expected level of CapEx for the 50 00:02:32,290 --> 00:02:36,399 Stephen Koukoulas: next financial year, '22/ '23 financial year, was actually quite positive, 51 00:02:36,400 --> 00:02:39,850 Stephen Koukoulas: up around about 12% or 13%. So that should see something of 52 00:02:39,850 --> 00:02:43,030 Stephen Koukoulas: a rebound and the supports the pretty decent growth outlook 53 00:02:43,030 --> 00:02:43,450 Stephen Koukoulas: that we've got. 54 00:02:44,669 --> 00:02:47,000 Sean Aylmer: We get the economic growth figures this week. What are 55 00:02:47,000 --> 00:02:48,491 Sean Aylmer: they going to say, Stephen? Tell us first. 56 00:02:48,490 --> 00:02:54,590 Stephen Koukoulas: Oh, well, I'll try. They're a bit of a lottery this last two 57 00:02:54,590 --> 00:02:59,280 Stephen Koukoulas: years with COVID and the supply chain disruptions coming through 58 00:02:59,389 --> 00:03:03,280 Stephen Koukoulas: the economy. They've been harder to read. They've been extremely 59 00:03:03,350 --> 00:03:07,370 Stephen Koukoulas: volatile. Like, we've had a minus 7%, a minus 3.7%, a 60 00:03:07,370 --> 00:03:10,490 Stephen Koukoulas: plus 3. 4%. They've been all over the place. Now, 61 00:03:10,490 --> 00:03:12,820 Stephen Koukoulas: that's my caveat for not shooting me when I get 62 00:03:12,820 --> 00:03:13,239 Stephen Koukoulas: this wrong. 63 00:03:13,820 --> 00:03:14,760 Sean Aylmer: You sound like an economist. 64 00:03:15,490 --> 00:03:18,370 Stephen Koukoulas: I am, I am. Look, it's going to be a soft- 65 00:03:18,380 --> 00:03:20,660 Stephen Koukoulas: ish sort of number that we know... Again, as we 66 00:03:20,660 --> 00:03:23,060 Stephen Koukoulas: were just discussing on the CapEx, that was a small 67 00:03:23,060 --> 00:03:26,420 Stephen Koukoulas: drag on GDP. We know that the net export numbers are 68 00:03:26,490 --> 00:03:29,950 Stephen Koukoulas: negative. So while commodity prices are strong, we have had 69 00:03:29,950 --> 00:03:33,300 Stephen Koukoulas: an import surge, in fact, that equipment investment, most of 70 00:03:33,419 --> 00:03:35,690 Stephen Koukoulas: that is imported. So we're going to have net exports 71 00:03:35,790 --> 00:03:38,339 Stephen Koukoulas: as a negative. Offsetting that, we have really good strength 72 00:03:38,400 --> 00:03:41,990 Stephen Koukoulas: in household spending. We do know that government is still 73 00:03:41,990 --> 00:03:44,260 Stephen Koukoulas: contributing to the economy, that there's still a fair bit of 74 00:03:44,260 --> 00:03:47,240 Stephen Koukoulas: fiscal spending in the pipeline. So cutting to the chase, 75 00:03:47,470 --> 00:03:50,670 Stephen Koukoulas: GDP looks like it's going to be about 0.5% quarter 76 00:03:50,670 --> 00:03:55,630 Stephen Koukoulas: on quarter, about 2. 7%, 2. 8% year on year. It's 77 00:03:55,630 --> 00:03:58,160 Stephen Koukoulas: an okay growth number. It's consistent with the stuff that 78 00:03:58,160 --> 00:03:59,560 Stephen Koukoulas: we're seeing in the economy and on the labor market 79 00:04:00,180 --> 00:04:02,580 Stephen Koukoulas: as well. So growth's reasonable at this stage. 80 00:04:03,710 --> 00:04:05,410 Sean Aylmer: A few other figures out this week. It's the end 81 00:04:05,410 --> 00:04:06,990 Sean Aylmer: of the month, of course, so we get the CoreLogic 82 00:04:06,990 --> 00:04:07,940 Sean Aylmer: house price data. 83 00:04:09,710 --> 00:04:11,260 Stephen Koukoulas: Wow. It's going to be interesting because it's going to 84 00:04:11,260 --> 00:04:14,830 Stephen Koukoulas: show that nationwide house prices are down. We do know 85 00:04:14,830 --> 00:04:18,099 Stephen Koukoulas: the data from their daily series, and it's showing that 86 00:04:18,100 --> 00:04:22,690 Stephen Koukoulas: house prices nationwide will be down about 0. 3%, perhaps something 87 00:04:23,010 --> 00:04:23,240 Stephen Koukoulas: like that. 88 00:04:23,250 --> 00:04:23,270 Sean Aylmer: Wow. 89 00:04:23,720 --> 00:04:27,430 Stephen Koukoulas: But amazingly within that, there's a huge divergence from city 90 00:04:27,430 --> 00:04:31,919 Stephen Koukoulas: to city. Sydney will be down close to 1% month 91 00:04:31,920 --> 00:04:35,460 Stephen Koukoulas: on month, Melbourne down about 0. 5%. That's why the national 92 00:04:35,460 --> 00:04:38,360 Stephen Koukoulas: figure's down. We still have growth occurring in the other 93 00:04:38,360 --> 00:04:41,360 Stephen Koukoulas: capital cities, Brisbane and Adelaide leading the way, and the 94 00:04:41,670 --> 00:04:46,010 Stephen Koukoulas: others, Hobart, Canberra, Darwin, Perth, sort of muddling along reasonably 95 00:04:46,010 --> 00:04:48,580 Stephen Koukoulas: at a slower pace. But we'll get a few headlines 96 00:04:48,810 --> 00:04:51,440 Stephen Koukoulas: this week saying, " The house price boom has ended, and 97 00:04:52,580 --> 00:04:55,810 Stephen Koukoulas: house prices fall." Look, after a boom that we've seen 98 00:04:55,810 --> 00:04:57,760 Stephen Koukoulas: in the last 18 months in prices, a little bit 99 00:04:57,910 --> 00:04:59,070 Stephen Koukoulas: of a pullback's not a bad thing. 100 00:05:00,150 --> 00:05:02,180 Sean Aylmer: The other one is international trade. We talk so much 101 00:05:02,180 --> 00:05:05,390 Sean Aylmer: about international trade on Fear and Greed, not even using 102 00:05:05,390 --> 00:05:08,020 Sean Aylmer: those words, but we talk about commodities and commodity prices. 103 00:05:08,020 --> 00:05:10,210 Sean Aylmer: We talk about the big companies, the iron ore companies 104 00:05:10,640 --> 00:05:14,100 Sean Aylmer: selling stuff to overseas buyers. We talk about the exchange 105 00:05:14,100 --> 00:05:17,490 Sean Aylmer: rate the whole time. What's happening in that international trade area? 106 00:05:17,960 --> 00:05:23,610 Stephen Koukoulas: Well, we've seen those commodity prices and good export volumes 107 00:05:23,610 --> 00:05:28,820 Stephen Koukoulas: continuing. These numbers are for April. We know that commodity prices took another 108 00:05:29,110 --> 00:05:33,250 Stephen Koukoulas: leg higher, even a lot of agricultural prices. Wheat prices are very, 109 00:05:33,250 --> 00:05:36,270 Stephen Koukoulas: very strong. We've had a decent growing season. Look, we're 110 00:05:36,270 --> 00:05:39,450 Stephen Koukoulas: going to get a decent monthly trade surplus probably round 111 00:05:39,450 --> 00:05:42,980 Stephen Koukoulas: about that 9 or 10 billion monthly number, so we 112 00:05:43,180 --> 00:05:47,120 Stephen Koukoulas: exporting decent volumes at a higher price. As we just 113 00:05:47,120 --> 00:05:49,510 Stephen Koukoulas: alluded to on that CapEx result, that we are actually 114 00:05:49,510 --> 00:05:53,120 Stephen Koukoulas: starting to import a lot of machinery, equipment, and items. 115 00:05:53,330 --> 00:05:55,910 Stephen Koukoulas: When consumer demand is running along at a decent clip, 116 00:05:55,910 --> 00:06:01,300 Stephen Koukoulas: when we've got business investment also looking to re- equip 117 00:06:01,430 --> 00:06:05,170 Stephen Koukoulas: with machinery and cars and transport vehicles, most of which 118 00:06:05,170 --> 00:06:07,550 Stephen Koukoulas: are imported, of course, you get a bit of a 119 00:06:07,550 --> 00:06:11,560 Stephen Koukoulas: pullback on the size of the trade surplus. Bottom line, 120 00:06:11,620 --> 00:06:13,730 Stephen Koukoulas: the trade position is still favorable to Australia. 121 00:06:14,710 --> 00:06:15,860 Sean Aylmer: The other one, which I must say I know very little about, but you're 122 00:06:16,730 --> 00:06:18,659 Sean Aylmer: really interesting on it, is the credit data. 123 00:06:19,990 --> 00:06:24,360 Stephen Koukoulas: The credit data's split into three main components. Credit for 124 00:06:24,390 --> 00:06:26,640 Stephen Koukoulas: housing, which is the one that we tend to focus 125 00:06:26,640 --> 00:06:28,390 Stephen Koukoulas: on, and that's going to be up again even though 126 00:06:28,589 --> 00:06:30,849 Stephen Koukoulas: the house prices have come off a bit over the 127 00:06:30,850 --> 00:06:33,240 Stephen Koukoulas: last month. We do know that people are still borrowing 128 00:06:33,240 --> 00:06:35,580 Stephen Koukoulas: and buying and the like. So that's going to be 129 00:06:35,580 --> 00:06:38,500 Stephen Koukoulas: an important indicator of just how strong credit growth is 130 00:06:38,500 --> 00:06:42,020 Stephen Koukoulas: for the housing market. The other two components are personal 131 00:06:42,089 --> 00:06:45,350 Stephen Koukoulas: credits. Now, that's a much smaller component, of course. Nonetheless, 132 00:06:45,350 --> 00:06:49,039 Stephen Koukoulas: we've had consumers sort of scaling back their personal credit 133 00:06:49,040 --> 00:06:50,900 Stephen Koukoulas: numbers. I think part of that's because they merged them 134 00:06:50,900 --> 00:06:54,089 Stephen Koukoulas: into their mortgages now, so it's a slightly structural issue in 135 00:06:54,089 --> 00:06:57,180 Stephen Koukoulas: terms of how we consumers borrow and spend. The other 136 00:06:57,180 --> 00:06:59,620 Stephen Koukoulas: one, which is going to be really important, is business 137 00:06:59,620 --> 00:07:04,540 Stephen Koukoulas: credit. Are businesses borrowing money to fund their expected expansion? 138 00:07:04,540 --> 00:07:07,589 Stephen Koukoulas: So I'll probably spend most of my time looking at 139 00:07:07,589 --> 00:07:11,090 Stephen Koukoulas: the business credit numbers with a casting eye on the 140 00:07:11,090 --> 00:07:15,210 Stephen Koukoulas: housing credit numbers, too. Because if business credit remains strong, it fits with 141 00:07:15,210 --> 00:07:18,780 Stephen Koukoulas: those earlier issues about the expectations for CapEx being pretty 142 00:07:18,780 --> 00:07:21,640 Stephen Koukoulas: good, and that's a nice building block for the remainder 143 00:07:21,640 --> 00:07:23,869 Stephen Koukoulas: of this calendar year and into 2023. 144 00:07:24,120 --> 00:07:25,020 Sean Aylmer: Enjoy the week, Stephen. 145 00:07:25,400 --> 00:07:26,270 Stephen Koukoulas: I will, for sure. 146 00:07:26,540 --> 00:07:28,860 Sean Aylmer: That was economist, Stephen Koukoulas, better known as the Kouk. 147 00:07:29,430 --> 00:07:31,510 Sean Aylmer: You can find him at thekouk. com and follow him 148 00:07:31,510 --> 00:07:34,700 Sean Aylmer: on Twitter using the handle, TheKouk. I'm Sean Aylmer, and 149 00:07:34,700 --> 00:07:36,420 Sean Aylmer: this is Fear and Greed - The Week Ahead.