1 00:00:09,270 --> 00:00:11,760 Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. This is 2 00:00:11,760 --> 00:00:13,620 Sean Aylmer: where we take a look at the big events, reports 3 00:00:13,620 --> 00:00:16,500 Sean Aylmer: and releases coming up this week that give insight into 4 00:00:16,500 --> 00:00:18,780 Sean Aylmer: the economy and a look back at what happened last 5 00:00:18,780 --> 00:00:21,960 Sean Aylmer: week too. I'm Sean Aylmer and every Monday I'm joined, of course, for The 6 00:00:21,960 --> 00:00:24,870 Sean Aylmer: Week Ahead by economist Stephen Koukoulas. You'll find him at 7 00:00:24,870 --> 00:00:30,300 Sean Aylmer: thekouk.com and on Twitter using the handle @TheKouk. Stephen, good morning. 8 00:00:31,080 --> 00:00:32,130 Stephen Koukoulas: Good morning, Sean. 9 00:00:32,310 --> 00:00:34,589 Sean Aylmer: Now, before we get into the big announcements this week, 10 00:00:34,590 --> 00:00:36,780 Sean Aylmer: let's have a little look at last week, the Reserve 11 00:00:36,780 --> 00:00:39,720 Sean Aylmer: Bank board meeting. Did they do what you expected them to do? 12 00:00:39,840 --> 00:00:43,380 Sean Aylmer: Pretty much so. The policy changes were as expected. A 13 00:00:43,380 --> 00:00:46,710 Sean Aylmer: tiny wind back in their bond buying program. They didn't 14 00:00:46,710 --> 00:00:50,550 Sean Aylmer: extend their yield curve control. So they're not buying the 15 00:00:50,550 --> 00:00:54,420 Sean Aylmer: November 2024 bond. And they kept the cash rate unchanged. 16 00:00:54,420 --> 00:00:58,530 Sean Aylmer: But there was a really interesting series of comments from 17 00:00:58,530 --> 00:01:01,470 Sean Aylmer: the governor who also gave one of those rare press 18 00:01:01,470 --> 00:01:05,010 Sean Aylmer: conferences after the board meeting. But the key points of 19 00:01:05,010 --> 00:01:09,149 Sean Aylmer: that were that he's still not yet convinced that this 20 00:01:09,150 --> 00:01:11,940 Sean Aylmer: better economic news that we're seeing will translate to a 21 00:01:11,940 --> 00:01:16,410 Sean Aylmer: quick lift in inflation and wages. So he reiterated his 22 00:01:16,410 --> 00:01:19,530 Sean Aylmer: view that the official cash rate, the 0.1 per cent rate, 23 00:01:19,709 --> 00:01:23,429 Sean Aylmer: will be in place through to 2024. The other thing 24 00:01:23,430 --> 00:01:27,630 Sean Aylmer: that he mentioned in the Q&A and subsequent speech was 25 00:01:27,630 --> 00:01:31,530 Sean Aylmer: a linkage between immigration and wages, that the fact that 26 00:01:31,680 --> 00:01:35,010 Sean Aylmer: we've got our borders closed and that worker visa scheme 27 00:01:35,010 --> 00:01:38,340 Sean Aylmer: is effectively not working means that businesses are having to 28 00:01:38,340 --> 00:01:42,060 Sean Aylmer: pay up local Australians to get the skills that they need. And, 29 00:01:42,060 --> 00:01:45,630 Sean Aylmer: of course, they're paying higher wages rather than relying on immigration, 30 00:01:45,630 --> 00:01:47,910 Sean Aylmer: I suppose. And that's a really interesting thing that sort 31 00:01:47,910 --> 00:01:50,790 Sean Aylmer: of made him have a second thoughts about whether we're actually 32 00:01:50,790 --> 00:01:52,770 Sean Aylmer: going to see some wage pressures coming through because of 33 00:01:52,770 --> 00:01:53,730 Sean Aylmer: the closed borders. 34 00:01:54,000 --> 00:01:56,760 Sean Aylmer: Was there a sense of loosening monetary policy or not? 35 00:01:57,060 --> 00:02:00,090 Stephen Koukoulas: Look at the margin. The bond buying program was scaled 36 00:02:00,090 --> 00:02:03,960 Stephen Koukoulas: back from five billion per week to four billion dollars 37 00:02:03,960 --> 00:02:07,380 Stephen Koukoulas: per week. So, look, it's a little bit less aggressive. 38 00:02:07,380 --> 00:02:10,350 Stephen Koukoulas: But in fact, interestingly, that's in line with a smaller 39 00:02:10,350 --> 00:02:12,360 Stephen Koukoulas: issuance from the government because the budget deficit is going 40 00:02:12,360 --> 00:02:14,580 Stephen Koukoulas: to be smaller this year than last year. So as 41 00:02:14,580 --> 00:02:16,919 Stephen Koukoulas: a proportion of the bonds on issue, it's about the same, 42 00:02:16,919 --> 00:02:20,820 Stephen Koukoulas: the same ratio, but again he acknowledged the better news. There is no 43 00:02:20,820 --> 00:02:24,870 Stephen Koukoulas: doubt about that. He's pleased to see the labour market improving. 44 00:02:24,870 --> 00:02:27,420 Stephen Koukoulas: But as I just mentioned, he's not yet convinced that 45 00:02:27,419 --> 00:02:29,970 Stephen Koukoulas: we're going to be getting that inflation and wage pick 46 00:02:29,970 --> 00:02:31,280 Stephen Koukoulas: up that he wants to see. 47 00:02:31,770 --> 00:02:33,930 Sean Aylmer: There is a bunch of other news out last week, 48 00:02:34,050 --> 00:02:37,800 Sean Aylmer: retail sales, building approvals, ANZ job ads. What's the take 49 00:02:37,800 --> 00:02:38,519 Sean Aylmer: from all those? 50 00:02:39,210 --> 00:02:42,750 Stephen Koukoulas: Yeah, generally good. The retail sales were revised up, so 0.4 51 00:02:43,020 --> 00:02:45,540 Stephen Koukoulas: per cent growth in the month of May. So that's a 52 00:02:45,540 --> 00:02:49,790 Stephen Koukoulas: pretty solid level of spending growth. We saw building approvals dip. 53 00:02:49,800 --> 00:02:52,320 Stephen Koukoulas: There's no surprises there because we had a big bring 54 00:02:52,320 --> 00:02:55,980 Stephen Koukoulas: forward of construction activity for the residential area because of 55 00:02:55,980 --> 00:02:59,280 Stephen Koukoulas: these government schemes. And so we had a big lift 56 00:02:59,520 --> 00:03:02,520 Stephen Koukoulas: in late 2021, early 2021. And that's just tapering off. 57 00:03:02,520 --> 00:03:06,570 Stephen Koukoulas: And there's nothing terribly worrying about that. And ANZ job ads? Wow. 58 00:03:06,570 --> 00:03:09,150 Stephen Koukoulas: You know, there's still hot demand for labour out there, 59 00:03:09,419 --> 00:03:14,130 Stephen Koukoulas: that the firms looking to ramp up their labour force, 60 00:03:14,250 --> 00:03:16,919 Stephen Koukoulas: they're putting lots of job ads into the Internet space. 61 00:03:16,919 --> 00:03:19,800 Stephen Koukoulas: And it suggests to me that the employment side of 62 00:03:19,800 --> 00:03:21,540 Stephen Koukoulas: the economy is going to continue to do pretty well. 63 00:03:21,660 --> 00:03:23,669 Sean Aylmer: Well, that's last week. We'll be back in a moment 64 00:03:23,669 --> 00:03:24,930 Sean Aylmer: and get into the week ahead. 65 00:03:29,850 --> 00:03:33,630 Sean Aylmer: I'm with economist Stephen Koukoulas, a.k.a. The Kouk. So, Stephen, the big one 66 00:03:33,630 --> 00:03:35,730 Sean Aylmer: this week, of course, is labour force. You talked about job 67 00:03:35,730 --> 00:03:38,690 Sean Aylmer: ads a moment ago. What do you expect this, well, 68 00:03:38,730 --> 00:03:39,510 Sean Aylmer: it's the June month? 69 00:03:40,080 --> 00:03:41,700 Stephen Koukoulas: Yeah, for the month of June, look, this has got a 70 00:03:41,700 --> 00:03:44,550 Stephen Koukoulas: couple of quirks. And this is not a cop out 71 00:03:44,710 --> 00:03:45,750 Stephen Koukoulas: for saying that it could be... 72 00:03:48,840 --> 00:03:51,630 Sean Aylmer: No, no, no, Kouk I'm interrupting you here. Why are there always "it's a cop out" 73 00:03:51,780 --> 00:03:53,490 Sean Aylmer: among economists. What's the deal there? 74 00:03:54,000 --> 00:03:56,580 Stephen Koukoulas: Well, a couple of things. We had to lockdown in Victoria. 75 00:03:56,580 --> 00:04:00,660 Stephen Koukoulas: The two week lockdown in Victoria adding to impact the reading. And how 76 00:04:00,660 --> 00:04:02,910 Stephen Koukoulas: big an effect is that? Is it ten thousand, twenty 77 00:04:02,910 --> 00:04:05,700 Stephen Koukoulas: thousand jobs? I'm not sure. And last month we had 78 00:04:05,700 --> 00:04:10,080 Stephen Koukoulas: the plus one hundred and fifteen thousand. And very rarely 79 00:04:10,080 --> 00:04:12,000 Stephen Koukoulas: do you get that sort of increase in employment and then 80 00:04:12,000 --> 00:04:15,900 Stephen Koukoulas: another plus so we could see just a small negative, 81 00:04:15,900 --> 00:04:19,109 Stephen Koukoulas: minus ten or twenty thousand. Look, that would not be 82 00:04:19,110 --> 00:04:21,960 Stephen Koukoulas: a sign of weakness because it just the trend numbers 83 00:04:21,960 --> 00:04:24,960 Stephen Koukoulas: and that choppiness in the month to month series suggests 84 00:04:24,960 --> 00:04:27,330 Stephen Koukoulas: that the trend is still pretty good. But all eyes 85 00:04:27,330 --> 00:04:29,880 Stephen Koukoulas: will actually be on the unemployment rate and the underemployment rate. 86 00:04:30,000 --> 00:04:33,170 Stephen Koukoulas: That's down at 5.1 per cent. And if we sort 87 00:04:33,180 --> 00:04:35,440 Stephen Koukoulas: of can, through a bit of good luck or change 88 00:04:35,440 --> 00:04:38,040 Stephen Koukoulas: in the participation rate, get that towards five per cent, then 89 00:04:38,040 --> 00:04:40,890 Stephen Koukoulas: I think that there will be just further confirmation that 90 00:04:40,890 --> 00:04:43,320 Stephen Koukoulas: the improvement the labour market is is very real. And 91 00:04:43,320 --> 00:04:45,570 Stephen Koukoulas: the question will be, can we get below five per cent 92 00:04:45,570 --> 00:04:46,539 Stephen Koukoulas: by the end of this year? 93 00:04:46,800 --> 00:04:48,359 Sean Aylmer: So where do you think we will be by the 94 00:04:48,360 --> 00:04:49,890 Sean Aylmer: end of this year and then into next year? 95 00:04:50,070 --> 00:04:52,260 Stephen Koukoulas: Well, as we were just saying about the job ads series, 96 00:04:52,589 --> 00:04:54,660 Stephen Koukoulas: the demand for labour is still hot. You know, the 97 00:04:54,660 --> 00:04:57,960 Stephen Koukoulas: economy is still doing really well. And notwithstanding some of 98 00:04:57,990 --> 00:04:59,820 Stephen Koukoulas: the choppiness in the stock market at the end of 99 00:04:59,820 --> 00:05:03,240 Stephen Koukoulas: last week, the share price mark is still pretty strong. 100 00:05:03,240 --> 00:05:05,969 Stephen Koukoulas: Housing prices are still going up. So there is still 101 00:05:05,970 --> 00:05:08,669 Stephen Koukoulas: a powerful wealth effect out there. And as we just said, 102 00:05:08,670 --> 00:05:11,280 Stephen Koukoulas: the RBA is keeping interest rates stunningly low to help 103 00:05:11,279 --> 00:05:14,700 Stephen Koukoulas: both households and the business sector. Don't forget, the Aussie 104 00:05:14,700 --> 00:05:18,060 Stephen Koukoulas: dollar is under downward pressure as we're speaking. So there's 105 00:05:18,060 --> 00:05:20,489 Stephen Koukoulas: a lot of things that are supporting the scenario for 106 00:05:20,490 --> 00:05:23,529 Stephen Koukoulas: stronger growth and stronger growth means more demand for labour. 107 00:05:23,550 --> 00:05:25,920 Stephen Koukoulas: So that's my long way of saying I reckon we are going to 108 00:05:25,920 --> 00:05:28,800 Stephen Koukoulas: be around about 4.5 per cent for the unemployment rate at 109 00:05:28,800 --> 00:05:29,390 Stephen Koukoulas: the end of the year. 110 00:05:29,960 --> 00:05:33,120 Sean Aylmer: Wow. Pretty good. Now, you mentioned household and businesses just then. This week you've 111 00:05:33,120 --> 00:05:35,789 Sean Aylmer: got National Australia Bank survey of business confidence and then 112 00:05:35,790 --> 00:05:39,180 Sean Aylmer: the Westpac Consumer Sentiment Survey, both pretty handy releases. 113 00:05:39,570 --> 00:05:42,510 Stephen Koukoulas: Oh, look, I love the NAB survey of business confidence 114 00:05:42,510 --> 00:05:45,870 Stephen Koukoulas: and business conditions because it's a right up to date survey. 115 00:05:45,870 --> 00:05:48,360 Stephen Koukoulas: So this will be for the month of June. And 116 00:05:48,360 --> 00:05:51,050 Stephen Koukoulas: for example, we don't get the June quarter GDP till September. 117 00:05:51,060 --> 00:05:54,390 Stephen Koukoulas: So it's a really contemporary indicator of what businesses are 118 00:05:54,390 --> 00:05:57,260 Stephen Koukoulas: thinking and what they're thinking about a whole range of issues. 119 00:05:57,270 --> 00:05:59,580 Stephen Koukoulas: It's not just do you think your business is doing 120 00:05:59,580 --> 00:06:02,609 Stephen Koukoulas: well or poorly? That's important. But they do also ask 121 00:06:02,610 --> 00:06:08,400 Stephen Koukoulas: questions about are you expecting to increase your capital expenditure, your hiring intentions, 122 00:06:08,640 --> 00:06:10,770 Stephen Koukoulas: price and wage pressure. So there's a whole lot of 123 00:06:10,770 --> 00:06:14,610 Stephen Koukoulas: subsets within that. So obviously, this is going to be 124 00:06:14,610 --> 00:06:18,510 Stephen Koukoulas: impacted partly by the New South Wales lockdown that we're seeing. 125 00:06:18,510 --> 00:06:21,779 Stephen Koukoulas: The Victoria lockdown. And a few other what we might 126 00:06:21,779 --> 00:06:24,960 Stephen Koukoulas: term temporary issues. So it'll be curious just to see 127 00:06:24,960 --> 00:06:28,640 Stephen Koukoulas: if the business sector tapers back some of its optimism. 128 00:06:28,920 --> 00:06:31,410 Stephen Koukoulas: But having said that, the last few months have been very, 129 00:06:31,410 --> 00:06:36,900 Stephen Koukoulas: very robust and that'll be nice to see continued. Consumer sentiment? Well, 130 00:06:36,900 --> 00:06:39,870 Stephen Koukoulas: it's again, it's choppy from month to month. It got a bit of a 131 00:06:39,870 --> 00:06:42,960 Stephen Koukoulas: hit last month from the Victoria lockdown. Obviously, we've got 132 00:06:42,960 --> 00:06:46,440 Stephen Koukoulas: the Sydney and New South Wales lockdowns now that will 133 00:06:46,440 --> 00:06:49,920 Stephen Koukoulas: likely have a negative impact. So the consumer sentiment might 134 00:06:49,920 --> 00:06:53,440 Stephen Koukoulas: be more influenced by COVID-19 than the real economy. 135 00:06:53,910 --> 00:06:56,250 Sean Aylmer: Yeah, and just before you go, I mean, we follow 136 00:06:56,250 --> 00:06:59,580 Sean Aylmer: the US, or global financial markets follow the US, and 137 00:06:59,580 --> 00:07:02,460 Sean Aylmer: about three or four weeks ago, the Fed Reserve governors 138 00:07:02,460 --> 00:07:05,789 Sean Aylmer: came out and indicated maybe they're interested in lifting rates 139 00:07:05,790 --> 00:07:08,400 Sean Aylmer: a little bit earlier than thought. So the June inflation 140 00:07:08,400 --> 00:07:10,590 Sean Aylmer: data is out this week as well and Jerome Powell, the 141 00:07:10,590 --> 00:07:11,700 Sean Aylmer: chair of the Fed, is speaking. 142 00:07:11,940 --> 00:07:15,000 Stephen Koukoulas: Yes, look, the US stuff is really important and that 143 00:07:15,000 --> 00:07:18,840 Stephen Koukoulas: inflation side of issues and Fed policy has been the 144 00:07:18,840 --> 00:07:21,630 Stephen Koukoulas: focus of attention. But having said that, just in the 145 00:07:21,630 --> 00:07:23,820 Stephen Koukoulas: last couple of weeks, there's been a lot of doubt 146 00:07:23,820 --> 00:07:26,310 Stephen Koukoulas: thrown on that hawkishness, if we can call it from 147 00:07:26,310 --> 00:07:30,660 Stephen Koukoulas: the Fed officials. The bond markets rallied incredibly in the 148 00:07:30,660 --> 00:07:33,210 Stephen Koukoulas: US and that's what spilled over into here. So, you know, 149 00:07:33,270 --> 00:07:37,380 Stephen Koukoulas: that reflation trade, that these easy monetary conditions around the world, 150 00:07:37,380 --> 00:07:40,890 Stephen Koukoulas: the massive fiscal stimulus, might not be getting the traction 151 00:07:40,890 --> 00:07:43,050 Stephen Koukoulas: that we'd like to see. So what happens on the 152 00:07:43,050 --> 00:07:45,900 Stephen Koukoulas: inflation data? And, of course, what Powell says will be 153 00:07:45,900 --> 00:07:48,930 Stephen Koukoulas: very important. It influences not just the US markets, but ours here. 154 00:07:49,890 --> 00:07:50,550 Sean Aylmer: Stephen, have a great week. 155 00:07:50,680 --> 00:07:51,210 Stephen Koukoulas: Thanks, Sean. 156 00:07:51,510 --> 00:07:54,060 Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk. 157 00:07:54,250 --> 00:07:56,820 Sean Aylmer: You can find him at thekouk.com and follow him on 158 00:07:56,820 --> 00:07:59,850 Sean Aylmer: Twitter using the handle @TheKouk. I'm Sean Aylmer and this is 159 00:08:00,010 --> 00:08:01,350 Sean Aylmer: Fear and Greed, The Week Ahead.