1 00:00:09,110 --> 00:00:11,380 Sean Alymer: Welcome to Fear and Greed The Week Ahead. I'm Shawn 2 00:00:11,619 --> 00:00:14,870 Sean Alymer: Alymer. And as always I'm joined by economist Stephen Koukoulas. 3 00:00:14,870 --> 00:00:17,610 Sean Alymer: You'll find him at thekouk. com and on Twitter using 4 00:00:17,610 --> 00:00:20,529 Sean Alymer: the handle # TheKouk. T- H- E- K- O- U- K. 5 00:00:20,829 --> 00:00:22,420 Sean Alymer: Steven, good morning. 6 00:00:22,770 --> 00:00:23,759 Stephen Koukoulas: Good morning, Sean. 7 00:00:24,150 --> 00:00:25,849 Sean Alymer: We've got this election out of the way. Now we 8 00:00:25,850 --> 00:00:27,900 Sean Alymer: can think purely about economics. 9 00:00:28,350 --> 00:00:31,560 Stephen Koukoulas: We can, and it's of real focus on this inflation 10 00:00:31,600 --> 00:00:35,050 Stephen Koukoulas: risk. What's happening globally in terms of recession fears in 11 00:00:35,050 --> 00:00:38,860 Stephen Koukoulas: the US. So politics is behind us a little bit anyway, 12 00:00:38,860 --> 00:00:42,710 Stephen Koukoulas: and we are moving on to economics and policy settings 13 00:00:42,710 --> 00:00:43,589 Stephen Koukoulas: from central banks. 14 00:00:43,909 --> 00:00:46,850 Sean Alymer: That's, look, managing economy ain't going to be real easy 15 00:00:46,850 --> 00:00:48,420 Sean Alymer: for the rest of this year. I mean, last week 16 00:00:48,420 --> 00:00:51,470 Sean Alymer: we had the labor force stats, which were spectacular in 17 00:00:51,740 --> 00:00:55,310 Sean Alymer: many ways, unemployment rate of 3. 9%, the wage price index 18 00:00:55,310 --> 00:00:58,110 Sean Alymer: didn't quite show the wages growth we expected though. Did it? 19 00:00:58,900 --> 00:01:00,450 Stephen Koukoulas: Yeah. So it was a bit of a confusing picture. 20 00:01:00,460 --> 00:01:02,900 Stephen Koukoulas: As you said, the labor market numbers were, were terrific. 21 00:01:02,900 --> 00:01:06,510 Stephen Koukoulas: A 3. 9 unemployment rate. That's the lowest since 1974, 22 00:01:06,510 --> 00:01:09,959 Stephen Koukoulas: as we heard all during the election campaign. And, as 23 00:01:09,959 --> 00:01:12,760 Stephen Koukoulas: an economist, that's warms my heart. It's a good thing 24 00:01:12,760 --> 00:01:16,330 Stephen Koukoulas: to see basically everybody who wants a job having a 25 00:01:16,330 --> 00:01:18,940 Stephen Koukoulas: job. So that momentum that we're also seeing in the 26 00:01:18,940 --> 00:01:22,170 Stephen Koukoulas: job advertisements and the job vacancy series suggests that demand 27 00:01:22,170 --> 00:01:25,420 Stephen Koukoulas: for labor is still very strong. So again, I think 28 00:01:25,420 --> 00:01:28,660 Stephen Koukoulas: everybody's expecting that unemployment rate to continue to drop over 29 00:01:28,660 --> 00:01:30,660 Stephen Koukoulas: the next few months. And that's a good thing, but 30 00:01:31,010 --> 00:01:33,780 Stephen Koukoulas: as you alluded to, the wage price index was only up 2. 31 00:01:33,780 --> 00:01:38,740 Stephen Koukoulas: 4% through the year. Really sluggish, I guess, given how 32 00:01:38,740 --> 00:01:41,339 Stephen Koukoulas: strong the labor market is. Now having said that there 33 00:01:41,340 --> 00:01:43,810 Stephen Koukoulas: are a few quirks in the wage price index. It 34 00:01:43,890 --> 00:01:47,270 Stephen Koukoulas: doesn't necessarily capture what seems to be happening in the 35 00:01:47,270 --> 00:01:50,910 Stephen Koukoulas: labor market. And people getting pay increases by job- hopping 36 00:01:50,970 --> 00:01:53,590 Stephen Koukoulas: that is going to their competitor. Who's offering them more 37 00:01:53,590 --> 00:01:55,350 Stephen Koukoulas: money. So that will not show up in the wage 38 00:01:55,350 --> 00:01:58,010 Stephen Koukoulas: price index, but obviously, it shows up in people's pay 39 00:01:58,010 --> 00:02:00,940 Stephen Koukoulas: packets. So there could be a little quirk in how 40 00:02:00,940 --> 00:02:05,350 Stephen Koukoulas: the wage price index is measuring household disposable income, if 41 00:02:05,350 --> 00:02:07,529 Stephen Koukoulas: you like. And so we probably have to wait. I 42 00:02:07,530 --> 00:02:09,570 Stephen Koukoulas: think it's about two weeks for the national accounts to 43 00:02:09,570 --> 00:02:12,809 Stephen Koukoulas: show the March quarter household income numbers, which will almost 44 00:02:12,810 --> 00:02:13,810 Stephen Koukoulas: certainly be stronger. 45 00:02:14,389 --> 00:02:17,360 Sean Alymer: Okay. Now, one of the things about the economy at the 46 00:02:17,360 --> 00:02:20,520 Sean Alymer: moment. We have this incredible labor market yet, I mean 47 00:02:20,520 --> 00:02:23,200 Sean Alymer: the election campaign was a great example. Cost of living 48 00:02:23,200 --> 00:02:24,910 Sean Alymer: was such a big part of that. We feel that 49 00:02:24,910 --> 00:02:28,450 Sean Alymer: in petrol prices, we feel that in food prices. But, 50 00:02:28,860 --> 00:02:31,730 Sean Alymer: we're not doing too badly really because most people can 51 00:02:31,730 --> 00:02:34,160 Sean Alymer: get a job if they want one. And that at 52 00:02:34,160 --> 00:02:36,850 Sean Alymer: the end of the day allows people to buy food 53 00:02:36,850 --> 00:02:38,500 Sean Alymer: and to buy petrol and to make sure they've got 54 00:02:38,500 --> 00:02:40,139 Sean Alymer: shelter and clothing and all that sort of thing. 55 00:02:40,720 --> 00:02:42,500 Stephen Koukoulas: Look, that's a really important point too. And that actually 56 00:02:42,500 --> 00:02:45,050 Stephen Koukoulas: feeds into this housing discussion too, with rate hikes coming. 57 00:02:45,050 --> 00:02:47,310 Stephen Koukoulas: And obviously there are more rate hikes to come. People 58 00:02:47,310 --> 00:02:49,630 Stephen Koukoulas: are still saying, " Oh, the rate hikes will cause house 59 00:02:49,630 --> 00:02:52,260 Stephen Koukoulas: prices to crash." And there's all these concerns out there 60 00:02:52,260 --> 00:02:54,970 Stephen Koukoulas: about housing, but one of the things that we've learned, 61 00:02:54,970 --> 00:02:57,450 Stephen Koukoulas: or I've learned, looking at the house price cycle and 62 00:02:57,450 --> 00:03:00,679 Stephen Koukoulas: this link on employment and how important that is for 63 00:03:00,740 --> 00:03:04,889 Stephen Koukoulas: sustaining an economic upturn is that it's much, much easier 64 00:03:05,340 --> 00:03:08,190 Stephen Koukoulas: to service a mortgage, even a big one, if you've 65 00:03:08,190 --> 00:03:09,970 Stephen Koukoulas: got a job, than even a little mortgage if you 66 00:03:09,970 --> 00:03:12,720 Stephen Koukoulas: don't have a job. So, and I'm thinking back to 67 00:03:12,720 --> 00:03:16,010 Stephen Koukoulas: that period in the early 2000s, when the RBA hiked 68 00:03:16,110 --> 00:03:20,169 Stephen Koukoulas: 300 basis points. And what happened to house prices? They roast 69 00:03:20,190 --> 00:03:23,410 Stephen Koukoulas: 30% with 300 points of rate hikes. And the reason 70 00:03:23,410 --> 00:03:25,620 Stephen Koukoulas: was we had a very strong and a very tight 71 00:03:25,620 --> 00:03:28,500 Stephen Koukoulas: labor market back then. So while rate hikes clearly are 72 00:03:28,500 --> 00:03:30,230 Stephen Koukoulas: a negative for house prices, I think they're going to 73 00:03:30,230 --> 00:03:33,639 Stephen Koukoulas: be offset by this real resilience in the labor market. 74 00:03:33,940 --> 00:03:36,500 Sean Alymer: Okay. So let's think about what we've got coming up this 75 00:03:36,500 --> 00:03:40,030 Sean Alymer: week. Another side of the economy, business investment, very, very 76 00:03:40,030 --> 00:03:43,050 Sean Alymer: critical to the thesis, the March quarter figures, isn't it, 77 00:03:43,050 --> 00:03:44,270 Sean Alymer: and it's very critical to growth? 78 00:03:44,600 --> 00:03:48,090 Stephen Koukoulas: Indeed. And I think they're going to be quite strong. We've got this bit 79 00:03:48,090 --> 00:03:51,770 Stephen Koukoulas: of a elastic band effect from the lockdowns late last 80 00:03:51,770 --> 00:03:54,740 Stephen Koukoulas: year. And remember that the lockdowns were in the September 81 00:03:54,740 --> 00:03:57,160 Stephen Koukoulas: and even the very early part of the December quarter 82 00:03:57,670 --> 00:03:59,700 Stephen Koukoulas: last year. So here's the March quarter numbers. And while 83 00:03:59,700 --> 00:04:03,120 Stephen Koukoulas: there's still some concerns with people staying away from work 84 00:04:03,120 --> 00:04:05,860 Stephen Koukoulas: because they have COVID or they've been living with someone 85 00:04:05,860 --> 00:04:09,410 Stephen Koukoulas: who's got it, that nonetheless, if we believe the NAB survey 86 00:04:09,620 --> 00:04:13,580 Stephen Koukoulas: and even the Capex expectation survey, we should see about 87 00:04:13,580 --> 00:04:17,170 Stephen Koukoulas: a 5% lift in Capex in this quarter. We know 88 00:04:17,170 --> 00:04:19,909 Stephen Koukoulas: that imports of machinery and equipment were very strong and 89 00:04:19,990 --> 00:04:23,240 Stephen Koukoulas: that they obviously feed into Capex quite directly. So we 90 00:04:23,240 --> 00:04:25,859 Stephen Koukoulas: should get confirmation that the business investment side of the 91 00:04:25,860 --> 00:04:27,130 Stephen Koukoulas: economy's doing pretty well. 92 00:04:27,330 --> 00:04:29,270 Sean Alymer: And retail trade for April as well this week? 93 00:04:29,670 --> 00:04:31,960 Stephen Koukoulas: Yeah, April retail trade, look, it's a bit of a 94 00:04:31,960 --> 00:04:33,839 Stephen Koukoulas: harder one to forecast because we do know that the 95 00:04:33,839 --> 00:04:37,490 Stephen Koukoulas: big banks who are publishing their sort of credit card 96 00:04:37,490 --> 00:04:41,080 Stephen Koukoulas: tracker numbers as a bit of a contemporary read on 97 00:04:41,080 --> 00:04:43,900 Stephen Koukoulas: how much we consumes are spending, actually have the number 98 00:04:43,900 --> 00:04:45,700 Stephen Koukoulas: a little bit softer in the month of April for 99 00:04:45,700 --> 00:04:48,430 Stephen Koukoulas: some reason, We were just a little bit more hunkering down. 100 00:04:48,620 --> 00:04:51,370 Stephen Koukoulas: Maybe it was the election campaign, people sort of turning 101 00:04:51,370 --> 00:04:53,610 Stephen Koukoulas: off about it, or maybe the petrol price was forcing 102 00:04:53,610 --> 00:04:55,920 Stephen Koukoulas: them to fill up their car and not spend money 103 00:04:55,920 --> 00:04:58,060 Stephen Koukoulas: in the retail sector. So we're actually looking for a 104 00:04:58,060 --> 00:05:01,410 Stephen Koukoulas: slightly softer number, maybe down about 0. 5% month on month 105 00:05:01,410 --> 00:05:01,930 Stephen Koukoulas: in April. 106 00:05:02,070 --> 00:05:04,190 Sean Alymer: And another thing that I'm sure you'll be watching this week, it's the 107 00:05:04,190 --> 00:05:07,060 Sean Alymer: reserve bank of New Zealand is meeting. And of course 108 00:05:07,060 --> 00:05:10,010 Sean Alymer: the Kiwis have been lifting interest rates well before Australians 109 00:05:10,010 --> 00:05:10,510 Sean Alymer: got to there. 110 00:05:11,190 --> 00:05:14,710 Stephen Koukoulas: Yes, it is interesting. They've really been hiking aggressively. The 111 00:05:14,710 --> 00:05:17,900 Stephen Koukoulas: governor over there, Adrian Hawkish has been super hawkish. And 112 00:05:17,900 --> 00:05:20,930 Stephen Koukoulas: of course, that's impacted their housing market house prices are 113 00:05:20,930 --> 00:05:24,370 Stephen Koukoulas: clearly falling throughout New Zealand now. And so there's this 114 00:05:24,380 --> 00:05:26,850 Stephen Koukoulas: question now with, again, like the rest of us, they've 115 00:05:26,850 --> 00:05:29,710 Stephen Koukoulas: got very high inflation. How aggressive is the rate hike 116 00:05:29,920 --> 00:05:33,010 Stephen Koukoulas: that's going to be delivered? Now there's some chat that'll 117 00:05:33,010 --> 00:05:35,910 Stephen Koukoulas: be 50, some chat will be 25. I think with 118 00:05:35,910 --> 00:05:38,570 Stephen Koukoulas: some of the market volatility that we've seen in recent 119 00:05:38,630 --> 00:05:42,630 Stephen Koukoulas: weeks. Some of the concerns about the hard landing in 120 00:05:42,650 --> 00:05:45,540 Stephen Koukoulas: the US and the China lockdowns with COVID, they might 121 00:05:45,540 --> 00:05:48,270 Stephen Koukoulas: just be a little more cautious and go 25. And 122 00:05:48,270 --> 00:05:50,290 Stephen Koukoulas: as we just noted, they've already got quite a few 123 00:05:50,540 --> 00:05:51,909 Stephen Koukoulas: rate hikes already in the pipeline. 124 00:05:52,210 --> 00:05:53,480 Sean Alymer: Stephen, have a great week. 125 00:05:53,800 --> 00:05:54,210 Stephen Koukoulas: Thank you, Sean. 126 00:05:54,820 --> 00:05:57,680 Sean Alymer: That was economist Stephen Koukoulas, better known as the Kouk. 127 00:05:57,870 --> 00:05:59,900 Sean Alymer: You can find him at thekouk. com and follow him 128 00:05:59,900 --> 00:06:02,860 Sean Alymer: on Twitter using the handle # TheKouk. I'm Shawn AMA. And 129 00:06:02,860 --> 00:06:04,420 Sean Alymer: this is Fear and Greed The Week Ahead.