1 00:00:08,309 --> 00:00:11,759 Sean Aylmer: Welcome to Fear & Greed, The Week Ahead. I'm Sean Aylmer, and as always, 2 00:00:11,759 --> 00:00:13,920 Sean Aylmer: this time on a Monday morning I'm joined by economist, 3 00:00:13,920 --> 00:00:18,389 Sean Aylmer: Stephen Koukoulas. You'll find him at thekouk. com and on 4 00:00:18,420 --> 00:00:21,900 Sean Aylmer: Twitter using the handle The Kouk. Now, Stephen. Hello, firstly. 5 00:00:22,470 --> 00:00:23,400 Stephen Koukoulas: Good morning, Sean. 6 00:00:23,970 --> 00:00:27,749 Sean Aylmer: I was speaking to someone last week and they're a 7 00:00:27,750 --> 00:00:30,150 Sean Aylmer: fan of the show, and they said, " Look, I've got 8 00:00:30,150 --> 00:00:33,779 Sean Aylmer: to say I don't really listen to that many interviews, 9 00:00:34,019 --> 00:00:37,320 Sean Aylmer: but I listen to The Kouk every Monday morning." He 10 00:00:37,320 --> 00:00:41,309 Sean Aylmer: was the CEO of an ad agency. He said, " I 11 00:00:41,310 --> 00:00:43,559 Sean Aylmer: just like listening to Stephen." In fact, he didn't call 12 00:00:43,560 --> 00:00:45,540 Sean Aylmer: you Stephen, he called you The Kouk. I like listening 13 00:00:45,540 --> 00:00:48,269 Sean Aylmer: to the Kouk to see what's going to happen. I thought that 14 00:00:48,269 --> 00:00:49,259 Sean Aylmer: was a great compliment to you. 15 00:00:49,769 --> 00:00:53,550 Stephen Koukoulas: I'm absolutely flattered, and the check's in the mail. 16 00:00:54,029 --> 00:00:56,850 Sean Aylmer: Excellent, excellent. Well jump to it because this is a 17 00:00:56,850 --> 00:01:01,170 Sean Aylmer: massive week. We might start overseas simply because this has 18 00:01:01,170 --> 00:01:04,169 Sean Aylmer: been going on for a few weeks now, and theoretically, 19 00:01:04,170 --> 00:01:06,869 Sean Aylmer: we should be getting to some sort of answer on 20 00:01:06,870 --> 00:01:09,360 Sean Aylmer: the US debt ceiling issue. Can you just explain it 21 00:01:09,360 --> 00:01:09,749 Sean Aylmer: to us? 22 00:01:10,379 --> 00:01:13,020 Stephen Koukoulas: Yeah, in very brief terms, whenever the US is running 23 00:01:13,020 --> 00:01:15,270 Stephen Koukoulas: a budget deficit, and of course it's running some very, 24 00:01:15,270 --> 00:01:17,730 Stephen Koukoulas: very chunky ones over there and will continue to do 25 00:01:17,730 --> 00:01:21,480 Stephen Koukoulas: so for many years, it's adding to government debt. Now, in 26 00:01:21,599 --> 00:01:25,560 Stephen Koukoulas: the US, there's got to be congressional approval every time 27 00:01:25,620 --> 00:01:28,828 Stephen Koukoulas: a debt ceiling is reached and then exceeded by accumulating 28 00:01:28,830 --> 00:01:33,240 Stephen Koukoulas: debt, and we're in that position right now where the 29 00:01:33,390 --> 00:01:36,420 Stephen Koukoulas: administrations try to increase its debt ceiling so that it 30 00:01:36,420 --> 00:01:38,909 Stephen Koukoulas: can borrow money simply. The government has to go to 31 00:01:38,910 --> 00:01:42,539 Stephen Koukoulas: the bond market through its Department of Treasury, issuing treasury 32 00:01:42,539 --> 00:01:45,299 Stephen Koukoulas: bonds, which are government borrowings. Of course, that adds to 33 00:01:45,299 --> 00:01:50,100 Stephen Koukoulas: debt. So unless the legislation gets through the Congress, it 34 00:01:50,100 --> 00:01:52,500 Stephen Koukoulas: won't be able to borrow that money to fund public 35 00:01:52,500 --> 00:01:55,980 Stephen Koukoulas: servants, services, all these things that the government spends money 36 00:01:55,980 --> 00:02:00,420 Stephen Koukoulas: on. Hence the impasse. Hence the market nervousness surrounding the 37 00:02:00,420 --> 00:02:02,549 Stephen Koukoulas: whole issue. It pops up every couple of years, but 38 00:02:02,549 --> 00:02:03,420 Stephen Koukoulas: here we are again. 39 00:02:04,289 --> 00:02:08,760 Sean Aylmer: Fair enough. Okay, let's talk about what's happening this week. 40 00:02:08,850 --> 00:02:11,340 Sean Aylmer: Where do we start? Let's start with the monthly CPI, 41 00:02:11,340 --> 00:02:13,889 Sean Aylmer: because in trend terms, that's interesting. 42 00:02:14,550 --> 00:02:16,950 Stephen Koukoulas: It is. Look, it's a huge week. It's one of 43 00:02:16,950 --> 00:02:19,559 Stephen Koukoulas: those weeks that the end of each calendar month, beginning 44 00:02:19,559 --> 00:02:21,570 Stephen Koukoulas: of each calendar month, which of course is exactly where 45 00:02:21,570 --> 00:02:24,029 Stephen Koukoulas: we are today, there's a lot of data coming out. 46 00:02:24,029 --> 00:02:26,790 Stephen Koukoulas: The monthly CPI, that initiative of the Bureau of Statistics, 47 00:02:27,270 --> 00:02:30,600 Stephen Koukoulas: is wonderful. It's the month of April that we get 48 00:02:30,600 --> 00:02:34,530 Stephen Koukoulas: the inflation data. It's not a complete set like the 49 00:02:34,770 --> 00:02:38,519 Stephen Koukoulas: quarterly inflation numbers, but what we're seeing in the monthly 50 00:02:38,520 --> 00:02:42,209 Stephen Koukoulas: series is that inflation peaked in the year to December, 51 00:02:42,240 --> 00:02:46,620 Stephen Koukoulas: 2022, around about 8. 4% on the monthly reading, it's 52 00:02:46,620 --> 00:02:50,309 Stephen Koukoulas: dropped to 6. 3% in March. That's still high, but 53 00:02:50,309 --> 00:02:52,320 Stephen Koukoulas: at least we've clipped a couple of percentage points off 54 00:02:52,320 --> 00:02:55,889 Stephen Koukoulas: that inflation rate. What the market's hoping, and I'm sure 55 00:02:55,889 --> 00:03:00,240 Stephen Koukoulas: the RBA is hoping squared, is that we get that 56 00:03:00,240 --> 00:03:03,120 Stephen Koukoulas: number heading towards six, even a little touch below six 57 00:03:03,120 --> 00:03:06,750 Stephen Koukoulas: percent, just to confirm that momentum in inflation is falling. 58 00:03:07,169 --> 00:03:10,679 Stephen Koukoulas: It is a critical indicator. It's one that's dominating global 59 00:03:10,679 --> 00:03:13,769 Stephen Koukoulas: markets inflation around the world. In Australia, it's no different. 60 00:03:14,340 --> 00:03:16,740 Sean Aylmer: Okay, so that's this week. What else have we got 61 00:03:16,740 --> 00:03:18,000 Sean Aylmer: that you're thinking about here? 62 00:03:18,299 --> 00:03:20,970 Stephen Koukoulas: Yeah, well, the other one is of course the RBA governor's appearing before the 63 00:03:20,970 --> 00:03:25,500 Stephen Koukoulas: Senate Estimates Committee on a range of matters, probably some 64 00:03:25,500 --> 00:03:27,809 Stephen Koukoulas: of it relating to the... What do we call it? 65 00:03:27,809 --> 00:03:31,079 Stephen Koukoulas: The administration of the RBA, because it's not just monetary 66 00:03:31,080 --> 00:03:34,439 Stephen Koukoulas: policy that the RBA is responsible for, so they're going 67 00:03:34,440 --> 00:03:37,080 Stephen Koukoulas: to be grilled. It's going to be the governor who's 68 00:03:37,080 --> 00:03:38,880 Stephen Koukoulas: appearing before the Senate. I'm sure there's going to be 69 00:03:38,880 --> 00:03:42,570 Stephen Koukoulas: a lot of curly questions about financial pain of householders, 70 00:03:42,570 --> 00:03:45,690 Stephen Koukoulas: has he over hiked, these sorts of things. Unfortunately, for 71 00:03:45,690 --> 00:03:47,519 Stephen Koukoulas: a lot of these Senate and House of reps things, 72 00:03:48,330 --> 00:03:50,880 Stephen Koukoulas: there's a strong political bias rather than an economic bias. 73 00:03:50,880 --> 00:03:53,340 Stephen Koukoulas: But nonetheless, it's a great chance to quiz the governor 74 00:03:53,340 --> 00:03:55,920 Stephen Koukoulas: and see what his take on the economy is right 75 00:03:55,920 --> 00:03:59,160 Stephen Koukoulas: now, and it comes after the inflation number comes out. 76 00:03:59,940 --> 00:04:01,920 Stephen Koukoulas: Might just be a few little more insights into what 77 00:04:01,920 --> 00:04:03,960 Stephen Koukoulas: the RBA and the RBA governor are thinking. 78 00:04:04,500 --> 00:04:07,349 Sean Aylmer: There's lots around the housing market generally. We'll have the 79 00:04:07,349 --> 00:04:10,410 Sean Aylmer: house price data from Core Logic. We've got house lend 80 00:04:10,410 --> 00:04:13,680 Sean Aylmer: or building approval figures. Is it a housing finance this 81 00:04:13,680 --> 00:04:14,430 Sean Aylmer: week? I'm not sure. 82 00:04:14,550 --> 00:04:17,760 Stephen Koukoulas: Yes. No, you've summarized it well. There's a ton of 83 00:04:17,760 --> 00:04:20,400 Stephen Koukoulas: housing data, and of course, who doesn't love housing data 84 00:04:20,400 --> 00:04:22,950 Stephen Koukoulas: in Australia? We live for it, don't we? 85 00:04:22,951 --> 00:04:23,131 Sean Aylmer: We do. 86 00:04:24,240 --> 00:04:26,250 Stephen Koukoulas: The Core Logic house price numbers, we know from their 87 00:04:26,250 --> 00:04:30,209 Stephen Koukoulas: high frequency data for the five cities, that we're going to be 88 00:04:30,209 --> 00:04:34,109 Stephen Koukoulas: seeing a monthly increase probably up around about 1, 1. 89 00:04:34,350 --> 00:04:35,040 Stephen Koukoulas: 1, 1. 2% a month. 90 00:04:35,490 --> 00:04:36,180 Sean Aylmer: Wow. 91 00:04:36,990 --> 00:04:38,849 Stephen Koukoulas: It's an extraordinary rebound. 92 00:04:39,330 --> 00:04:41,428 Sean Aylmer: The Reserve Bank must be worried about it. We don't 93 00:04:41,428 --> 00:04:45,089 Sean Aylmer: necessarily want that. Good for us homeowners, but not necessarily 94 00:04:45,089 --> 00:04:45,719 Sean Aylmer: for the economy. 95 00:04:46,619 --> 00:04:50,730 Stephen Koukoulas: That's the $ 64 question. Yes, there's this issue that the 96 00:04:50,730 --> 00:04:53,400 Stephen Koukoulas: RBA doesn't tackle house prices. Of course it doesn't. But 97 00:04:53,670 --> 00:04:56,250 Stephen Koukoulas: it looks at the wealth effect and the confidence effect 98 00:04:56,250 --> 00:04:59,040 Stephen Koukoulas: from changes in house prices, and I dare say it 99 00:04:59,040 --> 00:05:02,669 Stephen Koukoulas: was quite content when house prices were drifting lower. They'd 100 00:05:02,670 --> 00:05:06,630 Stephen Koukoulas: had that incredible spike during the COVID lockdowns and a 101 00:05:06,630 --> 00:05:09,089 Stephen Koukoulas: bit of a pullback was a healthy, was good, was 102 00:05:09,089 --> 00:05:11,880 Stephen Koukoulas: appropriate. But now, and this is a discussion that's getting 103 00:05:11,880 --> 00:05:15,779 Stephen Koukoulas: a lot of media coverage, the immigration intake that's partly 104 00:05:15,779 --> 00:05:17,969 Stephen Koukoulas: designed to address the labor skill shortage, but of course 105 00:05:17,969 --> 00:05:21,238 Stephen Koukoulas: the consequence and the cliched comedies where are all these 106 00:05:21,240 --> 00:05:23,609 Stephen Koukoulas: people going to live. That's showing up not only in 107 00:05:23,609 --> 00:05:26,370 Stephen Koukoulas: house prices, which are going up again, but the rental 108 00:05:26,370 --> 00:05:28,320 Stephen Koukoulas: market, which is as tight as a drum, that there's 109 00:05:29,190 --> 00:05:32,160 Stephen Koukoulas: very low rental vacancy rates around most capital cities, and 110 00:05:32,160 --> 00:05:34,979 Stephen Koukoulas: rents are booming. They're increasing by double digit rates, which 111 00:05:35,639 --> 00:05:39,839 Stephen Koukoulas: just compounds this whole housing issue. And last, when we 112 00:05:39,839 --> 00:05:42,448 Stephen Koukoulas: also get the building approvals later this week, we're going to be 113 00:05:42,480 --> 00:05:47,130 Stephen Koukoulas: seeing probably a really sluggish level of new construction. While 114 00:05:47,130 --> 00:05:50,339 Stephen Koukoulas: we know demand is increasing, that's a given. Immigration's baked 115 00:05:50,339 --> 00:05:52,738 Stephen Koukoulas: into the cake. The supply of new dwellings is going 116 00:05:52,740 --> 00:05:55,258 Stephen Koukoulas: to be pretty moderate over the next year because building 117 00:05:55,259 --> 00:05:58,558 Stephen Koukoulas: approvals are so poor. We're hearing building construction companies going 118 00:05:58,559 --> 00:06:01,140 Stephen Koukoulas: to the wall because of high cost pressures and the 119 00:06:01,140 --> 00:06:04,620 Stephen Koukoulas: dynamics on housing, like many other markets, supply and demand 120 00:06:04,620 --> 00:06:07,050 Stephen Koukoulas: says to me that prices are going to be skewed 121 00:06:07,050 --> 00:06:08,850 Stephen Koukoulas: up not down over the next year or two. 122 00:06:09,450 --> 00:06:12,210 Sean Aylmer: A big chunk of growth is housing, but another big chunk is 123 00:06:12,210 --> 00:06:15,029 Sean Aylmer: investment. We get CapEx figures. We've also got credit data 124 00:06:15,029 --> 00:06:15,479 Sean Aylmer: this week. 125 00:06:16,199 --> 00:06:19,860 Stephen Koukoulas: Indeed. I'm a massive fan of the CapEx, the private 126 00:06:19,860 --> 00:06:23,670 Stephen Koukoulas: sector business investment numbers. That's one reason, in my view, 127 00:06:23,670 --> 00:06:26,460 Stephen Koukoulas: why Australia's not going to have recession. While we consumers 128 00:06:26,460 --> 00:06:29,488 Stephen Koukoulas: are hunkering down, housing construction's probably going to be pretty 129 00:06:29,490 --> 00:06:34,049 Stephen Koukoulas: weak over the course of 2023, businesses are still investing, 130 00:06:34,049 --> 00:06:36,900 Stephen Koukoulas: and it's not just mining. It's a more broadly based 131 00:06:36,900 --> 00:06:39,900 Stephen Koukoulas: pickup in CapEx that I think it's a reflection of 132 00:06:39,930 --> 00:06:43,229 Stephen Koukoulas: a lot of projects being postponed and canceled during the 133 00:06:43,230 --> 00:06:46,740 Stephen Koukoulas: lockdowns. Things like machinery and equipment. Well, supply chain problems, 134 00:06:46,860 --> 00:06:49,618 Stephen Koukoulas: you couldn't actually import a lot of equipment. Now there's 135 00:06:49,620 --> 00:06:51,899 Stephen Koukoulas: a bit of a catch- up. I'm expecting to see 136 00:06:51,900 --> 00:06:55,290 Stephen Koukoulas: a small increase in CapEx in the March quarter, something 137 00:06:55,290 --> 00:06:58,140 Stephen Koukoulas: like a one percent increase, and that puts a bit 138 00:06:58,140 --> 00:07:00,750 Stephen Koukoulas: of a building block under bottom line GDP, even though 139 00:07:00,750 --> 00:07:02,909 Stephen Koukoulas: we know that things like retail sales are going backwards. 140 00:07:03,839 --> 00:07:08,130 Stephen Koukoulas: Interesting to see whether the business sector's still chugging along, 141 00:07:09,210 --> 00:07:12,720 Stephen Koukoulas: building some warehouses and hotels and these sorts of things, 142 00:07:12,720 --> 00:07:15,810 Stephen Koukoulas: and of course, investing in IT and machinery and equipment. 143 00:07:16,500 --> 00:07:19,350 Sean Aylmer: Stephen, I reckon you've had a breezy couple of weeks, 144 00:07:19,350 --> 00:07:21,270 Sean Aylmer: just quietly, but it all changes from today. 145 00:07:22,170 --> 00:07:25,709 Stephen Koukoulas: Oh, yes. Last week we had a pretty light data 146 00:07:25,710 --> 00:07:28,259 Stephen Koukoulas: week, but gee, this week's going to be a coca. 147 00:07:28,260 --> 00:07:31,320 Stephen Koukoulas: I think there's something just about every day, so watch 148 00:07:31,320 --> 00:07:33,090 Stephen Koukoulas: this space, as they say, in the classics. 149 00:07:33,450 --> 00:07:34,230 Sean Aylmer: Have a great week. 150 00:07:34,620 --> 00:07:35,190 Stephen Koukoulas: Thank you, Sean. 151 00:07:35,640 --> 00:07:37,980 Sean Aylmer: That was economist, Stephen Koukoulas, better known as the Kouk. 152 00:07:38,010 --> 00:07:39,989 Sean Aylmer: You can find him at thekouk. com, and follow him 153 00:07:39,990 --> 00:07:43,080 Sean Aylmer: on Twitter using the handle The Kouk. I'm Sean Aylmer, and 154 00:07:43,080 --> 00:07:44,759 Sean Aylmer: this is Fear & Greed, The Week Ahead.