WEBVTT - How the falling stock markets affect you 0:00:00.600 --> 0:00:05.720 Already and this is the Daily This is the Daily OS. Oh, 0:00:05.920 --> 0:00:15.920 now it makes sense. Good morning and welcome to the 0:00:16.040 --> 0:00:19.160 Daily OS. It is Wednesday, the seventh of August. I'm billy, 0:00:19.360 --> 0:00:23.759 I'm zara. The last few days have seen significant volatility 0:00:23.920 --> 0:00:27.920 in global stock markets. Here in Australia. On Friday and Monday, 0:00:28.000 --> 0:00:30.720 the stock market had its worst two days since the 0:00:30.800 --> 0:00:33.880 onset of the pandemic. It all came after the US 0:00:33.960 --> 0:00:37.879 posted higher than expected unemployment numbers, raising concerns that the 0:00:37.880 --> 0:00:40.920 world's biggest economy is slowing and a recession is on 0:00:40.960 --> 0:00:44.080 the horizon. If you've been seeing headlines about this and 0:00:44.159 --> 0:00:47.000 trying to understand what has gone on, but it's all 0:00:47.040 --> 0:00:49.800 seemed a bit like gibberish, well you have come to 0:00:49.840 --> 0:00:52.400 the right place. In today's deep dive, I'll be speaking 0:00:52.400 --> 0:00:55.080 to Greg Jericho, who is the chief economist at the 0:00:55.080 --> 0:00:59.080 Australia Institute, to explain all of it to us. But first, Lara, 0:00:59.200 --> 0:01:04.120 what is making headline today. 0:01:04.520 --> 0:01:07.600 The Reserve Bank of Australia the RBA, has left the 0:01:07.640 --> 0:01:10.640 cash rate on hold at four point three five percent. 0:01:11.200 --> 0:01:14.160 The figure, which is often referred to as interest rates, 0:01:14.280 --> 0:01:17.920 influences the cost of borrowing across the economy. The RBA 0:01:18.040 --> 0:01:20.600 said it kept rates on hold for the sixth consecutive 0:01:20.600 --> 0:01:23.160 month as part of its plan to return inflation to 0:01:23.319 --> 0:01:27.040 within its two to three percent target. Inflation is currently 0:01:27.080 --> 0:01:30.520 sitting at three point eight percent. Federal Treasurer Jim Chalmers 0:01:30.560 --> 0:01:34.440 welcomed the RBA's decision, saying it recognizes the progress being 0:01:34.480 --> 0:01:38.680 made on inflation and also quote the very substantial global 0:01:38.720 --> 0:01:41.640 economic uncertainty that we're seeing play out in the markets 0:01:41.680 --> 0:01:44.240 around the world. We've got an explainer on that topic 0:01:44.280 --> 0:01:49.040 coming in the Deep Dive, so just hold that thought. 0:01:49.560 --> 0:01:52.480 The Australian Federal Police has seized the Brisbane home of 0:01:52.520 --> 0:01:55.760 a married couple alleged to be a pair of Russian spies. 0:01:56.200 --> 0:01:58.560 A forty year old woman who is a former Australian 0:01:58.640 --> 0:02:01.320 Army private and her six two year old husband were 0:02:01.400 --> 0:02:05.480 arrested on spying offenses last month. The Russian born Australian 0:02:05.480 --> 0:02:09.000 citizens have been accused of accessing sensitive information about the 0:02:09.040 --> 0:02:12.720 Australian Defense Force on behalf of Russian authorities. Police have 0:02:12.760 --> 0:02:17.160 also sees their bank accounts, superannuation funds and other personal assets. 0:02:17.480 --> 0:02:20.280 The couple are facing up to fifteen years behind bars. 0:02:23.280 --> 0:02:26.320 The UK government has introduced a raft of new policing 0:02:26.360 --> 0:02:29.600 measures as the country enters its seventh day of riots. 0:02:30.160 --> 0:02:33.800 Newly appointed Prime Minister Kirstana said a standing army of 0:02:33.840 --> 0:02:37.240 police will be deployed in an effort to tame violent crowds. 0:02:37.800 --> 0:02:40.919 Far right riots erupted across the country following a mass 0:02:40.960 --> 0:02:43.880 stabbing attack last month that left three girls dead and 0:02:43.919 --> 0:02:44.680 others injured. 0:02:47.560 --> 0:02:50.280 And today's good news, researchers are a step closer to 0:02:50.320 --> 0:02:53.680 figuring out how the ancient Egyptians built the pyramids. A 0:02:53.680 --> 0:02:57.240 team of engineers and geologists have uncovered evidence of a 0:02:57.280 --> 0:03:01.560 complex hydraulic lift system in Egypt's oldest pyramid, thought to 0:03:01.600 --> 0:03:05.600 have been built some four five hundred years ago. According 0:03:05.600 --> 0:03:09.200 to findings in the scientific journal Plos, researchers have discovered 0:03:09.200 --> 0:03:12.120 clues that a complex water system was used to power 0:03:12.160 --> 0:03:15.240 an elevator inside the pyramid, which could have been used 0:03:15.240 --> 0:03:18.120 to float heavy stones up through the middle of the structure. 0:03:21.440 --> 0:03:23.920 So Billy, over the last couple of days, I have 0:03:24.040 --> 0:03:29.120 read headline after headline about the state of the stock market, 0:03:29.280 --> 0:03:31.880 and I must confess I'm not the most well versed 0:03:31.880 --> 0:03:33.760 when it comes to the stock market. And we were 0:03:33.760 --> 0:03:36.440 talking in the office yesterday about how no one's actually 0:03:36.440 --> 0:03:39.119 explaining anything. They're just saying what is happening, but there's 0:03:39.160 --> 0:03:39.960 no explanation. 0:03:40.160 --> 0:03:42.360 Yeah, I think if there's any time for the Daily OS, 0:03:42.400 --> 0:03:44.680 it's a story like this when it literally feels like 0:03:44.800 --> 0:03:48.160 it's in a complete other language. But Zara, you and 0:03:48.200 --> 0:03:51.040 I are not experts on the global stock market. 0:03:51.160 --> 0:03:54.080 No, we accept our shortcomings and we head to the expert. 0:03:54.240 --> 0:03:56.640 We tried, but yes, we thought that we should speak 0:03:56.640 --> 0:03:59.200 to an economist, and so we went straight to the 0:03:59.280 --> 0:04:02.680 chief economist at the Australian Institute, Greg Jericho, to break 0:04:02.720 --> 0:04:05.360 down all of the headlines that we have been seeing. 0:04:06.000 --> 0:04:08.000 I thought that he broke it down in a way 0:04:08.000 --> 0:04:10.800 that I could understand. He was really effective. Here is 0:04:10.840 --> 0:04:13.680 that chat, Greg Jericho, thank you so much for joining 0:04:13.720 --> 0:04:14.360 the Daily OS. 0:04:14.720 --> 0:04:15.640 No problem was Billy. 0:04:15.960 --> 0:04:20.520 So we have seen global stock markets go down quite significantly. 0:04:21.080 --> 0:04:22.320 How did this all start? 0:04:22.960 --> 0:04:26.760 Yeah, it all started in America when their July unemployment 0:04:26.760 --> 0:04:29.479 figures came out and the unemployment rate went from four 0:04:29.480 --> 0:04:32.240 point one to four point three percent, and that kind 0:04:32.279 --> 0:04:35.560 of just triggered off a massive amount of panic around 0:04:35.600 --> 0:04:39.520 the world as everyone sort of looked at us and thought, olds, 0:04:39.600 --> 0:04:43.240 something's going bad there, and everyone just really started panicking 0:04:43.360 --> 0:04:43.920 very quickly. 0:04:44.480 --> 0:04:48.440 And why is it that unemployment figures would trigger such 0:04:48.520 --> 0:04:50.000 a worldwide reaction. 0:04:50.800 --> 0:04:53.120 Yeah, it seems a bit surprising, But really what it 0:04:53.160 --> 0:04:56.840 comes down to is a US economist called Claudius arm 0:04:57.279 --> 0:04:59.640 she'd been looking at recessions and she was trying to 0:04:59.680 --> 0:05:02.719 come up with a way of measuring recessional kind of 0:05:02.760 --> 0:05:06.080 warning that economy is going to recession a bit quicker 0:05:06.120 --> 0:05:09.120 than the traditional method. The traditional method you have to 0:05:09.120 --> 0:05:12.200 look at GDP figures, which are the entire economy. You 0:05:12.279 --> 0:05:14.440 have to wait for two quarters in a row, which 0:05:14.520 --> 0:05:18.520 is six months, so in a sense traditionally, Kindos was saying, oh, yes, 0:05:18.560 --> 0:05:21.159 an economy is in a recession and it started six 0:05:21.200 --> 0:05:23.440 months ago. And she was like, well, that's a bit useless. 0:05:23.800 --> 0:05:26.040 How about we look at unemployment rates and see if 0:05:26.040 --> 0:05:28.200 we can work out there, and what she sort of 0:05:28.279 --> 0:05:30.680 did a lot of good research and worked out that actually, 0:05:30.680 --> 0:05:34.440 when the unemployment rises by half a percentage points, so 0:05:34.520 --> 0:05:36.799 like about four point zero to four point five percent, 0:05:36.839 --> 0:05:39.560 when it does that in twelve months, that means you're 0:05:39.600 --> 0:05:43.440 basically in recession town. And the thing was where the 0:05:43.520 --> 0:05:46.760 unemployment came out at four point three percent, everyone was going, oh, 0:05:46.800 --> 0:05:49.320 wait on, that's got up by more than a half 0:05:49.320 --> 0:05:50.360 a percentage point a year. 0:05:50.480 --> 0:05:53.200 There was going America is in a recession. So so 0:05:54.440 --> 0:05:56.720 that pretty much was what it was. It was just 0:05:56.800 --> 0:06:00.360 this sense of everyone realizing, oh gosh, that's not good. 0:06:00.720 --> 0:06:03.839 Do you think it was an overreaction at all? 0:06:03.960 --> 0:06:07.640 Unfortunately, if you look at the history, the rise in 0:06:07.720 --> 0:06:10.839 unemployment fits really well with recessions. And I think it's 0:06:10.839 --> 0:06:14.040 a good method because, I mean, who cares about GDP 0:06:14.240 --> 0:06:16.040 going up and down? All you care about is are 0:06:16.040 --> 0:06:18.000 you able to get a job? Are you getting paid 0:06:18.000 --> 0:06:20.279 well for your job? You're getting good out, So unemployment 0:06:20.360 --> 0:06:23.240 is a good indicator. And I think it really does 0:06:23.320 --> 0:06:26.480 suggest that the American economy, because it's had, like here 0:06:26.480 --> 0:06:30.880 in Australia, high interest rates, is really starting to struggle mightily. 0:06:31.279 --> 0:06:34.280 And can you just explain why what happens in the 0:06:34.440 --> 0:06:38.600 US economy impacts the rest of the world so significantly. 0:06:39.279 --> 0:06:42.560 Basically, it's because the American economy is the biggest economy 0:06:42.560 --> 0:06:45.480 in the world. It's still much bigger than China, and 0:06:45.520 --> 0:06:48.920 it's massively bigger than anyone else. And so you know, 0:06:49.000 --> 0:06:52.839 the old adage was when America sneezes, everyone catches a cold. 0:06:52.880 --> 0:06:56.200 Now it's not quite as bad, but certainly it's a case, 0:06:56.279 --> 0:07:01.320 especially in places like Japan, where when America struggles, that 0:07:01.480 --> 0:07:03.640 means they're going to have a real tough time because 0:07:03.680 --> 0:07:07.279 America imports a lot of stuff from a lot of countries, 0:07:07.760 --> 0:07:09.920 and if people are losing work there, well, they're not 0:07:09.920 --> 0:07:12.080 going to buy as much stuff, and that means they're 0:07:12.080 --> 0:07:14.240 not buying as much from other countries. 0:07:14.520 --> 0:07:18.120 Right, And hearing you talk, it all sounds quite scary 0:07:18.160 --> 0:07:21.400 and quite bad for someone listening who is not too 0:07:21.400 --> 0:07:24.840 familiar with global stock markets. How much of this is 0:07:24.920 --> 0:07:27.840 just part of, you know, the normal fluctuation of a 0:07:27.880 --> 0:07:31.400 share market or is this really completely out of the ordinary. 0:07:31.960 --> 0:07:34.480 Yeah, this was a big one, especially in Japan, and 0:07:34.920 --> 0:07:37.800 because it was just so widespread. But we've seen today 0:07:37.920 --> 0:07:40.320 already in Australia there's a bit of a recovery. You know, 0:07:40.640 --> 0:07:43.360 it's not like we're having a Wall Street crash. But 0:07:43.720 --> 0:07:46.240 I think more it's a case of there's been a 0:07:46.280 --> 0:07:50.040 lot of markets and investors going along with a sort 0:07:50.080 --> 0:07:53.080 of almost a rosy eyed view that, oh, it seems 0:07:53.120 --> 0:07:55.440 like we're going to get rid of inflation, but not 0:07:55.560 --> 0:07:58.120 go into recession like we normally do, like we did 0:07:58.160 --> 0:08:01.240 in the ninety nineties, like we did in eighties, and 0:08:01.280 --> 0:08:03.640 they're all thinking, oh, good times ahead, and then this 0:08:03.800 --> 0:08:05.640 was a bit of a wake up call that actually 0:08:05.720 --> 0:08:07.720 there's probably going to be a bit of slowing in 0:08:07.760 --> 0:08:11.080 the economy, purely because we've had interest rates high that 0:08:11.320 --> 0:08:14.000 stopped everyone being able to go out and spend. So 0:08:14.040 --> 0:08:15.280 I think it was more of a bit of a 0:08:15.320 --> 0:08:18.120 wake up call, and hopefully that's all it is, but 0:08:18.200 --> 0:08:21.760 it certainly does I think bear warning for what might 0:08:21.800 --> 0:08:23.720 be ahead in the next six to twelve months. 0:08:24.320 --> 0:08:27.280 So let's turn to Australia. Now, what has happened in 0:08:27.320 --> 0:08:28.680 the Australian shair market. 0:08:29.000 --> 0:08:32.480 Yeah, the Australians share market also took a bumper when 0:08:32.600 --> 0:08:35.200 this news came out, and it often happens you follow 0:08:35.320 --> 0:08:38.120 what's going on in America, in Japan and Hong Kong, 0:08:38.200 --> 0:08:40.199 they sort of see what's going on there, and there 0:08:40.240 --> 0:08:42.840 is a bit of a herd mentality amongst brokers. 0:08:43.200 --> 0:08:45.160 But it has sort of recovered. 0:08:44.640 --> 0:08:48.599 In this sense that certainly Australia is not as exposed 0:08:48.760 --> 0:08:52.880 as perhaps Japan is, but we certainly know that there 0:08:52.880 --> 0:08:58.199 are concerns within Australian investors and Australian economists about Australia's 0:08:58.200 --> 0:09:01.040 own economy and whether we're going to go into recession 0:09:01.120 --> 0:09:03.920 because and this is something I've been tracking on our 0:09:04.120 --> 0:09:07.920 version of unemployment rate, we're also sort of tracking towards 0:09:08.040 --> 0:09:10.960 going up by that half a percentage point in a year, 0:09:11.000 --> 0:09:13.720 and if that happens, yeah, we're kind of looking like 0:09:13.920 --> 0:09:15.800 being in a recession. So you know, there is a 0:09:15.800 --> 0:09:17.920 fair bit of concern still even in Australia. 0:09:18.559 --> 0:09:20.520 I want to look at recession in a second, but 0:09:20.600 --> 0:09:22.720 first I just want to look at interest rates, which 0:09:22.840 --> 0:09:26.040 was a big topic of conversation yesterday with the IBA's 0:09:26.080 --> 0:09:30.360 announcement that it will keep the cash rate on hold. Firstly, 0:09:30.360 --> 0:09:33.600 can you just explain what is the relationship between cash 0:09:33.679 --> 0:09:36.840 rates and the stock market? How do they link? 0:09:37.640 --> 0:09:40.640 Yeah, I mean the cash rate is in a sense 0:09:40.679 --> 0:09:43.720 the reserve banks setting the interest rate that it charges 0:09:43.800 --> 0:09:46.440 banks to borrow from them, which they then charge a 0:09:46.440 --> 0:09:48.600 bit more to us so we can take out loans. 0:09:48.720 --> 0:09:51.560 So it's a good guide of what's happening with interest rates. 0:09:51.559 --> 0:09:53.160 And you think, if you're an investor, you can do 0:09:53.200 --> 0:09:55.560 two things. You can invest in the stock market and 0:09:55.679 --> 0:09:58.080 hopefully the stocks will go up and you'll get you'll 0:09:58.080 --> 0:10:01.120 get a good return. Or you can in bonds, which 0:10:01.160 --> 0:10:03.640 is in a sense taking out loans, and if the 0:10:03.679 --> 0:10:06.000 interest rate is going up, well, then it's a good 0:10:06.000 --> 0:10:08.640 time to invest in bonds, not a good time to 0:10:08.720 --> 0:10:11.480 invest in the stock market. So the Reserve Bank keeping 0:10:11.480 --> 0:10:14.160 interest rates on hold. Everyone is kind of the view 0:10:14.200 --> 0:10:16.600 the next move will be a cup rather than a rise. 0:10:17.080 --> 0:10:20.080 And it seems like all our concerns over the past 0:10:20.160 --> 0:10:22.240 sort of six months of we're going to have higher 0:10:22.280 --> 0:10:24.920 interest rates seem to be on the way, and purely 0:10:24.960 --> 0:10:27.560 because the Reserve Bank, like everyone else, is looking around 0:10:27.600 --> 0:10:29.440 the world and going geez, things are getting a bit 0:10:30.160 --> 0:10:33.160 dicey over to America and dicey japaired. These are big 0:10:33.200 --> 0:10:36.000 export markets for us. Let's not try and kill our 0:10:36.040 --> 0:10:38.600 economy if we've got bad things coming our way. 0:10:39.120 --> 0:10:43.280 Two more questions. Firstly, for people listening who don't invest 0:10:43.360 --> 0:10:45.480 and who don't own a home, so the cash rate 0:10:45.600 --> 0:10:48.600 or the interest rates don't directly impact them, how could 0:10:48.640 --> 0:10:50.880 what has happened affect them? 0:10:51.360 --> 0:10:52.600 Oh look, it's not directly. 0:10:52.600 --> 0:10:56.560 If you're working, you've got money in superannuation and superannuation 0:10:56.720 --> 0:10:59.480 funds invest in the stock market, but you really don't 0:10:59.480 --> 0:11:02.520 have to worry, especially if you're young. You're nowhere near retiring, 0:11:02.679 --> 0:11:05.360 and stock markets go up and down and in thirty 0:11:05.400 --> 0:11:08.640 years time, you won't even remember what happened this week. 0:11:09.000 --> 0:11:11.240 But it does suggest if they're keeping them steady, it 0:11:11.280 --> 0:11:14.280 means they're not trying to slow the economy more. And 0:11:14.480 --> 0:11:16.760 that's a good thing because it means that they are 0:11:16.840 --> 0:11:20.040 actually worried about unemployment rising, and so they were already 0:11:20.080 --> 0:11:23.160 thinking about, okay, what can we do to make sure 0:11:23.400 --> 0:11:26.199 unemployment doesn't go up, you don't lose your job, and 0:11:26.480 --> 0:11:28.840 the economy keeps sort of growing nicely. 0:11:29.600 --> 0:11:32.840 Now, lastly, you've mentioned recession a number of times, which 0:11:32.920 --> 0:11:35.440 we know is when there are two negative quarters of 0:11:35.679 --> 0:11:39.560 GDP in your expert opinion, how likely do you think 0:11:39.600 --> 0:11:41.239 a recession is in Australia? 0:11:41.720 --> 0:11:45.200 Oh, look, I mean GDP has been not growing very well. 0:11:45.240 --> 0:11:48.040 I mean the last GDP growth in a quarter was 0:11:48.080 --> 0:11:50.880 just zero point one percent. I mean that's basically an 0:11:51.200 --> 0:11:54.640 error away from going backwards. The risks are certainly there. 0:11:54.640 --> 0:11:57.319 It's always a bit tricky with Australia because our exports 0:11:57.360 --> 0:11:59.280 in one quarter can give us a boost and then 0:11:59.320 --> 0:12:01.920 the next quarter don't. That's why I like looking at 0:12:01.960 --> 0:12:05.120 the unemployment rate as well, and that has been moving up, 0:12:05.200 --> 0:12:08.520 so hopefully we won't see that. The risks is very 0:12:08.559 --> 0:12:11.640 much there. If the Reserve Bank had increased interest rates, 0:12:11.679 --> 0:12:15.160 the risk would have, I think, become a huge warning 0:12:15.200 --> 0:12:17.800 bell and sirens would be going off everywhere. I think 0:12:17.800 --> 0:12:21.520 they're very mindful of it and hopefully we can avoid it. 0:12:21.600 --> 0:12:25.280 But again, if America goes into recession, if Japan struggles, 0:12:25.840 --> 0:12:28.000 then you're going to see struggles in China. It's very 0:12:28.040 --> 0:12:30.880 difficult to miss that. But I wouldn't be predicting we're 0:12:30.920 --> 0:12:33.160 going to go in a recession, but certainly the risks 0:12:33.480 --> 0:12:34.560 are pretty high. 0:12:34.679 --> 0:12:36.959 We'll be keeping a close eyewn it. Greg Jericho, thank 0:12:37.000 --> 0:12:38.280 you so much for joining us. 0:12:38.720 --> 0:12:40.200 Noah's Billy really good to chat. 0:12:41.120 --> 0:12:43.760 This feels like one of those times that our slogan, 0:12:44.080 --> 0:12:47.520 oh now it makes sense really does apply. After listening 0:12:47.520 --> 0:12:51.280 to that conversation, I now truly understand what is happening 0:12:51.320 --> 0:12:54.040 with the stock market. If you feel the same way, 0:12:54.200 --> 0:12:57.240 please press follow on whatever platform you are listening or 0:12:57.360 --> 0:13:01.040 watching this podcast on. Every follow helps us grow and 0:13:01.080 --> 0:13:02.840 we'll be back again tomorrow see ya. 0:13:06.080 --> 0:13:08.400 My name is Lily Maddon and I'm a proud Arunda 0:13:08.600 --> 0:13:13.400 Bungelung Calcuttin woman from Gadighl Country. The Daily oz acknowledges 0:13:13.480 --> 0:13:15.640 that this podcast is recorded on the lands of the 0:13:15.679 --> 0:13:19.280 Gadighl people and pays respect to all Aboriginal and torrest 0:13:19.320 --> 0:13:22.160 Rate island and nations. We pay our respects to the 0:13:22.160 --> 0:13:24.960 first peoples of these countries, both past and present.