Speaker 1: Already and this is the Daily This is the Daily OS. Oh,
Speaker 1: now it makes sense. Good morning and welcome to the
Speaker 1: Daily OS. It is Wednesday, the seventh of August. I'm billy,
Speaker 1: I'm zara. The last few days have seen significant volatility
Speaker 1: in global stock markets. Here in Australia. On Friday and Monday,
Speaker 1: the stock market had its worst two days since the
Speaker 1: onset of the pandemic. It all came after the US
Speaker 1: posted higher than expected unemployment numbers, raising concerns that the
Speaker 1: world's biggest economy is slowing and a recession is on
Speaker 1: the horizon. If you've been seeing headlines about this and
Speaker 1: trying to understand what has gone on, but it's all
Speaker 1: seemed a bit like gibberish, well you have come to
Speaker 1: the right place. In today's deep dive, I'll be speaking
Speaker 1: to Greg Jericho, who is the chief economist at the
Speaker 1: Australia Institute, to explain all of it to us. But first, Lara,
Speaker 1: what is making headline today.
Speaker 2: The Reserve Bank of Australia the RBA, has left the
Speaker 2: cash rate on hold at four point three five percent.
Speaker 2: The figure, which is often referred to as interest rates,
Speaker 2: influences the cost of borrowing across the economy. The RBA
Speaker 2: said it kept rates on hold for the sixth consecutive
Speaker 2: month as part of its plan to return inflation to
Speaker 2: within its two to three percent target. Inflation is currently
Speaker 2: sitting at three point eight percent. Federal Treasurer Jim Chalmers
Speaker 2: welcomed the RBA's decision, saying it recognizes the progress being
Speaker 2: made on inflation and also quote the very substantial global
Speaker 2: economic uncertainty that we're seeing play out in the markets
Speaker 2: around the world. We've got an explainer on that topic
Speaker 2: coming in the Deep Dive, so just hold that thought.
Speaker 1: The Australian Federal Police has seized the Brisbane home of
Speaker 1: a married couple alleged to be a pair of Russian spies.
Speaker 1: A forty year old woman who is a former Australian
Speaker 1: Army private and her six two year old husband were
Speaker 1: arrested on spying offenses last month. The Russian born Australian
Speaker 1: citizens have been accused of accessing sensitive information about the
Speaker 1: Australian Defense Force on behalf of Russian authorities. Police have
Speaker 1: also sees their bank accounts, superannuation funds and other personal assets.
Speaker 1: The couple are facing up to fifteen years behind bars.
Speaker 2: The UK government has introduced a raft of new policing
Speaker 2: measures as the country enters its seventh day of riots.
Speaker 2: Newly appointed Prime Minister Kirstana said a standing army of
Speaker 2: police will be deployed in an effort to tame violent crowds.
Speaker 2: Far right riots erupted across the country following a mass
Speaker 2: stabbing attack last month that left three girls dead and
Speaker 2: others injured.
Speaker 1: And today's good news, researchers are a step closer to
Speaker 1: figuring out how the ancient Egyptians built the pyramids. A
Speaker 1: team of engineers and geologists have uncovered evidence of a
Speaker 1: complex hydraulic lift system in Egypt's oldest pyramid, thought to
Speaker 1: have been built some four five hundred years ago. According
Speaker 1: to findings in the scientific journal Plos, researchers have discovered
Speaker 1: clues that a complex water system was used to power
Speaker 1: an elevator inside the pyramid, which could have been used
Speaker 1: to float heavy stones up through the middle of the structure.
Speaker 2: So Billy, over the last couple of days, I have
Speaker 2: read headline after headline about the state of the stock market,
Speaker 2: and I must confess I'm not the most well versed
Speaker 2: when it comes to the stock market. And we were
Speaker 2: talking in the office yesterday about how no one's actually
Speaker 2: explaining anything. They're just saying what is happening, but there's
Speaker 2: no explanation.
Speaker 1: Yeah, I think if there's any time for the Daily OS,
Speaker 1: it's a story like this when it literally feels like
Speaker 1: it's in a complete other language. But Zara, you and
Speaker 1: I are not experts on the global stock market.
Speaker 2: No, we accept our shortcomings and we head to the expert.
Speaker 1: We tried, but yes, we thought that we should speak
Speaker 1: to an economist, and so we went straight to the
Speaker 1: chief economist at the Australian Institute, Greg Jericho, to break
Speaker 1: down all of the headlines that we have been seeing.
Speaker 1: I thought that he broke it down in a way
Speaker 1: that I could understand. He was really effective. Here is
Speaker 1: that chat, Greg Jericho, thank you so much for joining
Speaker 1: the Daily OS.
Speaker 3: No problem was Billy.
Speaker 1: So we have seen global stock markets go down quite significantly.
Speaker 1: How did this all start?
Speaker 4: Yeah, it all started in America when their July unemployment
Speaker 4: figures came out and the unemployment rate went from four
Speaker 4: point one to four point three percent, and that kind
Speaker 4: of just triggered off a massive amount of panic around
Speaker 4: the world as everyone sort of looked at us and thought, olds,
Speaker 4: something's going bad there, and everyone just really started panicking
Speaker 4: very quickly.
Speaker 1: And why is it that unemployment figures would trigger such
Speaker 1: a worldwide reaction.
Speaker 4: Yeah, it seems a bit surprising, But really what it
Speaker 4: comes down to is a US economist called Claudius arm
Speaker 4: she'd been looking at recessions and she was trying to
Speaker 4: come up with a way of measuring recessional kind of
Speaker 4: warning that economy is going to recession a bit quicker
Speaker 4: than the traditional method. The traditional method you have to
Speaker 4: look at GDP figures, which are the entire economy. You
Speaker 4: have to wait for two quarters in a row, which
Speaker 4: is six months, so in a sense traditionally, Kindos was saying, oh, yes,
Speaker 4: an economy is in a recession and it started six
Speaker 4: months ago. And she was like, well, that's a bit useless.
Speaker 4: How about we look at unemployment rates and see if
Speaker 4: we can work out there, and what she sort of
Speaker 4: did a lot of good research and worked out that actually,
Speaker 4: when the unemployment rises by half a percentage points, so
Speaker 4: like about four point zero to four point five percent,
Speaker 4: when it does that in twelve months, that means you're
Speaker 4: basically in recession town. And the thing was where the
Speaker 4: unemployment came out at four point three percent, everyone was going, oh,
Speaker 4: wait on, that's got up by more than a half
Speaker 4: a percentage point a year.
Speaker 3: There was going America is in a recession. So so
Speaker 3: that pretty much was what it was. It was just
Speaker 3: this sense of everyone realizing, oh gosh, that's not good.
Speaker 1: Do you think it was an overreaction at all?
Speaker 4: Unfortunately, if you look at the history, the rise in
Speaker 4: unemployment fits really well with recessions. And I think it's
Speaker 4: a good method because, I mean, who cares about GDP
Speaker 4: going up and down? All you care about is are
Speaker 4: you able to get a job? Are you getting paid
Speaker 4: well for your job? You're getting good out, So unemployment
Speaker 4: is a good indicator. And I think it really does
Speaker 4: suggest that the American economy, because it's had, like here
Speaker 4: in Australia, high interest rates, is really starting to struggle mightily.
Speaker 1: And can you just explain why what happens in the
Speaker 1: US economy impacts the rest of the world so significantly.
Speaker 4: Basically, it's because the American economy is the biggest economy
Speaker 4: in the world. It's still much bigger than China, and
Speaker 4: it's massively bigger than anyone else. And so you know,
Speaker 4: the old adage was when America sneezes, everyone catches a cold.
Speaker 4: Now it's not quite as bad, but certainly it's a case,
Speaker 4: especially in places like Japan, where when America struggles, that
Speaker 4: means they're going to have a real tough time because
Speaker 4: America imports a lot of stuff from a lot of countries,
Speaker 4: and if people are losing work there, well, they're not
Speaker 4: going to buy as much stuff, and that means they're
Speaker 4: not buying as much from other countries.
Speaker 1: Right, And hearing you talk, it all sounds quite scary
Speaker 1: and quite bad for someone listening who is not too
Speaker 1: familiar with global stock markets. How much of this is
Speaker 1: just part of, you know, the normal fluctuation of a
Speaker 1: share market or is this really completely out of the ordinary.
Speaker 4: Yeah, this was a big one, especially in Japan, and
Speaker 4: because it was just so widespread. But we've seen today
Speaker 4: already in Australia there's a bit of a recovery. You know,
Speaker 4: it's not like we're having a Wall Street crash. But
Speaker 4: I think more it's a case of there's been a
Speaker 4: lot of markets and investors going along with a sort
Speaker 4: of almost a rosy eyed view that, oh, it seems
Speaker 4: like we're going to get rid of inflation, but not
Speaker 4: go into recession like we normally do, like we did
Speaker 4: in the ninety nineties, like we did in eighties, and
Speaker 4: they're all thinking, oh, good times ahead, and then this
Speaker 4: was a bit of a wake up call that actually
Speaker 4: there's probably going to be a bit of slowing in
Speaker 4: the economy, purely because we've had interest rates high that
Speaker 4: stopped everyone being able to go out and spend. So
Speaker 4: I think it was more of a bit of a
Speaker 4: wake up call, and hopefully that's all it is, but
Speaker 4: it certainly does I think bear warning for what might
Speaker 4: be ahead in the next six to twelve months.
Speaker 1: So let's turn to Australia. Now, what has happened in
Speaker 1: the Australian shair market.
Speaker 4: Yeah, the Australians share market also took a bumper when
Speaker 4: this news came out, and it often happens you follow
Speaker 4: what's going on in America, in Japan and Hong Kong,
Speaker 4: they sort of see what's going on there, and there
Speaker 4: is a bit of a herd mentality amongst brokers.
Speaker 3: But it has sort of recovered.
Speaker 4: In this sense that certainly Australia is not as exposed
Speaker 4: as perhaps Japan is, but we certainly know that there
Speaker 4: are concerns within Australian investors and Australian economists about Australia's
Speaker 4: own economy and whether we're going to go into recession
Speaker 4: because and this is something I've been tracking on our
Speaker 4: version of unemployment rate, we're also sort of tracking towards
Speaker 4: going up by that half a percentage point in a year,
Speaker 4: and if that happens, yeah, we're kind of looking like
Speaker 4: being in a recession. So you know, there is a
Speaker 4: fair bit of concern still even in Australia.
Speaker 1: I want to look at recession in a second, but
Speaker 1: first I just want to look at interest rates, which
Speaker 1: was a big topic of conversation yesterday with the IBA's
Speaker 1: announcement that it will keep the cash rate on hold. Firstly,
Speaker 1: can you just explain what is the relationship between cash
Speaker 1: rates and the stock market? How do they link?
Speaker 4: Yeah, I mean the cash rate is in a sense
Speaker 4: the reserve banks setting the interest rate that it charges
Speaker 4: banks to borrow from them, which they then charge a
Speaker 4: bit more to us so we can take out loans.
Speaker 4: So it's a good guide of what's happening with interest rates.
Speaker 4: And you think, if you're an investor, you can do
Speaker 4: two things. You can invest in the stock market and
Speaker 4: hopefully the stocks will go up and you'll get you'll
Speaker 4: get a good return. Or you can in bonds, which
Speaker 4: is in a sense taking out loans, and if the
Speaker 4: interest rate is going up, well, then it's a good
Speaker 4: time to invest in bonds, not a good time to
Speaker 4: invest in the stock market. So the Reserve Bank keeping
Speaker 4: interest rates on hold. Everyone is kind of the view
Speaker 4: the next move will be a cup rather than a rise.
Speaker 4: And it seems like all our concerns over the past
Speaker 4: sort of six months of we're going to have higher
Speaker 4: interest rates seem to be on the way, and purely
Speaker 4: because the Reserve Bank, like everyone else, is looking around
Speaker 4: the world and going geez, things are getting a bit
Speaker 4: dicey over to America and dicey japaired. These are big
Speaker 4: export markets for us. Let's not try and kill our
Speaker 4: economy if we've got bad things coming our way.
Speaker 1: Two more questions. Firstly, for people listening who don't invest
Speaker 1: and who don't own a home, so the cash rate
Speaker 1: or the interest rates don't directly impact them, how could
Speaker 1: what has happened affect them?
Speaker 3: Oh look, it's not directly.
Speaker 4: If you're working, you've got money in superannuation and superannuation
Speaker 4: funds invest in the stock market, but you really don't
Speaker 4: have to worry, especially if you're young. You're nowhere near retiring,
Speaker 4: and stock markets go up and down and in thirty
Speaker 4: years time, you won't even remember what happened this week.
Speaker 4: But it does suggest if they're keeping them steady, it
Speaker 4: means they're not trying to slow the economy more. And
Speaker 4: that's a good thing because it means that they are
Speaker 4: actually worried about unemployment rising, and so they were already
Speaker 4: thinking about, okay, what can we do to make sure
Speaker 4: unemployment doesn't go up, you don't lose your job, and
Speaker 4: the economy keeps sort of growing nicely.
Speaker 1: Now, lastly, you've mentioned recession a number of times, which
Speaker 1: we know is when there are two negative quarters of
Speaker 1: GDP in your expert opinion, how likely do you think
Speaker 1: a recession is in Australia?
Speaker 4: Oh, look, I mean GDP has been not growing very well.
Speaker 4: I mean the last GDP growth in a quarter was
Speaker 4: just zero point one percent. I mean that's basically an
Speaker 4: error away from going backwards. The risks are certainly there.
Speaker 4: It's always a bit tricky with Australia because our exports
Speaker 4: in one quarter can give us a boost and then
Speaker 4: the next quarter don't. That's why I like looking at
Speaker 4: the unemployment rate as well, and that has been moving up,
Speaker 4: so hopefully we won't see that. The risks is very
Speaker 4: much there. If the Reserve Bank had increased interest rates,
Speaker 4: the risk would have, I think, become a huge warning
Speaker 4: bell and sirens would be going off everywhere. I think
Speaker 4: they're very mindful of it and hopefully we can avoid it.
Speaker 4: But again, if America goes into recession, if Japan struggles,
Speaker 4: then you're going to see struggles in China. It's very
Speaker 4: difficult to miss that. But I wouldn't be predicting we're
Speaker 4: going to go in a recession, but certainly the risks
Speaker 4: are pretty high.
Speaker 1: We'll be keeping a close eyewn it. Greg Jericho, thank
Speaker 1: you so much for joining us.
Speaker 3: Noah's Billy really good to chat.
Speaker 2: This feels like one of those times that our slogan,
Speaker 2: oh now it makes sense really does apply. After listening
Speaker 2: to that conversation, I now truly understand what is happening
Speaker 2: with the stock market. If you feel the same way,
Speaker 2: please press follow on whatever platform you are listening or
Speaker 2: watching this podcast on. Every follow helps us grow and
Speaker 2: we'll be back again tomorrow see ya.
Speaker 1: My name is Lily Maddon and I'm a proud Arunda
Speaker 1: Bungelung Calcuttin woman from Gadighl Country. The Daily oz acknowledges
Speaker 1: that this podcast is recorded on the lands of the
Speaker 1: Gadighl people and pays respect to all Aboriginal and torrest
Speaker 1: Rate island and nations. We pay our respects to the
Speaker 1: first peoples of these countries, both past and present.