This is Fear and Greed – The Week Ahead, where Sean Aylmer and Stephen Koukoulas discuss the major events, reports and releases that provide insight into the economy this week (with a look back at the events of last week too).
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Sean Aylmer: Welcome to Fear and Greed, The Week Ahead. I’m Sean
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Sean Aylmer: Aylmer and, as always at this time on a Monday
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Sean Aylmer: morning, I’m joined by economist Steven Koukoulas. You’ll find him
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Sean Aylmer: at thekouk. com, T- H- E- K- O- U- K.
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Sean Aylmer: com and on Twitter using the handle @ thekouk. Actually it’s on
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Sean Aylmer: X, isn’t it, Steven? Not Twitter.
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Steven Koukoulas: It is X now. X marks the spot, as they say.
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Sean Aylmer: Yeah. Steven, what a great week last week was for
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Sean Aylmer: an economist, so much going on, where do we start?
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Sean Aylmer: I suppose we started on interest rates and the Reserve Bank’s
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Sean Aylmer: decision to not lift interest rates.
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Steven Koukoulas: Yes, and they didn’t lift interest rates. It was a sort
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Steven Koukoulas: of a line ball call, I think, as we discussed
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Steven Koukoulas: last week. That there’s some reason and about half of
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Steven Koukoulas: the market economists that were surveyed thought that they might
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Steven Koukoulas: go 25 basis points. And the reason for that was
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Steven Koukoulas: basically that while inflation is falling, it’s still too high.
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Steven Koukoulas: The labor market is still incredibly tight. Your 3. 5%
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Steven Koukoulas: unemployment rate is arguably over full employment. So there could
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Steven Koukoulas: be some wage and price pressures brewing there.
However, the
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Steven Koukoulas: Reserve Bank, in their wisdom, including on the Statement on
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Steven Koukoulas: Monetary Policy that they put out last Friday, confirmed that
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Steven Koukoulas: their view is the economy is definitely slowing. That things
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Steven Koukoulas: like the weakness in retail spending are also extremely weak,
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Steven Koukoulas: and they’ve got confidence that inflation’s going to be decelerating
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Steven Koukoulas: over the more medium term. So look, the Reserve Bank
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Steven Koukoulas: still has a bias to increase interest rates so that
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Steven Koukoulas: if there is a move in interest rates in the
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Steven Koukoulas: near term, it’ll be up not down. But I think
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Steven Koukoulas: the clear case is that interest rates are on hold for
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Steven Koukoulas: the next few months and like all of us, the
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Steven Koukoulas: Reserve Bank is watching the data.
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Sean Aylmer: It’s kind of good news in a way, I suppose.
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Steven Koukoulas: It is and I think there’s a bit of relief
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Steven Koukoulas: from people who are under the pump. I think it’s
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Steven Koukoulas: the Treasury uses that term terminology to describe those that are suffering from the 400 basis
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Steven Koukoulas: points of rate hikes on their mortgage and including small
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Steven Koukoulas: businesses in that space, too.
Interest rates have been hiked
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Steven Koukoulas: really quickly by a large amount, and albeit from an
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Steven Koukoulas: artificially low level 15, 16 months ago, but we can see
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Steven Koukoulas: it in some of the early indicators of loan arrears,
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Steven Koukoulas: they’re just starting to pick up. There’s anecdotes of investors
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Steven Koukoulas: who have been arguably caught out as much as own
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Steven Koukoulas: occupiers are now putting their houses on the market. So the RBA
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Steven Koukoulas: can see this. These are great leading indicators for the
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Steven Koukoulas: economy and it doesn’t want to make things worse.
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Sean Aylmer: What does the Reserve Bank think will happen to the
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Sean Aylmer: economy? They put out their Statement on Monetary Policy on
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Sean Aylmer: Friday. They also had retail trade building approvals figures out
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Sean Aylmer: last week. Well, what does the bank think is going
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Sean Aylmer: to happen?
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Steven Koukoulas: Yeah, GDP growth below trend, the forecast they put in there, SOMP, the
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Steven Koukoulas: Statement on Monetary Policy. Well, for GDP the growth is somewhere between
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Steven Koukoulas: 1 and 2% over the next 18 months so we
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Steven Koukoulas: know that that’s very weak. The Australian economy, particularly with
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Steven Koukoulas: its population growth, should be growing just under 3%, maybe
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Steven Koukoulas: 3%. So anything in that 1 to 2% band is
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Steven Koukoulas: a materially lower rate of economic growth. And as you
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Steven Koukoulas: pointed out, the retail sales numbers on last week were
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Steven Koukoulas: very poor. They were showing that in volume terms in
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Steven Koukoulas: the June quarter, they were down half a percent. That
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Steven Koukoulas: feeds directly into the GDP numbers, which come out in
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Steven Koukoulas: a month’s time.
So the Reserve Bank is sort of
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Steven Koukoulas: mulling all of these indicators right now. And in a
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Steven Koukoulas: sense, you could say that Dr. Lowe’s work and the
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Steven Koukoulas: Reserve Bank board’s work is having its impact. Growth is
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Steven Koukoulas: slowing, inflation’s coming down, and we just need to be
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Steven Koukoulas: a little bit patient for these rate hikes that have
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Steven Koukoulas: been particularly delivered since the start of this year to
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Steven Koukoulas: weave their magic, if you like, and have their full
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Steven Koukoulas: effect on the economy.
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Sean Aylmer: Not a lot on this week compared to last week,
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Sean Aylmer: particularly. ANZ job ads, I suppose, will be interesting in
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Sean Aylmer: terms of a leading indicator of what’s happening to that
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Sean Aylmer: market. And, of course, Westpac Consumer Sentiment, everyone’s in the
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Sean Aylmer: doldrums and even NAB’s Business Conditions and Sentiment Survey isn’t
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Sean Aylmer: quite as strong as it used to be.
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Steven Koukoulas: Yes. Not a top tier week, I suppose. Although having
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Steven Koukoulas: said that, each of the three indicators that you mentioned
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Steven Koukoulas: they are all important in their own way. The job
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Steven Koukoulas: ads series, yes, there’s a softening in the labor market
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Steven Koukoulas: and job ads have eased back a little bit since
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Steven Koukoulas: the start of the year. Not a sharp fall, it
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Steven Koukoulas: must be noted so there’s still decent demand for workers
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Steven Koukoulas: out there from the private sector, even though the economy
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Steven Koukoulas: is slowing down. So any further dip in job ads
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Steven Koukoulas: will be interesting as it feeds into the more immediate
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Steven Koukoulas: outlook for employment.
Consumer sentiment, yes. As you touched on,
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Steven Koukoulas: we’re a gloomy mob right now.
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Sean Aylmer: We are. Miserable.
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Steven Koukoulas: Yeah. I mean, I think linked to the obvious things, rate hikes,
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Steven Koukoulas: cost of living pressures, real wages are still falling. And
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Steven Koukoulas: arguably, some people are detecting some softness in the labor
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Steven Koukoulas: market so consumer sentiment’s pretty weak. I think post rates
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Steven Koukoulas: on hold, which is when the survey is being conducted,
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Steven Koukoulas: it might just show a little bit of an increase.
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Steven Koukoulas: The NAB survey, yes, it started off the year in
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Steven Koukoulas: really quite upbeat manner, but again, it’s reflecting the slower
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Steven Koukoulas: rate of economic growth. So even the business sector’s now
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Steven Koukoulas: starting to look at a softer economy so it’ll be
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Steven Koukoulas: interesting to see what business conditions are, which is sort
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Steven Koukoulas: of like the pulse of where the economy’s at, versus business
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Steven Koukoulas: confidence, which is sort of the touchy feeling. Well, how
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Steven Koukoulas: are you feeling about the economy? There’s often a big
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Steven Koukoulas: divergence between those two. I daresay actual activity will be
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Steven Koukoulas: okay. Confidence will probably be a little bit weaker.
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Sean Aylmer: Steven, enjoy your week.
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Steven Koukoulas: Thank you, Sean.
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Sean Aylmer: That was economist Steven Koukoulas, better known as The Kouk. You can
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Sean Aylmer: find him at thekouk. com and follow him on Twitter
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Sean Aylmer: using the handle @ TheKouk. I’m Sean Aylmer and this is
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Sean Aylmer: Fear and Greed, The Week Ahead.