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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Jennifer Duke: Welcome to Fear and Greed – The Week Ahead. I’m Jennifer
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Jennifer Duke: Duke and I’m joined by economist Stephen Koukoulas. You’ll find
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Jennifer Duke: him at thekouk. com. That’s T- H- E- K- O- U- K.
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Jennifer Duke: com, and on X using the handle TheKouk. Stephen, good morning.
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Stephen Koukoulas: Good morning, Jen.
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Jennifer Duke: So firstly, last week was a huge one. Can you
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Jennifer Duke: talk us through what happened? I think we kicked off
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Jennifer Duke: with the RBA meeting.
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Stephen Koukoulas: Yeah, they meeting for the third month in a row.
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Stephen Koukoulas: They held rate steady, the official cash rate at 4.
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Stephen Koukoulas: 1% and it’s not necessarily what they did that caused
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Stephen Koukoulas: the great deal of interest, it’s what they were sort
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Stephen Koukoulas: of describing about the economy. And it was, I won’t
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Stephen Koukoulas: say it’s dubbish because they’ve still got a bias to
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Stephen Koukoulas: tighten. They still said that effectively if there is a
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Stephen Koukoulas: move in interest rates in the months ahead will be up
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Stephen Koukoulas: not down. But having said that, I think the general
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Stephen Koukoulas: consensus and interpretation of their comments is that we’re in
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Stephen Koukoulas: the early stages of what will probably be an extended
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Stephen Koukoulas: period with rates on hold and by an extended period
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Stephen Koukoulas: I think we could probably look well into the middle
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Stephen Koukoulas: of next year and still be talking about a 4.
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Stephen Koukoulas: 1% cash rate. Now, the reasons are all very important
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Stephen Koukoulas: of course, and it is because inflation is decelerating.
It’s
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Stephen Koukoulas: been confirmed in the recent numbers that we chatted about
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Stephen Koukoulas: a week or so back that inflation’s continuing to decline.
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Stephen Koukoulas: So that’s good. And they also noted that there’s still the
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Stephen Koukoulas: full effects of the 400 basis points of rate hikes
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Stephen Koukoulas: that they’ve delivered between May last year and June this
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Stephen Koukoulas: year to fully impact on the economy. And they’re even
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Stephen Koukoulas: detecting that and acknowledging, I should say, that the wage
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Stephen Koukoulas: concerns that they might’ve had about a wage price spiral
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Stephen Koukoulas: simply weren’t coming to fruition. That the wage numbers that
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Stephen Koukoulas: we’ve seen are decent, but not at that level that
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Stephen Koukoulas: causes a concern about higher inflation.
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Jennifer Duke: And we also had GDP growth and the outgoing governor,
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Jennifer Duke: Phil Lowe gave a speech. What are they sort of telling
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Jennifer Duke: us about the future of the economy?
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Stephen Koukoulas: Yeah, the GDP numbers were, well, it’s one of these
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Stephen Koukoulas: funny ones, it’s something for everybody that the headline figure at 0.
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Stephen Koukoulas: 4% GDP growth isn’t bad when the economy had to
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Stephen Koukoulas: slow to get this inflation rate down. And the annual
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Stephen Koukoulas: figure 2.1% in the year through to June was again,
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Stephen Koukoulas: not bad considering that we’ve had a slowing economy, however,
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Stephen Koukoulas: scratch the surface. And that’s where I think a lot
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Stephen Koukoulas: of the concerns were starting to come through. In per
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Stephen Koukoulas: capita terms GDP has gone backwards in the last two
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Stephen Koukoulas: quarters.
So this per capita recession some people may have
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Stephen Koukoulas: been reading about in the media is certainly there because
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Stephen Koukoulas: one of the only reasons why we had the economy
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Stephen Koukoulas: expanding at all is because of population growth, high immigration,
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Stephen Koukoulas: foreign students coming back to Australia and they’re good things,
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Stephen Koukoulas: but it masks what’s probably an underlying weakness in the
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Stephen Koukoulas: economy. So that was something of a concern. We know
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Stephen Koukoulas: that household saving ratio fell to its lowest level in
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Stephen Koukoulas: almost 15 years so that savings buffer that the Reserve
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Stephen Koukoulas: Bank had been talking about in the aftermath of the
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Stephen Koukoulas: pandemic that we saved money rather than spent it because
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Stephen Koukoulas: we’re all locked up at home, that’s now being sort
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Stephen Koukoulas: of eroded. So the savings buffer is a little bit
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Stephen Koukoulas: less.
And of course that’s higher interest rates and cost
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Stephen Koukoulas: of living pressures that are feeding into that. So all
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Stephen Koukoulas: up in summary, I guess it was showing a slower
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Stephen Koukoulas: economy as it should, but it was probably a little
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Stephen Koukoulas: bit weaker than the headline people would suggest. And as
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Stephen Koukoulas: you mentioned, Dr. Lowe, his farewell speech to society. Look,
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Stephen Koukoulas: he sort of defended a lot of what he said.
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Stephen Koukoulas: He acknowledged a lot of his errors and took a
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Stephen Koukoulas: bit of a swipe at the media and victory all
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Stephen Koukoulas: against him and in a sense it didn’t really say
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Stephen Koukoulas: terribly much about his tenure as governor. And I think
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Stephen Koukoulas: we’ll see a lot more about how well did Dr.
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Stephen Koukoulas: Lowe do when he actually pulls up stumps in the
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Stephen Koukoulas: next week or two.
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Jennifer Duke: So over the next week, what do we have coming
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Jennifer Duke: up? I think there might be some labor force data
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Jennifer Duke: coming out.
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Stephen Koukoulas: Labor force, yes, that’s it. That’s the big one. And
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Stephen Koukoulas: as we know, the employment unemployment numbers are the critical
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Stephen Koukoulas: ones for the health of the economy and indeed the
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Stephen Koukoulas: RBA. So you might recall last month we had that
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Stephen Koukoulas: little bit of a dip in employment. It fell 14,
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Stephen Koukoulas: 000 and the unemployment rate went from 3. 5% to 3.
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Stephen Koukoulas: 7%. The monthly numbers are incredibly volatile. They do bounce
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Stephen Koukoulas: around. They’re just a survey from the Bureau of Statistics,
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Stephen Koukoulas: so it can be a bit hazardous trying to forecast
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Stephen Koukoulas: a month on month change in employment and the unemployment
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Stephen Koukoulas: rate. However, we do know that with those slower economic
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Stephen Koukoulas: numbers that we were just talking about for the GDP release
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Stephen Koukoulas: that we’re probably in the early stages of a trend
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Stephen Koukoulas: upturned in the unemployment rate, that it’s probably easy to
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Stephen Koukoulas: forecast where unemployment will be in the middle of next
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Stephen Koukoulas: year than it’ll be later this week because it’ll be higher.
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Stephen Koukoulas: Whether it’s a smooth path there, it’s a bit of
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Stephen Koukoulas: a sore tooth pattern getting up there, I’m not sure.
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Stephen Koukoulas: But if there’s any further signs of weakness, so maybe just
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Stephen Koukoulas: a very tepid increase in employment, the unemployment rate ticks up
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Stephen Koukoulas: to 3. 8%, then that’ll just reinforce the market pricing
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Stephen Koukoulas: of steady interest rates. And linked to that, we’ve got
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Stephen Koukoulas: the consumer sentiment numbers, we consumers are still gloomy, we’re
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Stephen Koukoulas: still pretty miserable. The rate hikes, cost of living are
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Stephen Koukoulas: the critical factors impacting on cost of living. And the
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Stephen Koukoulas: NAB Business Survey, gee, I love that survey. It’s a
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Stephen Koukoulas: good indicator of how the business sector’s feeling and the
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Stephen Koukoulas: business sector’s been a lot more resilient in the last,
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Stephen Koukoulas: well, the last 12 months to be honest. And they
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Stephen Koukoulas: have been showing that some of these price pressures have
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Stephen Koukoulas: been easing. So we’ll be sort of trawling through and
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Stephen Koukoulas: over the NAB Business Survey to see whether there’s a
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Stephen Koukoulas: bit more resilience in the business side of the economy
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Stephen Koukoulas: and whether these price pressures, selling prices, labor costs in
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Stephen Koukoulas: the surveys are continuing to track back lower.
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Jennifer Duke: And I look forward to breaking that down with you
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Jennifer Duke: again next week. Hopefully you have a good one ahead.
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Stephen Koukoulas: It’ll be a good week. Always fun to see the labor force numbers. And just
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Stephen Koukoulas: by the way, I think after last week and Collingwood’s
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Stephen Koukoulas: win, consumers said it might get a little bit of
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Stephen Koukoulas: an uptick because the Mighty Magpie’s won last week.
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Jennifer Duke: Oh, I think that’s going to be a divisive call
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Jennifer Duke: for the week. So there you go. Thanks so much Stephen. And that was
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Jennifer Duke: economist Stephen Koukoulas, better known as The Kouk. You can find him
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Jennifer Duke: at thekouk. com and follow him on X using the
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Jennifer Duke: handle TheKouk. I’m Jennifer Duke, economics correspondent at Capital Brief
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Jennifer Duke: and filling in for Sean Aylmer, and this is Fear
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Jennifer Duke: and Greed – The Week Ahead.