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Fear & Greed, Fear and Greed

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).

Find out more: https://fearandgreed.com.au

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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, I’m joined by economist, Stephen Koukoulas.

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Sean Aylmer: You’ll find him at thekouk. com, and on X, using

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Sean Aylmer: the handle TheKouk, T-H-E-K-O-U-K.
Stephen, good morning.

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Stephen Koukoulas: Good morning, Sean.

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Sean Aylmer: Now, I know you had a bad day at the track.

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Stephen Koukoulas: Well, I don’t-

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Sean Aylmer: (inaudible) know whether you were at the track. I

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Sean Aylmer: know you didn’t have a win on the Melbourne Cup,

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Sean Aylmer: should we say that?

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Stephen Koukoulas: I got hosed. It was a sad day.

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Sean Aylmer: Hmm, but none of us really had a win that

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Sean Aylmer: day, no matter where you stood, even if you did

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Sean Aylmer: pick the winner, because interest rates, they went up again.

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Stephen Koukoulas: They went up again. Michele Bullock, in her second month as governor, as

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Stephen Koukoulas: chairperson of the RBA board, in their collective wisdom, they

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Stephen Koukoulas: decided to hike 25 basis points, having been on hold for,

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Stephen Koukoulas: what was it, four months previously. Clearly they’re frustrated that

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Stephen Koukoulas: inflation is not coming down quickly enough. Clearly inflation’s coming

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Stephen Koukoulas: down. They reiterated that in their forecasts last week that

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Stephen Koukoulas: it’s going to be three and a half percent at

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Stephen Koukoulas: the end of 2024, somewhere just a touch below 3%

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Stephen Koukoulas: at the end of 2025, so gosh, that’s still two

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Stephen Koukoulas: years into the future, but not fast enough. They want

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Stephen Koukoulas: it to be back in the target range a little

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Stephen Koukoulas: earlier, hence the bold decision, I guess, when the economy

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Stephen Koukoulas: is slowing, when the rest of the world’s slowing, to

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Stephen Koukoulas: hike yet again.

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Sean Aylmer: We are one of the few economies that are still

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Sean Aylmer: lifting rates. Well, maybe that’s a bit unfair to say,

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Sean Aylmer: because there are a bunch of economies on pause and

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Sean Aylmer: maybe they will lift again, but actually over the last

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Sean Aylmer: six weeks or so, not many of the major economies

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Sean Aylmer: have lifted rates.

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Stephen Koukoulas: No, they haven’t. If we look at the US, Eurozone,

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Stephen Koukoulas: Canada, New Zealand, the countries that are comparable to us,

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Stephen Koukoulas: they’ve all been on hold, and it’s one of these

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Stephen Koukoulas: funny things, I love looking at the money market future

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Stephen Koukoulas: strip, which is people putting their money where their mouth

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Stephen Koukoulas: is when it comes to forecasting interest rates, and in

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Stephen Koukoulas: each of those countries, in the Eurozone, rate cuts are

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Stephen Koukoulas: being priced into 2024. Now, a little early, not in

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Stephen Koukoulas: the next few months, but more the middle of next

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Stephen Koukoulas: year, so six to nine months’ time the people are

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Stephen Koukoulas: putting their money where their mouth is, is saying, ” Yeah, there’s

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Stephen Koukoulas: a probability that the next move will be down,” and

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Stephen Koukoulas: here we are with the Reserve Bank hiking. Now, we

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Stephen Koukoulas: didn’t hike as much as most of those other central

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Stephen Koukoulas: banks in this rate- hiking cycle, so maybe there was

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Stephen Koukoulas: a little bit of extra catch- up to do, but

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Stephen Koukoulas: maybe we’ve just gone a bit too far too fast,

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Stephen Koukoulas: but all will play out in the next few months

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Stephen Koukoulas: when we see the hard data on growth, on wages,

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Stephen Koukoulas: on inflation and on unemployment.

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Sean Aylmer: Oh, what a segue, wages. We’ve got the wage price

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Sean Aylmer: index out this week, Stephen.

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Stephen Koukoulas: It is. It’s for the September quarter, and given wages

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Stephen Koukoulas: are such a critical input into the inflation outlook, and

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Stephen Koukoulas: indeed what Michele Bullock was talking about last week when

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Stephen Koukoulas: she did hike rates, it’s services inflation that is that

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Stephen Koukoulas: sticky, in inverted commas. The bit of inflation that’s not coming

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Stephen Koukoulas: down as rapidly as they would like, and the biggest

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Stephen Koukoulas: component of services inflation, things like haircuts, are wages costs,

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Stephen Koukoulas: and so we want to see that wage price index

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Stephen Koukoulas: being well contained. Now, this is the quarter that included

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Stephen Koukoulas: the pretty hefty increase in the minimum wage from the

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Stephen Koukoulas: Fair Work Commission, the 5. 75% increase in minimum wages. Now,

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Stephen Koukoulas: not many people get the minimum wage, but nonetheless the

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Stephen Koukoulas: current forecasts are for a quarterly rise of about 1. 4%,

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Stephen Koukoulas: which would mean the annual figure would be just under 4%.

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Stephen Koukoulas: It’s still okay, still not really that wage price blowout

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Stephen Koukoulas: that we fear, but any upside to that will certainly

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Stephen Koukoulas: validate what the RBA did last week.

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Sean Aylmer: Okay. Labour Force, we also have that out on Thursday,

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Sean Aylmer: I think.

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Stephen Koukoulas: Oh, yeah indeed, and what a week it is for

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Stephen Koukoulas: data coming up, the Labour Force critically important. Well, we’ve

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Stephen Koukoulas: had a bit of choppiness, I suppose, in the recent

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Stephen Koukoulas: monthly Labour Force releases. We’ve had weaker employment growth in

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Stephen Koukoulas: trend terms that’s been edging lower, but the unemployment rate

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Stephen Koukoulas: also fell. That big drop in the participation rate caused

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Stephen Koukoulas: that strange thing that happens every now and then where

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Stephen Koukoulas: weak employment and a falling unemployment rate. Current market thinking

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Stephen Koukoulas: is that we’re going to see a moderate increase in

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Stephen Koukoulas: employment, around about 25 to 30,000 people, so just about all that’s

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Stephen Koukoulas: needed to keep the unemployment rate steady in normal terms,

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Stephen Koukoulas: but because people are thinking the part rate might jump

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Stephen Koukoulas: up a bit, the unemployment rate’s likely to tick back

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Stephen Koukoulas: up to 3. 7 or maybe even 3.8%, so in

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Stephen Koukoulas: absolute terms still pretty good, but clearly there’s a turning

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Stephen Koukoulas: point going on in the labour market.

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Sean Aylmer: Okay, we also… this is the week we have the

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Sean Aylmer: monthly surveys, the first one being the National Australia Bank

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Sean Aylmer: survey on business conditions and business sentiment, and then we

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Sean Aylmer: have the Westpac Consumer Sentiment Survey. We’re still going to

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Sean Aylmer: be a dreary bunch of consumers and a happy bunch

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Sean Aylmer: of businesses, Stephen?

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Stephen Koukoulas: Yeah. Well Sean, I know how much you love the

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Stephen Koukoulas: NAB Survey of business conditions.

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Sean Aylmer: Oh, I love it.

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Stephen Koukoulas: Yep, it is such a good indicator.

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Sean Aylmer: It is.

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Stephen Koukoulas: A couple of reasons. It’s contemporary, like they asked businesses

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Stephen Koukoulas: literally in the last couple of weeks, ” How’s business going?

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Stephen Koukoulas: Are you optimistic, pessimistic. What’s happening to your employment plans,

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Stephen Koukoulas: your selling prices, your profitability?” so that’s why it’s such

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Stephen Koukoulas: a contemporary indicator, and indeed, the questions that are framed

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Stephen Koukoulas: tell us, with a pretty good track record, of not

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Stephen Koukoulas: so much levels, but certainly turning points in employment, in

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Stephen Koukoulas: economic activity, profits and sales, so we’re going to be

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Stephen Koukoulas: watching that carefully, and as you alluded to, the business

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Stephen Koukoulas: sector’s been a lot more upbeat about the economy than

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Stephen Koukoulas: we poor consumers, so hopefully that trend continues, but on

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Stephen Koukoulas: the consumer sentiment side, well, particularly with this rate hike,

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Stephen Koukoulas: because of course the survey has been conducted over the

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Stephen Koukoulas: past few days, so it’ll incorporate the effect of the

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Stephen Koukoulas: interest rate hike, so it’d be no surprise if we

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Stephen Koukoulas: see another gloomy consumer sentiment index, and of course as

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Stephen Koukoulas: we know, when consumers are gloomy they tend to scale

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Stephen Koukoulas: back their spending, and so it probably doesn’t bode well

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Stephen Koukoulas: for the Christmas summer holiday spending period that’s coming up.

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Sean Aylmer: Hmm. Stephen, enjoy your week.

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Stephen Koukoulas: I will, Sean. Thank you.

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Sean Aylmer: That was economist, Stephen Koukoulas, better known as TheKouk. You can

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Sean Aylmer: find him at thekouk. com and follow him on X,

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Sean Aylmer: using the handle TheKouk. I’m Sean Aylmer, and this is Fear and

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Sean Aylmer: Greed, The Week Ahead.