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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 Aylmer,

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Sean Aylmer: and for the first time in 2024, I’m joined by

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Sean Aylmer: economist Stephen Koukoulas. You’ll find him at thekouk. com T- H- E- K- O- U- K.

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Sean Aylmer: com, T-H-E-K-O-U k.com, and on X using the handle TheKouk. Stephen, welcome

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Sean Aylmer: to 2024.

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Stephen Koukoulas: Hooray. Happy New year, Sean. And to all the listeners

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Stephen Koukoulas: out there, what a year it’s going to be for

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Stephen Koukoulas: us all.

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Sean Aylmer: It’ll be a great year. We started off last week

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Sean Aylmer: with some pretty interesting economic news that we had consumer

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Sean Aylmer: sentiment which was week. We had labor force figures and

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Sean Aylmer: we also had, well, maybe a little bit of a

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Sean Aylmer: hawkish US federal governor.

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Stephen Koukoulas: It was a week with there being something for everybody.

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Stephen Koukoulas: Yeah, consumer sentiment. We know we consumers are gloomy. The

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Stephen Koukoulas: interest rate increases are impacting on our cash flow. There’s

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Stephen Koukoulas: still a cost of living issue out there and well,

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Stephen Koukoulas: interlinked, perfectly dovetailing to the labor force numbers, the weakness in the labor market could

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Stephen Koukoulas: well be having an impact on how people are feeling.

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Stephen Koukoulas: If you’re losing your job or at threat of losing

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Stephen Koukoulas: your job, your optimism is not going to be that

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Stephen Koukoulas: great. So the labor force numbers saw a big fall

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Stephen Koukoulas: in employment. Now it must be noted that it’s in the

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Stephen Koukoulas: context of the last couple of months being very strong.

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Stephen Koukoulas: So the ABS acknowledged, which is good that they did

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Stephen Koukoulas: it, that there’s a bit of a problem of seasonally

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Stephen Koukoulas: adjusting numbers between October, November, December. The Black Friday sales

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Stephen Koukoulas: we know have impacted retail sales, but they’ve also appear

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Stephen Koukoulas: to be impacting employment. But that aside, if we look

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Stephen Koukoulas: at the trend and cut through that volatility month to

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Stephen Koukoulas: month, you’re still seeing employment slowing.
The unemployment rate while

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Stephen Koukoulas: it stayed at 3. 9, it’s still up half a

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Stephen Koukoulas: percentage point on where we were a year ago. So

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Stephen Koukoulas: the labor market’s weakening, the economy’s slowing down, and that’s

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Stephen Koukoulas: just been confirmed in the early part of 2024.

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Sean Aylmer: Okay, so as we look at the week ahead, plenty

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Sean Aylmer: going on overseas, but before we get there, the National

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Sean Aylmer: Australia Business Survey. Tell us what you think will happen,

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Sean Aylmer: but firstly, tell us why you think it’s important.

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Stephen Koukoulas: It’s my favorite survey because it’s contemporary. This is going

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Stephen Koukoulas: to have business sentiment being reflected right up until the

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Stephen Koukoulas: last couple of weeks. I think the survey was conducted

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Stephen Koukoulas: in the first 10, 12 days of January. So it’s really

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Stephen Koukoulas: what businesses were feeling in that Christmas, New Year period.

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Stephen Koukoulas: So it’s brand new data. And for example, the most recent GDP numbers are relying on for the September

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Stephen Koukoulas: quarter. My goodness, that’s a long time ago. So they’re up- to-

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Stephen Koukoulas: date, but also the questions they ask, this is Alan

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Stephen Koukoulas: Oster, the NAB Chief Economist, who I’ve got a huge

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Stephen Koukoulas: amount of time for, he’s framed the questions from the

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Stephen Koukoulas: perspective of things that matter. So what’s happening to you

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Stephen Koukoulas: as a business person? Your purchase costs, a great indicator

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Stephen Koukoulas: of inflation. What are your hiring intentions? So what are

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Stephen Koukoulas: you planning to do in terms of hiring? A great

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Stephen Koukoulas: leading indicator for employment. And just the big picture use,

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Stephen Koukoulas: what’s your consumer sentiment like? What’s your optimism like? And

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Stephen Koukoulas: if people are feeling gloomy in their business, it’s a

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Stephen Koukoulas: great leading indicator where the economy’s going. So I’ll be

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Stephen Koukoulas: watching that very closely.
Just as a bit of background,

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Stephen Koukoulas: it had been resilient up until about September, October last

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Stephen Koukoulas: year. Just in the last couple of months it’s started to track

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Stephen Koukoulas: lower in line with the weakening in the economy. Be

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Stephen Koukoulas: interested to see if there’s any more deterioration coming through in

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Stephen Koukoulas: the next survey, which comes out this week.

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Sean Aylmer: Okay. We also have a bunch of global central banks

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Sean Aylmer: meeting about interest rates this week.

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Stephen Koukoulas: That’s the big issue. So this will dominate market sentiment,

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Stephen Koukoulas: market pricing ideas. So because we’re at this, what do

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Stephen Koukoulas: we call it, this inflection point from where we’ve had

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Stephen Koukoulas: the aggressive rate hikes through 2022 and 2023 from most central banks,

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Stephen Koukoulas: and as we chatted late last year, markets are pricing

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Stephen Koukoulas: in interest rate cuts in 2024. So here’s a really

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Stephen Koukoulas: good stock take from some of the big important central

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Stephen Koukoulas: banks.
China, it’s a little bit different because their economy’s

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Stephen Koukoulas: been very weak and they actually have deflation. Prices are

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Stephen Koukoulas: falling in China, and we had numbers last week confirming

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Stephen Koukoulas: their population’s also falling. So China is likely just to

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Stephen Koukoulas: trim its interest rates as it deals with the deflation

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Stephen Koukoulas: and what do we call it, the really sluggish growth

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Stephen Koukoulas: that’s going on. But more importantly for an economy like

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Stephen Koukoulas: Australia, European Central Bank, the Bank of Canada, the Bank

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Stephen Koukoulas: of Japan, are all meeting. And while there’s probably not

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Stephen Koukoulas: going to be a change in interest rates, in any

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Stephen Koukoulas: of them, it’s what they say rather than what they

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Stephen Koukoulas: do that’ll be most interesting.
Are they going to be starting to flag the idea

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Stephen Koukoulas: that these big central banks around the world are genuinely,

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Stephen Koukoulas: genuinely thinking about interest rate cuts?

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Sean Aylmer: And we’ll find out more about that in a fortnight’s

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Sean Aylmer: time. So it’s a couple of weeks away, the CPI figures for Australia?

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Stephen Koukoulas: Yeah, they’re next week, that we get the December month

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Stephen Koukoulas: and December quarter CPI, absolutely critical. The two elements that

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Stephen Koukoulas: I’m really focusing on for our own reserve back, and

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Stephen Koukoulas: they’ve effectively said this, so we know this from decades and decades

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Stephen Koukoulas: of looking at the RBA, it’s inflation in the labor

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Stephen Koukoulas: market that are the key drivers. Yeah, house prices have

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Stephen Koukoulas: bitten, retail sales have bitten, all these other things feed

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Stephen Koukoulas: into the mix, but they’re not going to adjust interest

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Stephen Koukoulas: rates if the labor market is strong and inflation’s too

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Stephen Koukoulas: high, which is where we have the weakness in the

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Stephen Koukoulas: labor market. That’s half ticking a box that the next

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Stephen Koukoulas: moving rates is down. We need another couple of months

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Stephen Koukoulas: to confirm that weakness. But the inflation numbers, we’ve had

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Stephen Koukoulas: that fall on inflation through the course of 2023. Another

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Stephen Koukoulas: step lower is likely, but we can talk about that

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Stephen Koukoulas: next week too.

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Sean Aylmer: We can. Stephen enjoy the week.

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Stephen Koukoulas: Will do, Sean. Thank you mate.

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Sean Aylmer: That was economist, Stephen Koukoulas, better known as The Kouk.

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Sean Aylmer: You can find him at Thekouk. com and follow him

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Sean Aylmer: on X, using the handle TheKouk. I’m Sean Aylmer and this

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Sean Aylmer: is Fear and Greed, The Week Ahead.