December 7, 2025 • 10 mins
This week, the Reserve Bank board meets. What will they make of last week's GDP figures, and the jump in household spending? Also this week: labour force data, and the crucial December meeting of the US Federal Reserve.
Michael Thompson is joined by economist Stephen Koukoulas.
Fear & Greed Q+A: Join Sean Aylmer & Michael Thompson and the team as they answer questions on business, investing, economics, politics and more. If you have your own question, get in touch via our website, LinkedIn, Instagram or Facebook!
Join our free daily newsletter here.
Find out more: https://fearandgreed.com.au/
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:06):
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Michael Thompson and every Monday morning we are joined
by economist Stephen Coucoulis to look at the week ahead.
You'll find him at the Kook dot com, which is
th ko uk dot com and on X using the
handles the Kirk. Stephen, good morning, very good morning. This
(00:26):
is almost one of those days where you don't know
where to start. There has been so much happening last
week and so much to come this week. We'll start
with the big one from last week, right the GDP figure,
the September quarter GDP figure. We had the economy growing
at two point one percent annually, zero point four percent
for the quarter. It was a little below some expectations,
(00:49):
but overall, what do we make of it? It was a
pretty good story overall, right.
Speaker 2 (00:53):
And I think it's more the composition of what we
saw than the actual numbers. Not only the annual figure
was only about one tenth below expectations because the previous
quarter was revised up. Without getting to the entrails of that,
we look at the components. We've had sort of what
we've been wanting to see for several years. Business investment
growing solidly, strongly, dwelling investment, so new housing construction continuing
(01:21):
to increase, household consumption growing at an okay pace, so
we consume as are spending a little bit more, a
bit of a slowing in government demand, so that that
debate that we've got about all the governments spending too
much money and crowding out the private sector is fading.
I won't say it's over yet, but it's just you know, this,
this is the quarter where you're seeing these turning points
in these really important key drives of the economy coming through,
(01:46):
and it's just a nice story you have on the economy,
rather than you know, being concerned about the lack of investment,
the poor productivity. It was a it was a decent result.
It was a sort of seven and a half out
of ten when the last year we've been seeing fours
and fives out of ten for most of the economic data.
Speaker 1 (02:04):
So by comparison, you were nearly doing a jig off
the back of that lie.
Speaker 2 (02:08):
Oh well, I sort of did, because it's been such
a long time since I've done a gig on economic data.
But you know when you see when you see CAPEX
business investment rising, in your dwelling investment starting to pick up,
you think that, hey, this could be the trend. And again,
I know we've sort of always put caveats against one
month of data one quarter of data in this instance,
(02:29):
but it's a little bit more than that because the
previous revisions that I mentioned suggests that there's just more
than just a little bit of a sliver of light
coming through in terms of that optimism that's coming through. So, yeah,
good news on the economy. Hooray.
Speaker 1 (02:42):
All right, What about then household spending because we also
had that last week when we saw household spending I
think it was up one point three percent in October
five point six percent for the year. I want to
talk to you here about the wealth effect because this
does come up a fair bit and this idea of
perceived wealth being the thing that helps kind of fuel spending.
(03:03):
When you're feeling wealthy, you're going to go out and
spend more even if you don't actually have that money
in your bank account. Is that exactly kind of how
it works? Is that what we're seeing playing out here?
Because do we actually have more money to spend or
do we just feel like it.
Speaker 2 (03:17):
Can I make a strong recommendation to listeners to go
to the RBA web website and in the search engine
put wealth effect. YEP. They did a detailed paper about
five years ago from memory, and in the statement on
Monetary policy that came out just last month, there was
another page and a half. I think it was discussing
this wealth effect, as you point out, and you're quite right,
(03:39):
just because you've got value in your house and this
is a sort of contentious issue, just because your house
is sort of double in value in the last ten years,
or your superannuation account's sort of gone nicely because the
ASX is lifted and the other investments global investments from
our friendly FUNDA managers have gone up, that even you
don't have access to that cash, that wealth effect is
(04:00):
actually quite powerful. And part of the transmission from feeling
wealthier into actual spending is that most people on average
save a little bit of their money, they say, for
a rainy day they're worried about their future prosperity. But
if over the usual time lags, all of a sudden,
I've got an extra little bit of money in my
(04:20):
house that I didn't think I had or gine. My
superinnuation account's gone up nicely in the last year. I
won't save quite as much and I will spend a
little bit more. And from the RBA analysis, the areas
where that spending occurs mostly it is things like motor
vehicles seal. So when we're feeling wealthy, we'll buy a
new car, we'll buy new furniture and fittings for our house.
(04:41):
So they're the sort of things that we spend more
money on when we're feeling a little bit wealthier. And
if we look at those household spending numbers, that's sort
of where some of that discretionary spending was showing up.
Speaker 1 (04:52):
Okay, I want to get to what's happening this week
because we have the RBA meeting today and tomorrow. But
there is something else that can came up last week
that is going to feed into the discussions in the RBA,
I would suspect, and that is the surgeon bond yields
that we saw last week. What's behind that, what does
it tell us and what does it mean for the
(05:13):
RBA discussions.
Speaker 2 (05:15):
We saw yields moving higher in Japan. In fact, Japan,
which has had decades, not just years, but decades where
Japanese government bond yields have been hovering zero percent or
one percent. They've moved to record highst So the ten
and thirty year bonds in Japan are at three and
a half heading towards four percent. Incredible increase. And that's
(05:36):
on the back of higher inflation in Japan. And because
Japan and Japanese are massive savers in the global economy,
they are heavily investors in the international economy. If they're
all of a sudden getting a higher yield at home,
risk free or low risk, they'll keep their money at home,
and that has big implications for currency markets. We saw
(05:56):
the US dollar sort of gyrating a bit towards the
end of last week, ending to be a little bit lower,
and the bond market reaction was seen here too in
Australia where our ten year years got to four point
sixty five four point seven percent, even though the US
numbers are weaker. It was all domestic and Asia specific
issues that were driving yields higher.
Speaker 1 (06:18):
So to the RBA then, and what the long term,
longer term outlook is than for interest rates they are
meeting today and tomorrow. Presumably rates are going to be
on hold, but are we into a long period of
holding or signs pointing towards a hike sooner rather than later.
Speaker 2 (06:40):
Market pricing a month and a half ago had one
and a half to two rate cuts priced into middle
of twenty twenty six. We now have one to one
on a bit rate hikes priced in. And that's not
to say the market is wrong necessarily, but the market
reacts to news and the news over the last month. Yeah,
we had the inflation number or was that two weeks ago?
(07:01):
Now as we just discussed better household spending numbers, good
compositional shift in the GDP numbers, the global issues with
Japan coming through, and so the RBA will be fully
fully aware of these trends, and so yes, rates are
on hold. But what Michelle Bullock will say, and p
certainly particularly be quizzed about at her press conference on
(07:21):
Tuesday afternoon, will be well, if we do have this
better economic news, do you think that you're going to
be hiking rates? I think still too early for that.
I said, one quarter of data lovely to see, but
it's not the definitive thing that forces them to say, Look,
we may be flagging the possibility of rates going up.
I think she'll go back to that language that she
used earlier. I'm not ruling anything in or anything out.
(07:43):
So rates could go up, they could go down, and
we need to see more information. And as we discussed
last week, Michael, that CPI that inflation result has some
quirks in it. So it's not absolutely sure that we've
got a trend acceleration and inflation. If that proves to
be the case when we get in the new year, YEP,
rate hikes they're on the table. If it proves to
be there as a transitory, then we could be in
(08:06):
for this period where rates are on hold for a
long long time.
Speaker 1 (08:11):
What about jobs then, because we get the labor force
numbers out this Thursday, a strong number could perhaps bring
forward the rate hike.
Speaker 2 (08:21):
Oh that's a really good question. And it's a really
interesting side effect that if we do see that job's
number being strong the unemployment rate going back down, then
of course, yes, you do get that real possibility that
will do if inflation's a little elevated, the labor market's
a little bit tighter than we think, the rate hike
discussion will certainly be elevated. So market's looking for about
(08:43):
a twenty five thousand increase in employment, unemployment to be
steady at four point three percent. Any deviation from that
will have really important implications for market thinking.
Speaker 1 (08:52):
One last thing to mention, and it's going to be
a big one this week the Federal Reserve meeting in
the US. It seems to be, according to all the commentary,
increasingly likely that they will cut rates. Is that what
you're seeing? And I suppose in an economy as big
as the US, how does that play out? How does
a rate cut play out on that scale?
Speaker 2 (09:14):
Look, this is the rate cuts priced in almost completely. Yes,
and everybody's saying that they will they will hike interstraits
and the like. But that's really important. But the discussion
in the US is what is happening to inflation a
little bit like what we're seeing in Australia. Will a
rate cut in the US actually fuel concerns about, well,
(09:34):
the Fed's got something wrong. We've got Donald Trump sort
of saying that he's got a new chairperson of the
FED ready to anoint when Jerome Power finishes up next year,
and of course it's going to be probably someone very
friendly to him. So we get this sort of debate
starting to unfold. What if the FED takes the wrong
decision over ease as monetary policy, causing inflation to be
(09:57):
higher in the US, and that's going to cause a
lot of market skinnishness. We're not quite there yet. I
think this rate cuts justified the labor market numbers a week.
But boy, oh boy, if we get into the new
year and one of mister Trump's friends is chairperson of
the Federal Reserve and they cut rates inappropriately, that's when
you get really violent gyrations in markets. That's what the
market's looking for, all right.
Speaker 1 (10:18):
It is a massive week ahead. Enjoy it, Steven, Thank
you very much for your time this morning.
Speaker 2 (10:22):
Bigger than Ben hur Thanks Michael.
Speaker 1 (10:24):
That was a kind of a Stephen Cook Coolest, better
known as the Kook. You can find him at the
kook dot com and follow him on ex using the
handle of the Kook. I'm Michael Thompson and this is
Fear and Greed Q and a
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Michael Thompson and every Monday morning we are joined
by economist Stephen Coucoulis to look at the week ahead.
You'll find him at the Kook dot com, which is
th ko uk dot com and on X using the
handles the Kirk. Stephen, good morning, very good morning. This
(00:26):
is almost one of those days where you don't know
where to start. There has been so much happening last
week and so much to come this week. We'll start
with the big one from last week, right the GDP figure,
the September quarter GDP figure. We had the economy growing
at two point one percent annually, zero point four percent
for the quarter. It was a little below some expectations,
(00:49):
but overall, what do we make of it? It was a
pretty good story overall, right.
Speaker 2 (00:53):
And I think it's more the composition of what we
saw than the actual numbers. Not only the annual figure
was only about one tenth below expectations because the previous
quarter was revised up. Without getting to the entrails of that,
we look at the components. We've had sort of what
we've been wanting to see for several years. Business investment
growing solidly, strongly, dwelling investment, so new housing construction continuing
(01:21):
to increase, household consumption growing at an okay pace, so
we consume as are spending a little bit more, a
bit of a slowing in government demand, so that that
debate that we've got about all the governments spending too
much money and crowding out the private sector is fading.
I won't say it's over yet, but it's just you know, this,
this is the quarter where you're seeing these turning points
in these really important key drives of the economy coming through,
(01:46):
and it's just a nice story you have on the economy,
rather than you know, being concerned about the lack of investment,
the poor productivity. It was a it was a decent result.
It was a sort of seven and a half out
of ten when the last year we've been seeing fours
and fives out of ten for most of the economic data.
Speaker 1 (02:04):
So by comparison, you were nearly doing a jig off
the back of that lie.
Speaker 2 (02:08):
Oh well, I sort of did, because it's been such
a long time since I've done a gig on economic data.
But you know when you see when you see CAPEX
business investment rising, in your dwelling investment starting to pick up,
you think that, hey, this could be the trend. And again,
I know we've sort of always put caveats against one
month of data one quarter of data in this instance,
(02:29):
but it's a little bit more than that because the
previous revisions that I mentioned suggests that there's just more
than just a little bit of a sliver of light
coming through in terms of that optimism that's coming through. So, yeah,
good news on the economy. Hooray.
Speaker 1 (02:42):
All right, What about then household spending because we also
had that last week when we saw household spending I
think it was up one point three percent in October
five point six percent for the year. I want to
talk to you here about the wealth effect because this
does come up a fair bit and this idea of
perceived wealth being the thing that helps kind of fuel spending.
(03:03):
When you're feeling wealthy, you're going to go out and
spend more even if you don't actually have that money
in your bank account. Is that exactly kind of how
it works? Is that what we're seeing playing out here?
Because do we actually have more money to spend or
do we just feel like it.
Speaker 2 (03:17):
Can I make a strong recommendation to listeners to go
to the RBA web website and in the search engine
put wealth effect. YEP. They did a detailed paper about
five years ago from memory, and in the statement on
Monetary policy that came out just last month, there was
another page and a half. I think it was discussing
this wealth effect, as you point out, and you're quite right,
(03:39):
just because you've got value in your house and this
is a sort of contentious issue, just because your house
is sort of double in value in the last ten years,
or your superannuation account's sort of gone nicely because the
ASX is lifted and the other investments global investments from
our friendly FUNDA managers have gone up, that even you
don't have access to that cash, that wealth effect is
(04:00):
actually quite powerful. And part of the transmission from feeling
wealthier into actual spending is that most people on average
save a little bit of their money, they say, for
a rainy day they're worried about their future prosperity. But
if over the usual time lags, all of a sudden,
I've got an extra little bit of money in my
(04:20):
house that I didn't think I had or gine. My
superinnuation account's gone up nicely in the last year. I
won't save quite as much and I will spend a
little bit more. And from the RBA analysis, the areas
where that spending occurs mostly it is things like motor
vehicles seal. So when we're feeling wealthy, we'll buy a
new car, we'll buy new furniture and fittings for our house.
(04:41):
So they're the sort of things that we spend more
money on when we're feeling a little bit wealthier. And
if we look at those household spending numbers, that's sort
of where some of that discretionary spending was showing up.
Speaker 1 (04:52):
Okay, I want to get to what's happening this week
because we have the RBA meeting today and tomorrow. But
there is something else that can came up last week
that is going to feed into the discussions in the RBA,
I would suspect, and that is the surgeon bond yields
that we saw last week. What's behind that, what does
it tell us and what does it mean for the
(05:13):
RBA discussions.
Speaker 2 (05:15):
We saw yields moving higher in Japan. In fact, Japan,
which has had decades, not just years, but decades where
Japanese government bond yields have been hovering zero percent or
one percent. They've moved to record highst So the ten
and thirty year bonds in Japan are at three and
a half heading towards four percent. Incredible increase. And that's
(05:36):
on the back of higher inflation in Japan. And because
Japan and Japanese are massive savers in the global economy,
they are heavily investors in the international economy. If they're
all of a sudden getting a higher yield at home,
risk free or low risk, they'll keep their money at home,
and that has big implications for currency markets. We saw
(05:56):
the US dollar sort of gyrating a bit towards the
end of last week, ending to be a little bit lower,
and the bond market reaction was seen here too in
Australia where our ten year years got to four point
sixty five four point seven percent, even though the US
numbers are weaker. It was all domestic and Asia specific
issues that were driving yields higher.
Speaker 1 (06:18):
So to the RBA then, and what the long term,
longer term outlook is than for interest rates they are
meeting today and tomorrow. Presumably rates are going to be
on hold, but are we into a long period of
holding or signs pointing towards a hike sooner rather than later.
Speaker 2 (06:40):
Market pricing a month and a half ago had one
and a half to two rate cuts priced into middle
of twenty twenty six. We now have one to one
on a bit rate hikes priced in. And that's not
to say the market is wrong necessarily, but the market
reacts to news and the news over the last month. Yeah,
we had the inflation number or was that two weeks ago?
(07:01):
Now as we just discussed better household spending numbers, good
compositional shift in the GDP numbers, the global issues with
Japan coming through, and so the RBA will be fully
fully aware of these trends, and so yes, rates are
on hold. But what Michelle Bullock will say, and p
certainly particularly be quizzed about at her press conference on
(07:21):
Tuesday afternoon, will be well, if we do have this
better economic news, do you think that you're going to
be hiking rates? I think still too early for that.
I said, one quarter of data lovely to see, but
it's not the definitive thing that forces them to say, Look,
we may be flagging the possibility of rates going up.
I think she'll go back to that language that she
used earlier. I'm not ruling anything in or anything out.
(07:43):
So rates could go up, they could go down, and
we need to see more information. And as we discussed
last week, Michael, that CPI that inflation result has some
quirks in it. So it's not absolutely sure that we've
got a trend acceleration and inflation. If that proves to
be the case when we get in the new year, YEP,
rate hikes they're on the table. If it proves to
be there as a transitory, then we could be in
(08:06):
for this period where rates are on hold for a
long long time.
Speaker 1 (08:11):
What about jobs then, because we get the labor force
numbers out this Thursday, a strong number could perhaps bring
forward the rate hike.
Speaker 2 (08:21):
Oh that's a really good question. And it's a really
interesting side effect that if we do see that job's
number being strong the unemployment rate going back down, then
of course, yes, you do get that real possibility that
will do if inflation's a little elevated, the labor market's
a little bit tighter than we think, the rate hike
discussion will certainly be elevated. So market's looking for about
(08:43):
a twenty five thousand increase in employment, unemployment to be
steady at four point three percent. Any deviation from that
will have really important implications for market thinking.
Speaker 1 (08:52):
One last thing to mention, and it's going to be
a big one this week the Federal Reserve meeting in
the US. It seems to be, according to all the commentary,
increasingly likely that they will cut rates. Is that what
you're seeing? And I suppose in an economy as big
as the US, how does that play out? How does
a rate cut play out on that scale?
Speaker 2 (09:14):
Look, this is the rate cuts priced in almost completely. Yes,
and everybody's saying that they will they will hike interstraits
and the like. But that's really important. But the discussion
in the US is what is happening to inflation a
little bit like what we're seeing in Australia. Will a
rate cut in the US actually fuel concerns about, well,
(09:34):
the Fed's got something wrong. We've got Donald Trump sort
of saying that he's got a new chairperson of the
FED ready to anoint when Jerome Power finishes up next year,
and of course it's going to be probably someone very
friendly to him. So we get this sort of debate
starting to unfold. What if the FED takes the wrong
decision over ease as monetary policy, causing inflation to be
(09:57):
higher in the US, and that's going to cause a
lot of market skinnishness. We're not quite there yet. I
think this rate cuts justified the labor market numbers a week.
But boy, oh boy, if we get into the new
year and one of mister Trump's friends is chairperson of
the Federal Reserve and they cut rates inappropriately, that's when
you get really violent gyrations in markets. That's what the
market's looking for, all right.
Speaker 1 (10:18):
It is a massive week ahead. Enjoy it, Steven, Thank
you very much for your time this morning.
Speaker 2 (10:22):
Bigger than Ben hur Thanks Michael.
Speaker 1 (10:24):
That was a kind of a Stephen Cook Coolest, better
known as the Kook. You can find him at the
kook dot com and follow him on ex using the
handle of the Kook. I'm Michael Thompson and this is
Fear and Greed Q and a
Popular Podcasts
Las Culturistas with Matt Rogers and Bowen Yang
Ding dong! Join your culture consultants, Matt Rogers and Bowen Yang, on an unforgettable journey into the beating heart of CULTURE. Alongside sizzling special guests, they GET INTO the hottest pop-culture moments of the day and the formative cultural experiences that turned them into Culturistas. Produced by the Big Money Players Network and iHeartRadio.
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.