Preview of the Q2 Private Capital Expenditure due from Australia today at 0130GMT

This has been a market mover in recent years, and should be again today ... with the caveat that the turmoil surrounding China and global markets is a bigger driver.

For the headline (capex intentions in Q2)

  • expected is -2.5%
  • prior was -4.4%

Its no secret that capex has been declining from the heady days of the mining investment boom, and lower expectations are a reflection of this. If the numbers come in below expectations that'll be a bearish sign for the AUD. Another potential source of volatility is how non-mining capex is faring ... if this is not picking up it'll be another bear sign.

This graphic (via Westpac) shows the falling capex clearly:

But ... there are other elements of this data release to watch.

The data today will include Estimate 3 of capex plans for 2015/16

  • This is expected to show a fall (for the third consecutive year) in business capex
  • But ... the uncertainty in the market revolves around how fast the fall will be
  • Today's Estimate 3 follows the previously released Estimate 2 (D'uh ...)
  • Estimate 2 was at a spend of $104 bn (that's Australian dollars, which is currently equivalent to about 3 packs of cigarettes I think)
  • Estimate 3 is expected to be around $111bn

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OK ... here's a bit of added extra, on why the capex data is important.

I've posted similar info before, but it tends to get lost in the mists of time, so here it is again.

Background via NAB & other sources:

  • More than most other rich countries capital expenditure is a huge part of the Australian economy
  • For the past fifty years new capital expenditure has run at around 25-30% of GDP in Australia compared to around 20-25% of GDP in the United States
  • The historically large amount of Capex in Australia reflects the abundant economic opportunities which in turn are the result of a rapidly growing population (the population grew 1.7% in 2013) and a vast geography with under-developed resources
  • The most recent peak for Capex was near 29% of GDP in Q4 2012, as investment in the mining/resource sector peaked
  • Since then, mining investment has slumped and total capital expenditures have been falling in real terms
  • The challenge for the Australian economy is for something to fill the gap left by the downturn in the resource sector Capex
  • Residential construction is helping, as is public sector infrastructure
  • But the RBA have been hopeful of a recovery in Capex by non-mining firms

OK, back to now ...

  • RBA policy makers will be watching for improvement in spending plans by the non-mining sector
  • If these point to a decline in investment, the RBA will be concerned, but they may offset this concern somewhat by signs of improvement in business confidence surveys

As I said in the opening lines of this post, though ... with global volatility driving markets the RVBA will be cognizant of potential impact on business confidence and therefore investment plans.

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ps. In case you missed it (I had to Google what it is the kids are saying .... ICYMI), I posted this yesterday which touched on today's capex data: RBA watcher says if the Fed doesn't hike, it increases RBA preparedness to cut