29 May 2014
Australia: Capex shows there is hope on investment recovery - RBS
FXStreet (Bali) - The Australian capital expenditure report shows some hope for non-mining investment recovery next year, notes Greg Gibbs, FX Strategist at RBS.
Key Quotes
"Australia's Q1 capex fell 4.2%q/q, weaker than the -1.5% expected. This followed a 4.5%q/q fall in Q4 2013 (revised up from -5.2%). From a year ago, capex is down 5.0%y/y, providing further evidence that Australia is clearly in the down-part of an investment cycle in the mining sector. Mining sector investment fell 8.7%q/q while that in the manufacturing sector rose 1.7%q/q and appears to be scrapping the bottom at low levels but no longer detracting from growth. Investment in Other Selected Industries rose 2.1%q/q – it has been chopping around a relatively flat trend at low levels over recent years."
"A key question for the market is: Will non-mining sectors see capex pick up from the current low levels as the mining investment cycle turns down? In this respect, the survey estimates in the Australian Bureau of Statistics' capex report were more encouraging. The surveyed investment intentions have a seasonal pattern where they tend to rise early in the fiscal year as companies firm up intentions and capex gets underway. The data today includes the sixth out of seven surveys for the current fiscal year (2013/14) and the second of seven for the next fiscal year (2014/15). Of most relevance to the market at this stage is the survey for the next fiscal year, even though the survey is generally regarded as rubbery in the first several updates."
"Overall this survey was down 12.0% from a year earlier (the second of seventh surveys taken a year ago for the current fiscal year). Investment in mining was down 21.2%y/y and in manufacturing down 17.8%y/y. The good news is that "other selected industries" was up 9.5%y/y. This sector is over 5 times larger than manufacturing, and about half as big as mining. As such, it is the key non-mining sector. The RBA tends to rely on direct liaison rather than this survey when estimating the outlook for the mining sector, but pays more attention to this survey when considering the outlook for other industries. As such, this report would help to stabilise the medium-term outlook for the Australian economy. We would regard the report as marginally supportive for rates further out the curve. In the wake of the data, the AUD is firmer and 3yr yields are largely unchanged."
Key Quotes
"Australia's Q1 capex fell 4.2%q/q, weaker than the -1.5% expected. This followed a 4.5%q/q fall in Q4 2013 (revised up from -5.2%). From a year ago, capex is down 5.0%y/y, providing further evidence that Australia is clearly in the down-part of an investment cycle in the mining sector. Mining sector investment fell 8.7%q/q while that in the manufacturing sector rose 1.7%q/q and appears to be scrapping the bottom at low levels but no longer detracting from growth. Investment in Other Selected Industries rose 2.1%q/q – it has been chopping around a relatively flat trend at low levels over recent years."
"A key question for the market is: Will non-mining sectors see capex pick up from the current low levels as the mining investment cycle turns down? In this respect, the survey estimates in the Australian Bureau of Statistics' capex report were more encouraging. The surveyed investment intentions have a seasonal pattern where they tend to rise early in the fiscal year as companies firm up intentions and capex gets underway. The data today includes the sixth out of seven surveys for the current fiscal year (2013/14) and the second of seven for the next fiscal year (2014/15). Of most relevance to the market at this stage is the survey for the next fiscal year, even though the survey is generally regarded as rubbery in the first several updates."
"Overall this survey was down 12.0% from a year earlier (the second of seventh surveys taken a year ago for the current fiscal year). Investment in mining was down 21.2%y/y and in manufacturing down 17.8%y/y. The good news is that "other selected industries" was up 9.5%y/y. This sector is over 5 times larger than manufacturing, and about half as big as mining. As such, it is the key non-mining sector. The RBA tends to rely on direct liaison rather than this survey when estimating the outlook for the mining sector, but pays more attention to this survey when considering the outlook for other industries. As such, this report would help to stabilise the medium-term outlook for the Australian economy. We would regard the report as marginally supportive for rates further out the curve. In the wake of the data, the AUD is firmer and 3yr yields are largely unchanged."