29 May 2014
Aus Capex: Underlying decline should continue - Westpac
FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, expects the underlying decline in Australian mining investment from very high levels should continue in the Q1 capex survey today.
Key Quotes
"Consensus on Q1 actual spending is -1.5% q/q, with Westpac a bit more upbeat, on -0.5%. The breakdown is important though. We expect plant & equipment investment to tick down -0.5% after the steep -5.2% in Q4, while investment in building & structures is seen edging down a similar amount (we revised this up after the construction data yesterday). The plant & equipment component is a neater fit with its equivalent in GDP (due 4 Jun) than buildings & structures. AUD will react initially to the divergence from -1.5%."
"Also very important – including to the RBA – but often confusing is the survey of investment intentions, conducted in Apr and May (so some danger of Budget-related impact). We look for the 6th estimate of 2013/14 capex to come in around $162bn, on track for -2% y/y. More focus will be on the second estimate of 2014/15 investment. The first estimate was unexpectedly positive on services but obviously the early estimates are very prone to revision."
"We see three scenarios. The first is a $131bn headline, which would be about consistent with the previous survey, implying -11% y/y total, with mining and manufacturing investment down heavily but services up. The second outcome is the downside surprise, $124bn, implying -16%. The third is the upside surprise, $138bn, just -6% y/y."
Key Quotes
"Consensus on Q1 actual spending is -1.5% q/q, with Westpac a bit more upbeat, on -0.5%. The breakdown is important though. We expect plant & equipment investment to tick down -0.5% after the steep -5.2% in Q4, while investment in building & structures is seen edging down a similar amount (we revised this up after the construction data yesterday). The plant & equipment component is a neater fit with its equivalent in GDP (due 4 Jun) than buildings & structures. AUD will react initially to the divergence from -1.5%."
"Also very important – including to the RBA – but often confusing is the survey of investment intentions, conducted in Apr and May (so some danger of Budget-related impact). We look for the 6th estimate of 2013/14 capex to come in around $162bn, on track for -2% y/y. More focus will be on the second estimate of 2014/15 investment. The first estimate was unexpectedly positive on services but obviously the early estimates are very prone to revision."
"We see three scenarios. The first is a $131bn headline, which would be about consistent with the previous survey, implying -11% y/y total, with mining and manufacturing investment down heavily but services up. The second outcome is the downside surprise, $124bn, implying -16%. The third is the upside surprise, $138bn, just -6% y/y."