Daily Commentary BY THE CURVE TEAM –

Capex Update

27th of November, 2020

Capital expenditures, a barometer for business activity, was unsurprising for Q3.

Q3 Capex was down 3% following a recession in Q2. Given there was much uncertainty about economic activity at the beginning of the year that trickled over to Q3, it is no surprise businesses have been more reluctant to invest.

A positive from the data is estimate 4 for investment for the 2020/21 financial year was 6.3% higher than estimate 3. This follows the usual trend of estimates increasing as the end of financial year approaches.

Estimate 2 saw a dip in capex expectations for 2020/21, which is a rare occurrence. The recent estimate puts capex expectations back above estimate 1, and there is optimism that the improved economic conditions in Q4 should further improve expectations for estimate 5.

Expectations are still down on the equivalent period last year. This reflects the enduring effects of the Covid-19 economic hit, so even as things improve, we are recovering from a lower base in many economic indicators.

Overseas, there were updates from the European Central Bank (ECB) and Federal Open Market Committee (FOMC). Both central banks gave suggestions they may turn more dovish.

The ECB cited concerns about the dire inflation outlook, which could lead to further policy actions. The Fed mentioned their need to have more forward guidance on their policy, which would involve an explicit commitment to certain policy actions.

Both the updates come as the US and Europe struggle to contain Covid-19, which is having implications for the economy. This is in contrast to Australia, where we have contained the virus.

Josh Stewart

Associate- Money Markets