Daily Commentary BY THE CURVE TEAM –

Capital Expenditure Falls

29th of November, 2019

Private Capital Expenditure data out yesterday from the ABS was lower than expected and poses a downside risk for GDP.

With market expectation that CAPEX would provide a flat or zero growth reading for Q3 after a 0.6% decline in Q2, yesterday’s data missed expectations to the downside printing at -0.2% seasonally adjusted for Q3. Whilst this still represents a 0.4% increase on Q2, the soft reading poses significant downside risks to GDP out next Wednesday.

Looking more deeply into the data release, it appears a significant detraction was centred in equipment purchases which fell 2.4% for the quarter. There was hope prior to the release that there may be growth in that area but that did not eventuate. As the RBA stated recently that for unemployment and inflation rates to return to their desired ranges we would need to see businesses, especially small businesses out there investing. If that is occurring, then equipment investment would likely be strong.

There were two other important developments for the outlook overnight in the geopolitical domain. Firstly, the YouGov election poll in the UK which many believe is often the most accurate, was released and showed a likely majority victory for the Boris Johnson and the Conservatives. Should he win the election and gain a majority in parliament then chances of a swift Brexit would dramatically increase. However, as with all opinion polls there is always an element of doubt, so we would opt to wait for the December 12 ballot.

Secondly, in the US overnight, with markets closed for Thanksgiving Day, President Trump signed a bill in solidarity with Hong Kong. Effectively, the bill gives him power to repeal legislation that gives Hong Kong special trade exemptions should the Chinese remove power from the state. Backlash from the Chinese was notably more subdued that would be expected. The markets response in the US is yet to be seen with markets still closed for the holiday.

Matthew Dunshea

Client Relationship Manager