If “Everything’s Awesome” Why Did Aussie CapEx Just Collapse By The Most In Its 30 Year History

Day after day, the ‘stability’ in the stock “markets” (specifically in AsiaPac) is posited as ‘proof’ that China is ‘fixed’, the worst is over in EMs, The Fed can raise rates, and massive monetary policy manipulation of market signals had no malinvestment consequences. Well all of that utter crap just got obliterated as China’s right-hand-man in the credit-fueled commodity boom bust – Australia – just saw its business capital expenditure collapse 20% YoY – the biggest drop ever, accelerating the crash in business spending to 11 quarters. As Goldman warns, this exposes significant downside risk to any forecast for GDP recovery in 2016.

Recovery? Spin this into recovery!!

As Goldman Sachs details,

For consecutive quarters, Australia’s private capex report was weaker than expected across the board –highlighting the risk of an outright contraction in domestic demand in 3Q2015 and a disappointing recovery in growth through 2016. In particular, we note a -9.2%qoq decline in capex in the quarter (BBG consensus: -2.9%qoq), and further sequential deterioration in the FY16 investment intentions component of the report. As it stands, the data speak to an ~-20% contraction in capex in FY16 which – even assuming better capex trends outside of this survey – appears completely at odds with the ~-7% decline in investment forecast by the broader consensus (Consensus Economics). Today’s data highlight that domestic demand likely contracted outright in 3Q2015 and the downside risk to the RBA’s forecast recovery in GDP to a +3.0%yoy pace by end-2016. If growth continues to fall short of expectations as we fear, the prospect of RBA rate cuts remains a very real one.

Private capital expenditure, Septquarter: -9.2% qoq, -20.0% yoy (Bloomberg consensus: -2.9% qoq, GS: -4.0% qoq);

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