TD Securities: "Aussie capex defies pessimistic noises of cancellations"

The hard capex spending data in Q1 combined with the investment intentions survey over the next two years smacked-down those claiming the capex boom is over. TD Securities comments:

Strong capex makes RBA decision less clear cut: This report confirms that Australia’s long-running two-speed economy theme remains intact. We were waiting for this report before re-assessing our RBA base case. However, with mining investment expectations for 2012/13 remaining at an outsized $A120b, we are of the view that the RBA can sit tight before potentially reacting to fresh downside risks from offshore.

Had mining capex expectations been scaled back dramatically in this report, it was clear that the RBA would need to aggressively cut the cash rate. However, since the 1 May RBA meeting, mortgage rates are now accommodative, the consumer is growing at trend, and the labour market has been more robust than expected. Where is the urgency to cut except for being priced into the OIS curve?

March qtr capex better than expected: March qtr real capex jumped +6.1%/qtr (prior -0.7%/qtr, mkt +4%) confirming that private business investment will likely add around ¾%pt to Q1 GDP growth.

However, expectations are far more important: A strong 2011/12 is all-but locked in: +31% over 2010/11 (slightly downgrade from the prior survey) where businesses overall expect to spend nearly $A160b, or around 12% of GDP. The manufacturing sector plans to increase by +8% to over $A13b, unchanged; while mining remains the most aggressive sector, reflecting the resource boom, where this year’s plans are all-but unchanged at +72% to $A81b. The second estimate of 2012/13 did not disappoint: Mining capex set to expand another +50% to $A121b (or nearly 10% of GDP) defying pessimistic noises of investment cancellations from Australia’s major miners; Manufacturing capex to fall -12% to nearly $A12b and Services capex now set to decline slightly (was +4%) to $A59bn.