It's gonna rain rate cuts

The overwhelming market message from today’s dire capital expenditure expectations report is more rate cuts. Here’s a chart I’ve drawn up showing the trajectory of capex based upon historic realisation ratios for the 2015/16 numbers. The red line is today:

You can add as well that the housing construction boom will also peak in the next six months (this survey does not capture it).

In short, the economy in 2015-16 will face a private capex headwind around 1.5% of GDP. This matters because it is private capital expenditure that is the primary driver of employment in the economy. Unemployment is going to keep on rising right through next financial year.

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

It’s gonna rain rate cuts