Data released by the Australian Bureau of Statistics late last week showed that business capital expenditure during the March quarter had fallen by 4.4 percent, which was well below consensus estimates.
What was perhaps even more concerning were the estimated investment intentions for the next financial year, which were described as being at "recessionary" levels by The ABC. These estimates showed expected expenditure of just over $104 billion for 2015/16 which is a whopping 24.6% lower than the equivalent estimate for this financial year's capital expenditure.
The drop-off in mining and non-mining investment is a key area of concern for the RBA and could require further easing in monetary policy to stimulate the economy. This is also necessary to achieve various other economic targets, including a lower unemployment rate and sustained consumer confidence levels, together with a weaker Australian dollar.
As highlighted by the Fairfax press, not 1 of the 28 economists surveyed by Bloomberg is expecting the RBA to drop the official cash rate any further tomorrow. Indeed, the central bank has been under immense pressure to not lower rates any further after having done so in February and May, largely due to the fear of adding fuel to Australia's booming property market (particularly in Sydney and Melbourne).
However, Fairfax also showed that financial markets were pricing in a 92% chance of further interest rate cuts by early next year, up from what was seen as a 60% chance prior to the release of the capex data. Other pundits are even going so far as to say the cash rate could dip to 1.5 percent by the end of this year, which could certainly occur if the economic conditions show no further signs of improvement.
Investors wanting to profit from further interest rate cuts would be wise to expose themselves to some of Australia's more appealing dividend stocks, including companies such as Woolworths Limited (ASX: WOW), QBE Insurance Group Ltd (ASX: QBE) and even the much smaller Collection House Limited (ASX: CLH).
While a cut in interest rates is unlikely to occur tomorrow, you can be sure that the market will be firmly focused on the language used by the Board to gauge whether there is further scope to adjust policy, which could well be enough to appease investors, for now…
