The usual second-day release of more detailed GDP data for China showed investment particularly weak in Q3. In contrast, fx settlement data in September was firm, showing continued capital inflows. In Taiwan, export orders last month don't indicate that the cycle is yet turning down.
The highlight today was the Q3 GDP release in China. Along with an update of all the usual cycle charts, I've also updated my guide to China's consumption data. In Japan, growth in services activity eased back in August, with a rare contraction in consumer-related services activity like eating out.
From the perspective of a government that wants to meet a 2026 growth target without having to shift policy, the September data are encouraging. But the 2027 outlook for the domestic economy is looking more challenging. That will become more visible if global demand and price trends change.
Highlights of last week's indicators: China's import shortfall, loose financial conditions in Japan, rising export prices in Korea, and more evidence of labour market tightness in Taiwan.
With regional macro dependent on continuation of the US AI build-out, the equity sell-off last week matters. That said, there are still complications: TSMC still sounds very bullish, and while for bad economies, it isn't clear that an end of the AI cycle would be so negative for currencies.
Some highlights of the chart pack I've been working on looking at the China Shock (and China Squeeze). The China Shock isn't over, with data today showing R&D spending reaching a new high of 2.8% of GDP in 2025. In Korea, the TOT rose further in September, and unemployment remained low.
A chart pack focused on China's trade: the China Squeeze isn't so severe; the China Shock is, but is likely to intensify further; as important as both is a shortfall in imports, which is broad-based, and worsening. That reflects weak demand, which Beijing still shows no urgency in addressing.
China's credit data remain weak, and deposit trends point to deflation risk in 2027. BOJ Koeda's speech was hawkish. Korea money supply growth slowed, and with equities falling, FCI has tightened. That market nervousness on AI isn't shared by TSMC management, and the labour market remains tight.
Exports across the region have been extraordinarily strong through September. Along with trade, inflation data for China show external factors remain the strongest dynamic in China's overall cycle. YoY money supply growth in Japan slowed last month.
That external factors continue to be the driving force of China's cycle dynamics was once again evident in the strength of both exports and PPI inflation in September. The combination puts a floor under overall nominal growth, and makes it unlikely that domestic policy becomes more aggressive.
Regional import price inflation has eased, but will likely rebound before year-end. Export price inflation is accelerating, being lifted by chips and other AI-tech. Consumer price expectations and bank lending in Japan remain strong. Taiwan tax revenue is growing by 20% YoY.
Issue covered today: EU-China auto trade, machine tool orders in Japan, trade for the first ten days of October for Korea, and September reserve money data in Taiwan. Also (again) a link to the podcast I did last week with Macro Hive.
China's auto trade balance with Asia and the EU, the manufacturing upturn in Japan, another large current account surplus in Korea, and further acceleration in Taiwan's exports. Also, I was very happy to have the chance to go back on the Macro Hive podcast, with the link included here.
I don't think the China-EU sectoral deal means a China-EU CNY deal is coming. The cycle continues to improve in Japan. Export momentum in Korea and Taiwan remain strong, with more signs of spillover into inflation in Taiwan. Links to all last week's research, as well as my latest podcast appearance.
China's upstream price data confirm the rebound in costs seen in the PMI. Nonetheless, the PBC continued to inject liquidity in September. Details of aggregate household incomes in Japan in Q2 are useful for understanding Japan macro, though the data don't all point in one direction.
Q2 aggregate consumption was weak because incomes were too. Asset incomes are rising, but wages are soft, and in cash terms, the tax burden has been increasing. But while spending in aggregate terms is constrained, the population is falling, so in per capita terms there is actually recovery.
The BOJ's regional report, an important input into the monetary policy process, showed strength in industrial activity and inflation. Korea's August CA surplus rose again, implying higher nominal GDP growth. Far from slowing down, Taiwan's exports in September accelerated again.
The strength of the current account in August shows Q3 will be another blowout for nominal GDP, improving all Korea's macro ratios. That provides cyclical and structural reasons for KRW strength and relative outperformance of longer-term KTBs. The headwind remains equity outflows.
There were a few releases in Japan today that were worth summarising. Taiwan's September CPI data was important, showing inflation remaining firm. Korea's Q2 flow of funds offered another illustration of the broad impact that the chip boom is having on the macroeconomy.
Taiwan's price data still don't suggest the economy is overheating. But pipeline pressure is strong, computer prices are surging, indirect energy prices can't be easily controlled by policy, and underlying inflation still looks firm. That all stands out when real interest rates are still negative.
The overall impression from all today's releases is continued inflation pressure supported by a stronger mfg cycle. The signs of a fall-off in services momentum, however, bear monitoring, perhaps showing signs that tightening might actually be biting. If so, the implication is a flatter curve.
No data releases today, and the work I've been doing on China's global market shares isn't finished. So instead of individual economies, today's daily is a review of regional trade patterns: exports, imports, prices, major products, and balances.
Commodity prices show pipeline inflation pressures across the region remain substantial. In Japan, domestic price pressures are also apparent, with a renewed rise in the positive output gap in Q2 and high consumer inflation expectations. Taiwan's fx reserves fell in September.
I am trying out a free weekly, highlighting four charts that illustrate macro trends across the region. Today's covers input prices in China, broadening CPI inflation in Japan, exports in Korea and the property market in Taiwan.
China's incremental policy is unlikely to move the cycle. Japan's nominal growth is strong enough to make the October BOJ meeting interesting. In Korea, the mainstream MPC view of one hike in the next 6M looks light. The revival in property sentiment in Taiwan is important given negative real rates.
