Lots of data updates today: August services trade and Q2 current account in China; export and labour market updates in Japan; for Korea, the September business confidence survey from the BOK; and finally in Taiwan, leading indicators for August and consumer confidence for September.
Despite a real surge in profits in tech hardware, overall industrial earnings in China continue to go sideways. Services PPI inflation in Japan points to real upside pressure for headline CPI in Japan in the next 6M. In CPB data, the recent strength in global trade volumes held up in July.
The main cycle news in China is the rebound in input prices that likely further postpones monetary loosening. In Japan, the market will be waiting for this week's summary opinions of the September meeting. Korea has the strongest cycle momentum. In Taiwan, monetary policy looks too loose.
Japan being back from holiday allowed the delayed released of the BOJ's underlying inflation data for August. Holidays elsewhere mean no other data, so I've spent some time looking at the claims from Taiwan's central bank that its monetary policy stance is "on the tight side".
The CBC last week claimed that even with the policy rate staying at 2%, its monetary stance "remains on the tight side". I am not persuaded, but it is worth studying the bank's argument.
The further rise in upstream prices in China is likely to keep new monetary easing off the agenda. Japan's flash September PMIs softened, but manufacturing sentiment is still strong compared with recent years. M2 growth in Taiwan slowed, but private sector credit growth remains strong.
Highlights of a longer note on fiscal conditions in Korea and Taiwan. Consumer confidence in Korea in September remained elevated. Taiwan's IP growth slowed in August, but that follows the surge seen in the previous 6M. Retail sales growth is stable at around 5% YoY.
In many advanced economies, governments are drowning in debt. But in Korea and Taiwan they are floating up on the flood in revenue generated by the semiconductor boom. There is so much money that both economies plan looser fiscal policy while also paying back debt.
Some highlights of August country-level data for China's trade in autos, rare earths, semiconductors, batteries, industrial robots and solar. Also, data from Taiwan showing another rise in export orders, and the unemployment rate remaining pinned at 25-year lows.
An update on China's capital goods imports. They are dominated by the AI-tech trade, but underlying capital goods imports haven't fallen in the way that the weakness of FAI data would suggest. That AI tech trade isn't over yet, with Korea's 20 day exports for September rising strongly again.
The cycle isn't bad enough from Beijing's point of view to shift policy. With growth strengthening, it is reasonable to expect 25bp hikes/quarter in Japan. The BOK's dot plot looks light against nominal growth of near 30%. The CBC on hold is light when real rates across the curve are negative.
Highlights of the BOJ meeting, and charts of the CPI release. China export data for August show some weakness in EV shipments, but that is likely noise after a very strong July. PPI inflation in Korea ticked up in August, and with the rise in oil prices, is likely to be higher again in September.
Japan's Q2 flow of funds data give an update on several underlying aspects of the economy. Some charts on Korea's 2027 budget. And also, a couple of pieces on Taiwan, covering the CBC's on-hold decision today, and why I thought rates would (should) be higher.
Consensus was right, and the CBC didn't change rates today. The vote wasn't unanimous, with two members voting for a hike. However, some of the property measures were loosened. To me, this suggests that policy is too loose, and thus that the gradual warming up of inflation will continue.
Q2 flow of funds: 1) firms remain net savers; 2) the fiscal deficit is under 2% of GDP, and government assets continue to rise; 3) GPIF, foreigners and households are absorbing JGB supply as the BOJ steps back; 4) household equity holdings are up sharply, but mainly because of valuations.
I expect the CBC to hike. That was also my view 3M ago, and then I was wrong, and the strong consensus is that I'll be wrong now too. Underlying my view is that the CBC can't be confident inflation has peaked. Instead, with real rates negative and the TWD weak, price pressures are likely to persist.
Machine orders and trade data for Japan confirm an upturn in the manufacturing sector. China's fx settlement data yesterday show August was another month of decent capital inflows. The renewed upturn in property prices in Taiwan is continuing.
Japan is now seeing the first real upswing in both manufacturing and non-manufacturing since 2017-18. Rising CPI and the JPY aren't the only factors pushing the BOJ towards hikes.
Lot of data released in China, none of which show any change in the story. Japan's service growth remains strong, but manufacturing output is now also rising too. August terms of trade data in Korea indicate yet faster nominal GDP growth in Q3. Outbound FDI in Taiwan remains strong.
Domestic demand remains soft, with no break in the property market collapse. But helped by exports, IP is growing near 6% saar, which keeps the GDP growth target for this year in reach. So I doubt much changes in terms of policy, but the emerging weakness in services is something to be monitoring.
A longer note today catching up on last week's interesting Q2 GDP release in Korea. Also, charts covering today's release of August monetary data in China, and July wages in Taiwan.
Last week's GDP data showed nominal growth of over 25% YoY in Q2. Most of that was in the form of corporate profits, but employee compensation still rose 8% YoY. With the government planning growth in fiscal spending of 12% in 2027, there are more signs of the IT sector lifting the broader economy.
I am away the next few days, so this week's summary focuses on what appeared on the site in the last week. I am back on Monday 14th September.
Korean BOP data for August, an update on upstream prices in China, which have been stronger than I had been expecting, and PBC liquidity operations through August. Foreign exchange reserves in Taiwan rebounded in August. I am away next week, so the next update will be Monday 14th September.
Today's BOP data show that after selling more than USD30bn of domestic equities in June, foreigners purchased USD6bn in July. That swing goes a long way to explain the sudden appreciation of the KRW. That should be able to continue, given CA surplus of over 20% of GDP, strong economy, and BOK hikes.
