Upstream prices in China fell at the end of June, showing the feed through from the decline in the global oil price. Data on Friday showed a modest positive output gap in Japan. FX reserves in Taiwan dropped moderately in June.
China's cycle looks more mixed rather than bad. In Japan, there are clear signs of an acceleration in both activity and inflation. For Korea and Taiwan, the theme is a broadening of activity as the semiconductor export boom feeds into domestic economies.
Some summary charts of a (much) longer chart pack summarising regional themes. In terms of the data flow, the S&P services PMI for Japan ticked up in June, but the consumer confidence survey earlier in the week was still soft. The S&P services PMI for China was once again puzzlingly strong.
A slide pack laying out themes for the region overall, and for each individual economy.
The strength of corporate sentiment and prices in the BOJ Tankan is significant for the policy outlook. The rise in inflation in Korea slowed in June, but cost-push and demand-pull point to core inflation remaining firm. After withdrawing liquidity in recent months, the PBC changed course in June.
The detailed release of the Tankan confirms the message of yesterday's summary: price pressures are rising again, and momentum in the corporate sector is strong. There is some sluggishness in autos, but as in export data, that is being offset by AI demand for electronics.
The sharp rise in inflation since March slowed in June, and the BOK expects a drop in July. But cost-push from the surge in semi prices is feeding into CPI, and the BOK also expects "expanding demand pressures" from the economic recovery to drive inflation from here.
China's RatingDog mfg PMI continues to be much stronger than the official version. Korea's PMI fell, even though June exports rose again. In the Japan Tankan, sentiment was stronger and prices up across the broad. In Taiwan, the highlight was the strength of today's non-mfg PMI.
The detailed version of the Tankan won't be released until tomorrow. But the headlines today show a clear story: business sentiment remains strong, and inflation pressures have risen yet again. The BOJ needs to become more hawkish.
China's PMIs ticked up in June, but not by enough to dispel recent concerns about the cycle. In Japan, this year's pick-up in IP was sustained in May. The message from Korea's month-end data is a bit mixed, but there are some signs of the cycle broadening.
There are signs of a broadening of the cycle, with construction past the worst, capex rising, and the labour market bottoming. However, while services activity has been strong recently, retail sales are still sluggish, and industrial production is going sideways.
Today's official PMIs ticked up, but not by enough to clear market concern about the strength of the cycle caused by the weak IP, retail sales and FAI data of the last couple of months.
China industrial profits in May rose 20% YoY, boosted by upstream industries. Even so, overall profits have to still to break through the top of the post-2022 range. In Japan, retail sales were strong in May. Consumer confidence in Taiwan improved in June as price expectations fell.
Two of the big questions for markets in the region are 1) the implications for monetary policy as oil prices fall, and 2) what is happening with China's cycle, and what does that – and the strengthening of the USD – mean for the USD.
A chart pack to summarise the longer note of earlier this week on the semi supercycle in Asia. Also, some more details on China's import growth in May, Tokyo CPI and 10-day export growth in Japan, the rise in Korean equity investment in the US and another strong monitoring index in Taiwan.
Earlier this week, I published a longer note delving into the macro and market implications of the semiconductor boom. You prefer pictures to text, so this is the accompanying chart pack.
Taken at face value, China's latest trade volume data show that the rise in import demand of Q1 has already fully reversed. Flow of funds data in Japan indicate government debt outstanding at around 200% of GDP, but corporates remaining savers. The BSI survey in Korea was underwhelming.
Business sentiment is middling, and the gap between large and small firms looks K-shaped. However, consumer confidence is quite strong, and the BOK has argued that sector disparities aren't an issue for monetary policy. Falling oil prices do lessen inflation risk, but also boost GDP growth.
Upstream prices were stable through the second 10 days of June in China, with falling oil prices offset by rising coal prices. Japan goods and services PPI inflation rose over 5% in May, indicating more pipeline pressures for CPI. IP growth remained at over 20% annualised in Taiwan last month.
Highlights of a longer note setting out a framework for thinking about the macro and market consequences of the semi boom. In terms of the data flow, Japan's flash PMI today was strong, Korean data showed strong profits and firm consumer confidence, and in Taiwan export orders rose and UE fell again
A longer note putting the chip supercycle in the context of commodity price surges, dismissing concerns about the narrowness of growth, and exploring the different macro dynamics in Korea versus Taiwan. One is a commodity boom, the other is indeed BS, but both suggest real exchange rate appreciation
Assessed using import data, and China's cycle doesn't look nearly as weak as the picture painted by the bleak domestic FAI numbers. Korean exports in the first 20 days of June were strong again, pushing the trade surplus to another record high.
China's cycle is weak, but I'm not yet convinced it is getting worse. Japan's cycle will now be improving, but the BOJ needs to show that it can keep up. The BOK's hawkish turn can go further still if the KRW remains so weak. I think inflation risks in Taiwan are broader than judged by the CBC.
A new video laying out my argument for stabilisation in China. In terms of the data flow, Japan's inflation was modest in May, but that was because of subsidies, and further JPY depreciation will push up prices again. Korean PPI inflation accelerated, with the jump most obvious in services.
My latest video, making the case for a bottoming of China's economy. In light of this week's poor official data, the argument might look off-base, which means it should at least be interesting. I do think the logic holds up, but as discussed here, there are reasons I could be wrong.