A busy day today – China PMI, Korean output, BOJ meeting and Japan consumer confidence, and more madly strong Taiwan export data.
It isn't news, but the strength of exports in today's GDP release is still eye-catching. It keeps Taiwan on the much higher post-2020 plane of growth. But with consumption weakening, GDP is now almost all about exports. If there's been lots of tariff front-loading, 2H25 will look very different.
The BOJ today was a bit less worried about tariffs, and a bit surer on inflation. That keeps a rate hike as a probability for later this year. But macro remains messy, with considerable disagreement about the contents of the US-Japan "deal", and consumer inflation expectations ticking up in July.
June data continue to suggest retail sales have bottomed. There was also a decent bounce in construction last month. Industrial and services output are creeping up. However, production overall remains in the range of the last 23M. So, while a bit less vulnerable, the cycle hasn't yet lifted.
The weakness was true even for pricing, which is the focus of the most recent policy push: input prices did improve MoM, but not to over 50, and output prices fell further. That Beijing has turned its attention to oversupply should help equities, but I am doubtful that alone produces macro recovery.
In Korea, we've had the BOK minutes (published yesterday), and June JOLTS data. In Japan, the only releases have been 10D trade data for July and June Toyota sales. China's July Politburo was also released. That doesn't look to contain surprises, but I'll be going through it later.
Today's release of local JOLTS data shows the labour market remained soft in June. Vacancy and quit rates continued to fall, hiring of temp workers eased, and filling rates are trending up The fall in the vacancy rate in particular is a sign that wage growth remains under pressure.
Yesterday's minutes showed the clear tension for monetary policy between weak growth and financial excess. The BOK seems confident that the latest macro-pru measures will work. That sets the stage for more easing, though the committee in July wasn't quite as concerned about growth as it had been.
There have been no major data releases today, so instead a few background charts: on prices and capacity in China; regional export volumes; Chinese auto exports; and regional tourism and services activity.
There have been no major data releases today, so instead a few background charts: on prices and capacity in China; regional export volumes; Chinese auto exports; and regional tourism and services activity.
The clear conclusion from the official leading indicators is that the cycle has peaked. However, given that exports always had to slow from the absolute surge in 1H25, that isn't news. The difficulty in 2H25 will be differentiating normalisation after that surge from a real cycle deterioration.
Does anti-involution produce macro turnaround when the September combination of stock market and local government bail-out failed? The markets are hopeful. I am more cautious, given China's macro problems are weak demand as well as strong supply. I'd be wrong if household savings behaviour shifts.
The government is increasingly focused on the supply-side issue of corporate involution as the driver of unwanted deflation and weak corporate earnings. However, the decline in profits has been led by heavy industry, showing the importance of the weakness of property and aggregate demand.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Markets have perked up on hopes that officials will tackle over-supply. But belated publication yesterday at 8pm (!) of the PBC's quarterly opinion surveys is a reminder that business involution isn't the only challenge. Household price, income and employment expectations all continue to fall.
Based on official data, tariffs have as yet to cause any real reversal in the surge of export volumes that's now been underway for two years. That's even though export prices have, for the first time since 2003, started to rise YoY. It isn't obvious that China is absorbing the cost of the tariffs.
Services prices in Tokyo CPI for July and nationwide services PPI for June, is firm but stable. I am starting to think that the upside risks for inflation I talked about earlier in the year might have played out, though the fall-out from the Upper House election might change that again.
The underlying dynamic for the KRW has been a fall in corporate borrowing driving a structural increase in Korea's current account a surplus, which has been recycled overseas by a reallocation into foreign assets by the NPS. With that reallocation running out of steam, the KRW has room to strengthen
Data through July show upstream industrial prices have stopped falling. That should mean PPI deflation doesn't worsen further. However, underlying demand remains weak, with building material prices continuing to fall. And soft wholesale food prices suggest there's no pick-up in CPI either.
Japan's post-covid cycle has had two clear features. First, the strength of services and non-manufacturing. Second, inflation. Today's flash PMI shows both those trends persisting. Sentiment fell in manufacturing, but improved in services, while input price inflation remained "sharp".
Q2 GDP was boosted by government spending and doesn't indicate a real turn in the cycle, as today's weak business sentiment survey through July showed. However, while Korea still has to get through the tariff shock, it does at least look like the cycle is no longer worsening,
IP dipped in June, but is still 40% above the trough of 2023, 100% higher than 6M ago, and dwarfs the cycle in Korea. The surge in IP/exports has supported the domestic economy when consumption has been weakening. The cycle thus remains unusually desynchronised, as it has been since the pandemic.
The trade deal sets the stage – again – for a strengthening of the JPY. That's because the BOJ should be hiking rates further, according to the framework set out by Uchida in his speech today: uncertainty this year has been elevated, but the cycle has remained intact, and inflation has been high.
For the further rise in consumer confidence in today's survey to matter, it needs to lift business confidence too. Without that, more important is the dip in property price expectations which, with the SLO survey showing tighter lending standards, should ease BOK concerns about housing overheating.
PPI ticked up in June, but only to 0.5% YoY, and overall trends suggest continued moderation of price pressures. That's true for goods, given the further fall in import prices, but is even more relevant for services in light of the widening gap between PPI v CPI services price inflation.