The government yesterday published its monthly series for the profits of the industrial sector. I am always a bit sceptical of the quality of these data. But if you want a trigger for the recent macro policy push, then the sharp fall in profits in September fits the bill.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
With the BOJ emphasising the twice-yearly patten of service prices hikes, with the second round falling in October, today's Tokyo CPI data are important. They do show services prices rising, and although the details are messy, core sequential inflation in Tokyo is also continuing to run near 2%.
The flash services PMI dropped sharply in October, and with mfg is now below 50. There was a similar drop in June that then reversed, and while the press release doesn't suggest any new factor, the Reuters nonmfg Tankan, which also fell, suggested some noise from unstable weather and a stronger yen.
If the BOK was only looking at growth, then data today would give it plenty of room to cut faster, with both Q3 GDP and October business sentiment weak. However, the rise in US rates and consequent weakening of $KRW will be starting to constrain the bank once again.
The slump in confidence and retail sales don't indicate a major cyclical weakening of consumption. That's partly because households have been running down excess savings from covid. But with savings now normalising, consumption is becoming more vulnerable to the deterioration in the labour market.
In today's October survey, overall sentiment remained around the long-term average, inflation expectations didn't pick up, and property price expectations ticked down. There's no reason here for the BOK to become hawkish, or to accelerate the gradual pace of cuts that is currently its intention.
The export data across the region continue to show an enormous shift in the direction of trade. Exports to China haven't recovered following the post-pandemic slump. Where there is growth, it is all about the US.
Checking in on some of the indicators needed for a cycle turnaround: still not much change in the YC, or much repricing of developer debt. There's been more rate cuts today, but the gap that's opened between activity and nominal rates suggests the key is whether price expectations rise.
There's a possibility that TSMC's success is pushing Taiwan into unchartered waters, where the CBC needs to sound hawkish, when the external imbalance is as big as it has ever been. If Taiwan's period of zero inflation has passed, there's a good chance TWD undervaluation will be challenged too.
TSMC's strong results complicate the idea of a peak in the regional export cycle. But the trend is very visible in the drop in today's 20-day exports for Korea, in both YoY and sequential terms. Exports are now back to the sluggish path suggested by equities.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Inflation was softer in September, but the economy still looks on track, with exports and household income up, and early signs of another strong shunto round. At the same time, the JPY is weakening again. This backdrop means the BOJ faces a very tough communication challenge at its October meeting.
Looking at today's data, the driver of all the recent policy activism is to get growth back to the 5% target. That doesn't suggest a big rebound in the nominal growth that equity investors need. The upside risk is this policy push is happening when there are tentative signs of property stabilising.
Ni Hong said yesterday that the property market started to improve in October. Today's September price data suggest that the market bottomed earlier in Q3. However, signs of a floor back in Q1 didn't last. And on an all-economy basis, today's data show the economy still in deflation.
Excavator sales are a good illustration of China's woes. Sales fell more after 2020 than they did following the 2009 boom. It is interesting that they have seem to have now bottomed out, but that still leaves them 70% below the peak. To turn things around, policy has a lot of work to do.
The relationship between TSMC's sales and Taiwan's exports has weakened this year. But with the company remaining bullish into Q4, TSMC remains a big, positive support for Taiwan asset prices and macro into 2025.
Japan's export volumes in the last couple of months have suddenly broken out of the range of the last four years to reach an all-time high. That's probably not what the BOJ was expecting, given its worries about the July move in the JPY and "uncertainty" on the outlook for the US.
China's continued global market share gains negate the idea of decoupling. But foreign firms are relocating from China, a trend exemplified by Taiwan. How to square that circle? Previously, the ROW was dependent on foreign firms in China. Now the dependence is on Chinese domestic companies.
With today's August data, it continues to look like machinery orders are going sideways. That casts doubt on whether the recent upturn in machinery capex in the GDP data can be sustained.
Cyclically, the labour market continues to look tight, with the UE rate again near multi-decade lows in September. But assessing the inflation implications is made tricky by big ongoing supply side changes, especially the rise in female part rate. Wage growth looks strong, but isn't accelerating.
Yesterday's data for August show again that the post-covid stepping up of wage growth in Taiwan is holding. That fits with other signs of stronger inflation, in the form of property prices and core CPI. Rate cuts here still aren't likely.
Cyclically, credit is very weak, especially private sector borrowing. But credit is still rising relative to GDP. That's partly because of government borrowing. But it is also because of weak nominal GDP growth, and that is unlikely to change until the sharp fall in M1 relative to M2 reverses.
Exports dropped quite sharply in September. China is still making share gains in autos especially, but this is another sign that the best of the recovery in the regional export cycle is probably now done. That matters for China when exports have been the strongest sector of the economy.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.