Paul Cavey - East Asia Econ (Page 25)

QTC: Taiwan – unemployment down again

While the monthly change in UE is small, the direction is clear, with the rate falling in July to a new 25-year low. That is happening even though participation is rising. This labour market tightness is supporting wages and means that unlike Korea, rate cuts are unlikely to be imminent in Taiwan.

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Korea – yet closer to a cut

The BOK's slow journey to rate cuts continued today, with further shifts evident in both the statement and the governor's remarks. That makes a rate cut highly likely in Q4. But there are still risk scenarios, with the obvious one being that property doesn't slow in the way the BOK seems to expect.

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QTC: Japan – PMI solid, but details diverge

The Aug flash services PMI ticked up, and more than the Reuters Tankan, points to a strong cycle. But the anecdotes were mixed, with optimism easing "amid concerns over labour constraints" and rising costs. Selling prices rose at the softest pace in 9M, even as input cost inflation rose.

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Korea – doveish macro data

In today's data releases, business sentiment remained low, export growth stable, and prices soft. Overall, the macro data is giving the BOK more room to cut. The one obvious exception is the housing market, though we are also interested to see if the BOK mentions the resilience of service inflation.

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QTC: Korea – cycle weak enough to cut

The BOK's BSI survey ticked down in August, but not in a way that changes the picture. The cycle has been weak enough to justify rate cuts for a while, with the hold-ups being CPI, the Fed and, occasionally, domestic housing prices. Currently, it is only housing that is flashing red.

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Korea – house price expectations up again

This year, the BOK has gradually put rate cuts on the agenda. That makes a near-term change in policy a risk, and the recent strengthening of the KRW gives the bank some justification. But in July, the BOK played up worries about a property rebound, and data show that has continued through August.

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China – what's with manufacturers going broke?

Rather than industrial policy, the better explanation for weak corporate finances is deficient domestic demand. Related to that, the biggest shifts since covid haven't been in export growth or PPI, but in imports and core CPI. Macro policy doesn't suggest this weakness is set to change.

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Last week, next week

A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.

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QTC: Taiwan – peaking outlook, but strong profile

In today's full Q2 release, officials kept the 24 GDP f'cast at 3.9%, saying “Exports are not bad, but just weaker than expected”. That characterisation is exactly right. But while cyclical momentum has been a bit disappointing, few other economies have a post-covid profile quite like Taiwan's.

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QTC: China – Capital outflows rise...maybe

These days, there doesn't seem to be any one indicator that can be used to summarise capital flows in and out of China. But the settlement data at least has been suggesting a rise in outflows, and today's numbers for July show that trend is intensifying.

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China – still muddling through

We can't see anything in today's data to shift market sentiment. Property remains in a deep slump, and retail sales are weak. But that's not new, and with some of the pressure coming off the CNY, Beijing will probably think its muddle through approach of incremental easing will continue to work.

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China – perhaps a positive deflator in Q3

Today's property prices were very weak again, and that is important. But in the real economy, the deflator might still turn positive this quarter, because of the recent stabilisation of PPI, and the weather- and pork-propelled rise in food prices.

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Japan – signs of recovery in consumption

GDP grew in Q2 for the first time in a year. The driver was domestic demand, and with nominal wage growth rising, and a greater probability that the high in $JPY has been seen, it is becoming more likely that this recovery in spending can now continue.

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Korea – labour market mildly doveish

The labour market isn't as tight as the July fall in unemployment suggests. Employment didn't rise last month, with the only change being lower participation. That drop is unlikely to signal a reversal in the structural rise in the part rate, a trend that can be expected to restrain wage growth.

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QTC: China – velocity still falling

The 6.6% YoY fall in M1 in July is unprecedented. The drop is partly because of regulatory changes, but those don't explain the continued rapid decline in M1 relative to M2, a change that strongly suggests no let-up in the deflationary pressure the economy is facing.

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Region – exchange rates and inflation

Currency weakness boosting inflation has been a regional theme. But currency strength wouldn't automatically mean a CB policy pivot. That's true in Japan, where other factors have been driving prices, and in China, where currency weakness hasn't yet been an obvious obstacle to policy loosening.

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QTC: Taiwan – strongest wage growth in 10 years

Like Japan, underlying wage and price dynamics in Taiwan really seem to be shifting. Data have already shown that the post-covid acceleration in wage growth is sticking. Today's numbers for June show that in Q2 as a whole, sequential growth in mfg wages was the strongest since 2012.

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QTC: China – rate cuts no longer help property

The link between property sentiment in the PBC's depositor survey and interest rates isn't as close as for other real estate indicators. But the takeaway is still the same: property isn't reacting to rate cuts in the way it used to, even with mortgage rates in Q2 falling to new record lows.

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China – still the new normal

The PBC's Q2 survey shows consumption not especially weak, with the real post-20 changes in household behaviour being a shift from spending on goods to services, and from saving as property and riskier investments back to banks. The corporate survey wasn't bad either, but loan demand fell sharply.

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Last week, next week

A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.

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QTC: Taiwan – strong TSMC sales

TSMC's sales rose to another record high in July. Set against that, Taiwan's July export data look rather soft. I still haven't found a good explanation for the gap. I wouldn't have thought it can be the fabs in Japan?

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China – core CPI deflation again

The July price data offer more evidence that the food price cycle has turned. With less PPI deflation too, it is likely that headline CPI gets a bit of a lift. But core CPI inflation in July was once again very weak, which is enough of a reason to assume that the PBC will continue to cut rates.

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QTC: Taiwan – export growth struggling

Asia data is showing an industrial recovery that remains sluggish. Today's data for Taiwan, similar to Korea's earlier in July, shows export growth struggling to get into double digits. That's modest, when both economies should be the biggest beneficiaries of AI-related demand for tech hardware.

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QTC: Japan – solid Economy Watchers survey

The Economy Watchers survey for July has the same message as the PMI: at least before the market volatility of the last few days, Japan's cycle was in pretty good shape.

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China – imports more interesting than exports

July exports fell, but it is premature to call the start of a downturn. That's partly because of market share gains. These are solid, though not impressive enough to validate over-capacity. In terms of structure, the much bigger shift is in imports, which have completely over-turned pre-20 trends.