Paul Cavey - East Asia Econ (Page 30)

China: excavator sales still 70% below the peak

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.

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Taiwan – TSMC still supporting macro

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.

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Japan – finally, an export lift

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.

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China – big supply-chain adjustments

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.

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Japan – capex going sideways

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.

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Korea – labour market still fairly tight

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.

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Taiwan – wages holding up, CPI should too

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.

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China – credit both too weak and too strong

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.

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China – exports drop in September

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.

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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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China – core deflation worsens

Core inflation, which took one step-down during covid, has this year dropped again. Indeed, China has now been in sequential core CPI deflation since May. This implies rising real interest rates, and, with PPI turning down again too, a worsening debt burden.

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Korea – right, for some of the wrong reasons

As expected, the BOK's cut on Friday was hawkish. However, while I thought the bank would express some concern about services inflation, its only worry seems to be that lower rates will give a new boost to real estate. If housing is calm, the consensus will thus expect rates to fall further.

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Japan – incomes up, but still not enough

There was a decent bounce in per capita household incomes through Q2. But the rise in consumption was smaller, with better incomes fuelling stronger savings rather than much more spending. The Q2 BOJ consumer survey shows the big worry at the household level remains the high level of prices.

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China – 4/10

The MOF presser today was underwhelming, in both quantity and quality. The one real, positive change is allowing fiscal funds to be used to address the supply overhang in property, but only at the local government level (and, it seems, using existing funds). Markets are unlikely to be impressed.

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Japan – household incomes bounce

Household incomes bounced in 1H24, boosted by fiscal policy (welfare benefits and Kishisha's tax cuts), as well as property income and solid wage growth. This is an important change, given the big problem with aggergate demand has been the weakness of consumption.

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Taiwan – US trade surplus now over 10% GDP

Much has been made of the US overtaking China as Taiwan's biggest market. One consequence is a surge in the trade surplus with the US to over 10% of GDP. That will likely attract a lot more political attention in the event of a Trump re-election.

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Korea – a peak more than a pivot

There is a broad consensus that the BOK will cut this Friday. I wouldn't push back strongly against that expectation. But I don't think the bank can be too doveish when private services inflation – a proxy for domestically generated inflation – has been rebounding back above 2%.

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Japan – EW and wages remain firm

Data continue to show little change in the constructive economic assessment that the BOJ was talking about in 1H24. The Economy Watchers survey for September ticked down, but is well above the LT average, and the outlook score is higher still. Growth in underlying wages remains firm.

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China – what if property is for speculation (part 2)?

My base case - that the economy won't turnaround without fiscal – isn't especially differentiated. But the reports of stronger real estate sales in the holiday highlight a risk case: that the equity rally mobilises household savings and boosts price expectations, lifting the economy without fiscal.

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Japan: consumption slows again

After a better Q2, consumption looks to have basically flat-lined again in July-August, capping any upside in GDP. Consumption isn't falling again, and last week's consumer confidence survey suggests no new deterioration in September. But there is downside risk if the JPY continues to weaken.

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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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China – has the Fed really been a constraint?

I had an op-ed piece in today's Nikkei Asia. The headline argument is that monetary policy isn't sufficient to boost growth. On its own, that isn't much of a differentiated view. The nuance is the reasoning: China has monetary policy independence, so Fed cuts in themselves don't change anything.

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Korea – on track, except for services

Overall, data are falling into place for a BOK cut. Exports were firm in September, but the PMI was terrible. Headline CPI dropped under 2% for the first time since 2021, and property prices might be decelerating. The one counter-trend is services CPI, which has rebounded to 3%.

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Asia – PMIs suggest end of recovery

It wasn't just in Taiwan. Korea's PMI also fell sharply last month. The deterioration is puzzling, not being seen in other surveys, nor in Korea's September exports. So probably, it is noise. But data patchiness has been a theme of recent months, suggesting underlying cycles are rather so-so.

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Japan – Q3 Tankan details

The detailed Q3 BOJ Tankan shows both labour market tightness and corporate output price expectations remaining as elevated as any time since the 1980s. Clearly, the economy hasn't been derailed by the market volatility of early August, and without a new shock, the BOJ seems likely to hike again.