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Region – slow export turn
Both Taiwan export orders for October and Korea exports for the first 20 days of Korea show YoY improvement. However, in level terms the recovery is less clear.
Paul Cavey
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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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Region – export cycle inflecting
It looks more likely that the export cycle is improving. That is positive for currencies, particularly the TWD. For both Taiwan and Korea, it also raises the likelihood of rates being higher for longer.
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China – prices and policy
Property price deflation worsened in October. The failure of real estate to find a floor means the macroeconomy will likely remain weak into 2024. With overall inflation also soft, we still expect policy rate cuts.
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Japan – GDP back below pre-covid
Q3 GDP was in line with monetary policy: exports rose, but consumption fell. Perhaps with time, higher exports would boost domestic demand. The BOJ, but particularly the government, can't wait that long. Either the market pushes $JPY down, or policy will move to try to achieve that outcome.
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China – muddling through for now
October activity don't change the story from the last few months: activity is weak, but not terrible; the lack of any rebound in property mean it is difficult to build a scenario of a strong macro rebound in 2024; and the underlying condition of the economy continues to be clouded by data issues.
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Korea – on hold
Services activity, which supported the economy as exports and construction slowed in 2021-22, is now fading. But unemployment remains low, while exports and real estate have bottomed out. There still aren't strong reasons to think the BOK will cut, even as the bank is reluctant to hike again.
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China – M1 falling
On a MoM basis, narrow money has now been contracting for 11 of the last 15 months, a trend that's resisted both the ending of zero covid and the efforts to revive property. Without M1 picking up, we'd expect activity to remain sluggish, inflation to stay weak and interest rates to fall.
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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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Taiwan – a touch slower
The tone of the releases this week was a little softer, but neither price nor wage growth look especially weak, especially versus the doveish stance of the CBC in September. That gap probably won't matter if exports don't get going, but there are signs that the tech cycle is now starting to improve.
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China – inflation back down again
On a YoY basis, both CPI and PPI were in deflation in October. The weakness in CPI wasn't just about food prices, with core also falling MoM. As a result, nominal growth in China remains weak, and we'd expect interest rates are more likely to fall than rise.
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Japan – pity the pensioners
In the second of two longer notes looking at household sector dynamics, we widen the perspective to include savings as well as incomes. Elderly households have the highest wealth levels, but it seems unlikely they run down those assets when current incomes are under so much pressure.
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Japan – wage growth decent, but not faster
At a bit under 2%, nominal wages in Japan are growing more quickly since covid than they did before. That doesn't look to be slowing, but nor are there strong signs of acceleration. It doesn't help that other labour market indicators continue to be mixed.
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China – exports stable, imports up
Exports are going sideways. Imports have risen since July, and while buying of components for export processing is up a touch, the bigger driver seems to be imports of commodities. That has reduced the overall trade surplus, but the surplus in manufactures goods remains large.
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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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Taiwan – chart pack
A chart pack summarising Taiwan macro
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Korea – inflation still uncomfortable
Headline CPI inflation in Korea ticked up again in November. Sequential core rose for the fourth consecutive month, with both public- and private-service inflation rising. The rebound in headline will probably fade this month, but the stickiness of core leaves little room for the BOK to relax.
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Region – export upturn still patchy
The data are still patchy, but it does now look like the export cycle is starting to turn. Markit PMIs in Korea and Taiwan were better in October, and Korean exports rose for the first time in over a year. The turn is a little late, but could still be important for macro if it lasts into Q124.
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Japan – three charts from the BOJ
The BOJ's detailed outlook report includes three detailed boxes addressing inflation dynamics. The argument is the labour market is tightening, but import price pressures easing, while the feed-through from wages to prices is still not strong enough.
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Japan – other bits and pieces
While overshadowed by the BOJ meeting, the consumer confidence and retail sales data released today suggest consumption continues to struggle. In its summary outlook, the BOK mentioned "uncertainties" ten times, even more than the eight mentions at the last meeting in July.
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China – PMIs down again
With prices fading during the month, it wasn't particularly surprising that the manufacturing PMI fell in October. Non-manufacturing activity also weakened. The cycle will get some help from the recent fiscal easing, but we don't expect any market-significant bounce in activity.
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Japan – three charts for the BOJ
According to September data released today, the labour market continues to go sideways. Real household income growth and consumption also remain weak. But statistics released last week show inflation excluding food, energy and rent is now higher in Japan than in the US.
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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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Japan – inflation still firm
Tokyo CPI bounced in October, and services PPI was strong in September. With core CPI also holding up, inflation certainly remains firm. However, the details don't suggest inflation is yet accelerating, with the Markit PMI showing a slowing of activity and inflation. Labour market data remain mixed.
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Japan – wages aren't enough
A longer note, looking at Japan's key imbalance: weak household incomes and spending. One over-looked driver is falling real pensions. That implies wages need to be even stronger than the market believes, and so policy looser. But that risks boosting import prices, and so cutting real incomes.