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.
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.
It doesn't make sense to read too much into a single monthly indicator, but the MoM fall in exports in July does follow weakness in the (presumed) exporter-heavy Caixin PMI. As exports have been the one bright spot in the economy, these shifts increase the sense of growing downside risks.
In the BOJ's first comments since last week, Uchida says that policy is dependent on the economic outlook, which could be affected by market moves, particularly the JPY. However, he also reiterates confidence in the underlying changes that the BOJ has been talking about throughout this year.
Today's July data show the moderation of core inflation in Q2 has been sustained. If there's now a global slowdown, the central bank will likely stop worrying about prices. But if the export cycle proves to still have legs, more work likely needs to be done to cap the post-2020 step-up in inflation.
The June jump in earnings was almost all about bonuses. But the details were solid: for full-timers, wage growth didn't slow much, and it accelerated for part-timers. There's also now a greater likelihood of a trend rise in real wags as the less-weak JPY dampens import prices.
The better tone of the headline Caixin services PMI in July wasn't reflected in the commentary: "Instances of service providers raising selling prices.....were offset by others lowering selling prices to support sales.". The level of business confidence was "the second-lowest since March 2020".
The huge moves in markets may well have an impact on the extent and pace of further BOJ policy normalisation. But when markets settle down, developments in the real economy will also matter. It will be particularly important to track SME wages, service prices, and consumption.
Whatever else might be true, the BOJ isn't changing policy at a time of cycle weakness. The full PMI confirmed the strength of the flash, with firm employment, "marked" inflation and robust business confidence. That was all true even though foreign demand contracted.
It really is striking that while policymakers have been trying to stabilise the property market for months, construction price data show no let up in the pain. Indeed, if anything, through late July it looks to be getting worse.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Particularly if US policy action reflects a weaker economy, the BOK will likely cut if the Fed does. However, with the rebound in home price inflation that has been a focus for the BOK, and tentative signs of an upturn in services prices that so far hasn't, the BOK likely won't be in a rush.
Services inflation had already bottomed at above 2%, and now it looks to be trending up again. As a big component of domestically-generated inflation, a rise in services inflation will make it much more difficult for core and thus overall inflation to stay at the BOK's 2% target.
The industrial cycle still lacks some of the momentum that we have been expecting, with the manufacturing PMIs easing back in July. However, the services PMI continues to hold up, suggesting overall activity in Taiwan remains strong.
In its full outlook report, the BOJ sounds confident on services prices and wages at larger firms. It is less certain about wage rises at SMEs. Developments at smaller firms, and service price hikes in the traditional (but long-forgotten) price setting month of October, will be important to monitor.
It looks increasingly likely that Korean export growth has stalled. Exports grew by around 10% a year each month in the first half of 2024, and equities are pricing a similar rate of expansion in the second. That's not much when the domestic cycle remains weak.
After the August PMIs, there's less room to think the economy is continuing to muddle through. Until now, the weakness of the official mfg PMI has been offset by strength in the Caixin version. Today's fall closes that gap, suggesting that even sectoral bright spots are now dimming.
Although mainly as capex, exports are feeding into domestic demand in Taiwan in a way that isn't yet visible in Korea. Data today show three-quarters of the 5.1% YoY rise in GDP in Q2 coming from investment, with the remainder being consumption. The contribution from net exports turned negative.
The weakness of retail sales in China and Japan is well-known. Less appreciated is the same theme is true in Korea too, with today's June volume data dropping back to 2019 levels. Only in Taiwan do retail sales show any strength, which is important when Taiwan's export story is the strongest too.
Apart from the changes in actual policy, three things stood out today: changes to the outlook for prices, a shift in the language used to describe policy, and separate from the BOJ meeting, the latest consumption data, which remain weak.
Our China cycle framework is that the muddle through of the last 18M is running out of road. The July PMIs look consistent with that, with weakness in pricing, jobs and confidence. The one remaining contrary indicator is the S&P mfg PMI, which has been strong, and for July will be released tomorrow.
The government's monthly Monitoring Indicator shows economic momentum is about as strong as it gets. That suggests another robust print for GDP when Q2 data are released tomorrow. It also keeps pressure on the central bank.
As has been the case for months, hard data show no big change in the labour market: UE is low, and employment high. But the BOJ seems to think the labour market is tighter than these data suggest, placing more weight on the bigger change shown by the Tankan.
At least through July, softening inflation has been making consumers feel happier. Likely, the recent typhoon damage will at least cause a pause. And while the price slowdown in theory helps the CBC, there's also the risk of aggregate demand remaining stronger for longer.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.