Exports held up again in June, but the outlook is changing as expectations for the semiconductor industry become more bearish. The recent equity sell-off suggests Taiwan's exports could be falling 10-20% YoY in the coming months.
June's data still don't show much inflation in China. And, outside of food prices, there's not much sign of that being about to change.
The fall in manufacturing sentiment is concerning, and there's clearly concern about input prices. But commentary in the survey overall didn't seem particularly negative, including further signs of a normalisation of consumer behaviour after covid.
Despite all the JGB buying in June, Japan's monetary base actually contracted in the month. That was because of the winding down of the Covid-19 lending programme, and shows monetary expansion isn't as wild as headline data alone would suggest.
China didn't ease like the US in 2020, tightened in 2021, and yet leverage is still rising. In the short term, there's unlikely to be a change without more policy support for households. With Beijing against welfarism, that seems unlikely, which suggests a structural outlook of lower interest rates.
Korean inflation rose again in June. Worryingly for the BOK, while goods price inflation is softening a touch, domestic services inflation is still accelerating.
The themes for China cycle are unchanged: recovery; not huge stimulus; an ongoing commitment to zero covid; and a lack of underlying inflationary pressure. These themes need to be challenged before there are bigger shifts in China's financial markets.
Taiwan's manufacturing PMI has been surprisingly weak the last couple of months. There is a risk this is directly related to the China lockdowns which are now easing, but the internals of the survey are also soft, suggesting the underlying cycle is still weakening.
The sharp acceleration in CPI inflation of the last couple of months faded in June in Tokyo. Without a new driver emerging, it seems likely that national inflation is close to peaking, though JPY weakness will likely prevent inflation from falling too far.
The labour market is fairly tight, and the gap between demand and supply is continuing to narrow. But the pace of tightening is gradual, and doesn't seem likely to create a lot of wage inflation any time soon.
With respect to activity, the BOJ Tankan sends a somewhat mixed message, with sentiment stable, and capex quite strong. On inflation the survey corroborates the message of other leading indicators, suggesting that the acceleration in CPI is losing some momentum.
Activity in Korea continues to hold up reasonably well. There are some signs of inflation peaking, which might be important for the BOK, but not until later in the year at the earliest.
The PMIs rose in June, but the neither the size of the improvement nor the details of the surveys suggest that the economic recovery out of Covid will be particularly strong.
Not only were the headlines in the PBC's quarterly sentiment surveys weak, but so were the underlying indicators that usually lead the overall economy. With little resilience in these indicators, the pace of recovery from the covid lockdowns looks likely to remain modest.
The negative link between consumer confidence and inflation is probably the clearest example of JPY weakness being bad for the economy. However, before this affects the BOJ, the bank will likely want confirmation that this link can't be broken by the stalled restart of services activity after covid.
Consumer confidence fell sharply in June, as inflation expectations surged. The BOK will be remaining hawkish for the time being.
Today's trimmed mean measure of CPI is broadly consistent with the BOJ's assessment that inflation in Japan still lacks broad-based momentum.
Our FCI remains accommodative. That, depressed activity, the fall in covid cases and a corporate sector that is somewhat of an even keel should ensure modest recovery. However, without a clearer policy push from the government, a real surge in growth in 2H feels unlikely.
That industrial profits fell in May isn't a surprise. But the fall was fairly modest, and revenue remains on an upwards trend, with corporate earnings likely being helped by the strength of commodity prices in recent months.
The acceleration in inflation of the last few months stalled in May, with both core and headline unchanged. The leading indicators aren't yet suggesting a re-acceleration, with a softening of commodity prices offsetting the weakness of the JPY.
As with other inflation indicators, May service PPI shows price pressures running at multiyear highs. But the pick-up of the last couple of months is narrow, concentrated in international transport costs, which in turn related to the rise in energy prices.
The fall in exports in June might reverse in the next couple of months as China reopens after the covid lockdowns. But even if that occurs, it would likely be a temporary boost, with leading indicators for the next 6M all pointing down.
The BOJ is under pressure, but Japan isn't in crisis. Rising energy prices hurt, but ending YCC would be painful too. Instead, it is probably better to focus on economic normalisation post-covid. That would likely include an influx of tourists concluding that, with the JPY at 135, Japan is cheap.