This is what happened on East Asia Econ this week. Region There's quite a lot of differentiation in macro stories across the region. The export cycle is slowing. That doesn't matter much for policy in Taiwan, which hasn't tightened much, but is an important shift in Korea given the hawkishness of the BOK. The BOJ isn't hawkish, but there will be pressure
Regional exports remain on track to fall by about 10% YoY by the end of 2022. That deterioration will continue to put downwards pressure on currencies, particularly the TWD and KRW, but the pace of depreciation should begin to lessen.
Headline growth in Korean exports slowed to 2.8% YoY in September. Our model points to a further decline in the next few months to around -10% YoY.
Neither consumer confidence nor the labour market were as strong as the previous month. But it does still look like the labour market is starting to tighten, which in turn should help firm up the tentative bottoming out of consumer confidence.
The overall tone of today's PMIs suggests that China's cycle remains weak. However, the construction PMI rose again, and with the official headline manufacturing PMI and input prices creeping up, for the first time in a few months, there is some risk that the domestic industrial cycle is bottoming.
The business sentiment survey for October shows confidence continuing to fall, particularly in manufacturing. It is likely by the end of this year that, for the first time in this cycle, the strength of activity starts to become a concern for policymakers.
Inflation expectations are falling, but remain high in absolute terms. The pace of BOK tightening should slow, but inflation expectations need to be lower, with evidence of actual services price inflation falling, before the BOK goes on hold.
The currency is on the move again. Interest rate differentials suggest fair value for $CNY of 7.3; the weakness of the domestic economy and the over-shooting that normally happens with $CNY moves suggests more upside still. This move increases risks for China's economy, and for global markets.
YoY upstream price inflation is fading. Sequentially, however, there's some stabilisation. That's consistent with policy, but isn't yet likely to be reflecting a fundamental turn. Activity usually improves after the summer, and leading indicators like liquidity preference continue to fall.
Industrial output was stable in August, remaining below the peak of March, and leads suggest a further slowdown in the next few months. It is unlikely consumption will be robust enough to compensate for this industrial slowdown, even though retail sales ticked up in August.
With the labour market not particularly hot, and the CBC forecasting inflation of less than 2% next year, it isn't surprising that tightening remains slow. That creates depreciation pressure on the TWD, but for the time being, that's not a trend the CBC will feel a need to fight very hard against.
BOJ trimmed mean inflation continues to rise, but the BOJ is keeping policy unchanged. With rates remaining anchored, the JPY continues to sell off. The MOF has been talking about "stealth intervention", but it is unclear if that includes pressure on the GPIF to unwind some of its foreign holdings.
At a headline level, export growth fell again in the first 20 days of September. The details were stronger, but that is likely noise, with more downside for exports ahead.
Inflation rose again in August, and there should be further upside before the end of the year. Headline CPI should be easing in 2023, but whether core does too depends on inflation expectations, the labour market, and the transition from goods to services prices.
Taiwan's export orders to China continued to drop sharply in August. That is an indication of just how weak Chinese growth is, but is also a warning that a big change may be coming in overall world demand.
Since the pandemic began, productivity has probably increased more quickly in Taiwan than any other major economy. As a result, Taiwan isn't facing the higher inflation and rates being experienced elsewhere. Taiwan's competitiveness instead reinforces structural trends for a stronger TWD.
The headline data were a bit stronger in August, but the details remain weak. It doesn't feel that the government is yet doing enough to really turn the economy around.
The labour market remains tight, making it difficult for the BOK to relax, even as import price inflation starts to recede.
Exports continue to go sideways, which at a headline level is because weaker tech shipments are being offset by stronger car sales. Imports in JPY terms are still rising, so the trade deficit continues to widen.
Upstream goods price inflation softened in August, pointing to a peaking of CPI in the next few months. One risk to that would be a pick-up in services price inflation, but today's quarterly business survey from the MOF suggests the cycle isn't yet strong enough to produce such an outcome.
Overseas, the idea of Peak China is gaining traction, which is quite at odds with the full-on confidence in the further rise of China expressed by leaders in Beijing. The contradiction does suggest a need for policy change, but at least for now, that shift seems like the risk rather than base case.
This is what happened on East Asia Econ this week. Region August export data for China, Korea and Taiwan dropped sharply. That makes it more likely that the industrial cycle is turning, with further weakness to be expected in the next few months. China The three data releases this week were soft: exports fell, dimming what has been the one bright spot for the economy in the last few months;
Monetary data in August remained weak, with little reason to suggest any upturn in the macro cycle.
Food prices pose something of an upside risk, but underlying price trends, particularly in PPI, continue to look more deflationary than inflationary.
The Economy Watchers survey rebounded in August, and is at a level consistent with mild GDP growth. But the survey isn't strong or stable enough to suggest an acceleration in the sluggish pace of the post-pandemic recovery.