There have been no major data releases today, so instead a few background charts: on prices and capacity in China; regional export volumes; Chinese auto exports; and regional tourism and services activity.
There have been no major data releases today, so instead a few background charts: on prices and capacity in China; regional export volumes; Chinese auto exports; and regional tourism and services activity.
The clear conclusion from the official leading indicators is that the cycle has peaked. However, given that exports always had to slow from the absolute surge in 1H25, that isn't news. The difficulty in 2H25 will be differentiating normalisation after that surge from a real cycle deterioration.
Does anti-involution produce macro turnaround when the September combination of stock market and local government bail-out failed? The markets are hopeful. I am more cautious, given China's macro problems are weak demand as well as strong supply. I'd be wrong if household savings behaviour shifts.
The government is increasingly focused on the supply-side issue of corporate involution as the driver of unwanted deflation and weak corporate earnings. However, the decline in profits has been led by heavy industry, showing the importance of the weakness of property and aggregate demand.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Markets have perked up on hopes that officials will tackle over-supply. But belated publication yesterday at 8pm (!) of the PBC's quarterly opinion surveys is a reminder that business involution isn't the only challenge. Household price, income and employment expectations all continue to fall.
Based on official data, tariffs have as yet to cause any real reversal in the surge of export volumes that's now been underway for two years. That's even though export prices have, for the first time since 2003, started to rise YoY. It isn't obvious that China is absorbing the cost of the tariffs.
Services prices in Tokyo CPI for July and nationwide services PPI for June, is firm but stable. I am starting to think that the upside risks for inflation I talked about earlier in the year might have played out, though the fall-out from the Upper House election might change that again.
The underlying dynamic for the KRW has been a fall in corporate borrowing driving a structural increase in Korea's current account a surplus, which has been recycled overseas by a reallocation into foreign assets by the NPS. With that reallocation running out of steam, the KRW has room to strengthen
Data through July show upstream industrial prices have stopped falling. That should mean PPI deflation doesn't worsen further. However, underlying demand remains weak, with building material prices continuing to fall. And soft wholesale food prices suggest there's no pick-up in CPI either.
Japan's post-covid cycle has had two clear features. First, the strength of services and non-manufacturing. Second, inflation. Today's flash PMI shows both those trends persisting. Sentiment fell in manufacturing, but improved in services, while input price inflation remained "sharp".
Q2 GDP was boosted by government spending and doesn't indicate a real turn in the cycle, as today's weak business sentiment survey through July showed. However, while Korea still has to get through the tariff shock, it does at least look like the cycle is no longer worsening,
IP dipped in June, but is still 40% above the trough of 2023, 100% higher than 6M ago, and dwarfs the cycle in Korea. The surge in IP/exports has supported the domestic economy when consumption has been weakening. The cycle thus remains unusually desynchronised, as it has been since the pandemic.
The trade deal sets the stage – again – for a strengthening of the JPY. That's because the BOJ should be hiking rates further, according to the framework set out by Uchida in his speech today: uncertainty this year has been elevated, but the cycle has remained intact, and inflation has been high.
For the further rise in consumer confidence in today's survey to matter, it needs to lift business confidence too. Without that, more important is the dip in property price expectations which, with the SLO survey showing tighter lending standards, should ease BOK concerns about housing overheating.
PPI ticked up in June, but only to 0.5% YoY, and overall trends suggest continued moderation of price pressures. That's true for goods, given the further fall in import prices, but is even more relevant for services in light of the widening gap between PPI v CPI services price inflation.
While easing in the first 20 days of July, exports didn't fully reverse the June bump. In the circumstances, that's not bad, though only semi shows any real momentum, and it seems unlikely anything else turns up given tariffs. Exporter sentiment in this week's business survey will tell us more.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
The rise in exports and the trade surplus clearly isn't just about autos: there's now a large surplus in all major mfg categories. Auto exports in fact went sideways in 2023-24 as the initial rise driven by ICE shipments lost momentum. But there are now signs of a second wind, due to EVs and hybrids
Three things stood out in TSMC's earnings call yesterday: the lack of talk of "tariffs", the bullishness on demand, and confidence on margins despite TWD strength. The message has macro significance, with one risk that while TSMC and the government expects a much slower 2H, that is too pessimistic.
In June, headline fell, BOJ core rose, and international core was flat at 1.6%. So, not a clear message...and then there's the uncertainty about tariffs and politics. Some tariff deal – like a TRQ – I think gets the BOJ engaged again. But I don't expect much dovishness without a US recession.
The Q1 tick-up in overall export volumes has ended, but hasn't reversed. That's partly because of the willingness of the auto firms to cut USD prices. However, prices fell less quickly in June than May, and reports suggest the car firms are now starting to raise prices.
Overall, the big recent drop in upstream prices has stabilised. But for building material prices, there's no respite, now being lower than any time since 2016. That shows the ongoing weakness in the property sector, which none of the policies of the last few years have managed to turn around.
The labour market loosening that is one of the big themes for Korean macro isn't visible in headline data, which show employment high and UE low. It is clearer in a nice box in the BOK's economic outlook report, that discusses in detail why the employment situation is in fact "subdued".