East Asia Econ

While consumption and the leading indicator have warned of cycle moderation, today's data show GDP growth ticked up QoQ in Q3, led by capex. With TSMC still bullish, Taiwan continues to have one of the strongest cycles, making it unlikely the central bank follows the global trend of rate cuts.

We'll find out more with tomorrow's official PMIs, but while the CKGSB survey for October does show an uptick in overall sentiment, the measure for employment remains very weak. With profits terrible in September, it is clear policy needs to do a lot to turn the cycle around.

Headline consumer confidence ticked down in October, led by pensioners. But the overall survey continues to send a constructive message for the BOJ. That's because consumer confidence remains relatively firm, even as inflation expectations show no sign of receding.

UE ticked down in September as the part rate fell. Employment hardly changed at all. There probably isn't much room for changes on the demand-side, as demographic constraints on supply become more binding. A negative shock will show up as rising UE, but firm demand will materialise as higher wages.

Shifts in consumer confidence mirror almost exactly changes in inflation expectations. Given that, it is no surprise with data today showing inflation expectations ticking up, so consumer confidence edged down. The details show consumers happy with the economy, but less confident about employment.

The flash services PMI dropped sharply in October, and with mfg is now below 50. There was a similar drop in June that then reversed, and while the press release doesn't suggest any new factor, the Reuters nonmfg Tankan, which also fell, suggested some noise from unstable weather and a stronger yen.

In today's October survey, overall sentiment remained around the long-term average, inflation expectations didn't pick up, and property price expectations ticked down. There's no reason here for the BOK to become hawkish, or to accelerate the gradual pace of cuts that is currently its intention.

The export data across the region continue to show an enormous shift in the direction of trade. Exports to China haven't recovered following the post-pandemic slump. Where there is growth, it is all about the US.

Checking in on some of the indicators needed for a cycle turnaround: still not much change in the YC, or much repricing of developer debt. There's been more rate cuts today, but the gap that's opened between activity and nominal rates suggests the key is whether price expectations rise.

TSMC's strong results complicate the idea of a peak in the regional export cycle. But the trend is very visible in the drop in today's 20-day exports for Korea, in both YoY and sequential terms. Exports are now back to the sluggish path suggested by equities.

Ni Hong said yesterday that the property market started to improve in October. Today's September price data suggest that the market bottomed earlier in Q3. However, signs of a floor back in Q1 didn't last. And on an all-economy basis, today's data show the economy still in deflation.

Excavator sales are a good illustration of China's woes. Sales fell more after 2020 than they did following the 2009 boom. It is interesting that they have seem to have now bottomed out, but that still leaves them 70% below the peak. To turn things around, policy has a lot of work to do.

The relationship between TSMC's sales and Taiwan's exports has weakened this year. But with the company remaining bullish into Q4, TSMC remains a big, positive support for Taiwan asset prices and macro into 2025.

Japan's export volumes in the last couple of months have suddenly broken out of the range of the last four years to reach an all-time high. That's probably not what the BOJ was expecting, given its worries about the July move in the JPY and "uncertainty" on the outlook for the US.

China's continued global market share gains negate the idea of decoupling. But foreign firms are relocating from China, a trend exemplified by Taiwan. How to square that circle? Previously, the ROW was dependent on foreign firms in China. Now the dependence is on Chinese domestic companies.

With today's August data, it continues to look like machinery orders are going sideways. That casts doubt on whether the recent upturn in machinery capex in the GDP data can be sustained.

Yesterday's data for August show again that the post-covid stepping up of wage growth in Taiwan is holding. That fits with other signs of stronger inflation, in the form of property prices and core CPI. Rate cuts here still aren't likely.

Household incomes bounced in 1H24, boosted by fiscal policy (welfare benefits and Kishisha's tax cuts), as well as property income and solid wage growth. This is an important change, given the big problem with aggergate demand has been the weakness of consumption.

Much has been made of the US overtaking China as Taiwan's biggest market. One consequence is a surge in the trade surplus with the US to over 10% of GDP. That will likely attract a lot more political attention in the event of a Trump re-election.

After a better Q2, consumption looks to have basically flat-lined again in July-August, capping any upside in GDP. Consumption isn't falling again, and last week's consumer confidence survey suggests no new deterioration in September. But there is downside risk if the JPY continues to weaken.

It wasn't just in Taiwan. Korea's PMI also fell sharply last month. The deterioration is puzzling, not being seen in other surveys, nor in Korea's September exports. So probably, it is noise. But data patchiness has been a theme of recent months, suggesting underlying cycles are rather so-so.

Data today show headline inflation fell below the BOK's 2% target in September for the first time since April 2021. But core inflation isn't continuing to drop. Sequential core looks to be bottoming around 1.8%, and the rebound in personal services inflation is continuing, from 2% in Q1 to 3% now.

Taiwan manufacturing should be on a big upswing, driven by recovery from the 2022-23 recession, and AI demand for semis. And yet, even before now, data have been patchy, and the PMIs suggest that mfg started to contract again in September. If that's the end of the upturn, it didn't last long.

The equities move has been extreme. To argue that this heralds broader economic recovery relies on: 1) the YC moving next as savings get mobilised; 2) the YC mattering less as an indicator than equities. Both are possible, but while the YC has issues as a leading indicator, so does the stockmarket.

Underlying core inflation in Tokyo in September continued to run at around a 2% annualised rate. The trimmed mean has stabilised at a bit below that, and the proportion of rising items has ticked up. Inflation isn't accelerating, but there's no sign of a slowdown either.