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I had been thinking China's export performance was solid more than spectacular. But data for June really challenge that idea.
While the monthly change in UE is small, the direction is clear, with the rate falling in July to a new 25-year low. That is happening even though participation is rising. This labour market tightness is supporting wages and means that unlike Korea, rate cuts are unlikely to be imminent in Taiwan.
The Aug flash services PMI ticked up, and more than the Reuters Tankan, points to a strong cycle. But the anecdotes were mixed, with optimism easing "amid concerns over labour constraints" and rising costs. Selling prices rose at the softest pace in 9M, even as input cost inflation rose.
The BOK's BSI survey ticked down in August, but not in a way that changes the picture. The cycle has been weak enough to justify rate cuts for a while, with the hold-ups being CPI, the Fed and, occasionally, domestic housing prices. Currently, it is only housing that is flashing red.
In today's full Q2 release, officials kept the 24 GDP f'cast at 3.9%, saying “Exports are not bad, but just weaker than expected”. That characterisation is exactly right. But while cyclical momentum has been a bit disappointing, few other economies have a post-covid profile quite like Taiwan's.
These days, there doesn't seem to be any one indicator that can be used to summarise capital flows in and out of China. But the settlement data at least has been suggesting a rise in outflows, and today's numbers for July show that trend is intensifying.
The 6.6% YoY fall in M1 in July is unprecedented. The drop is partly because of regulatory changes, but those don't explain the continued rapid decline in M1 relative to M2, a change that strongly suggests no let-up in the deflationary pressure the economy is facing.
Like Japan, underlying wage and price dynamics in Taiwan really seem to be shifting. Data have already shown that the post-covid acceleration in wage growth is sticking. Today's numbers for June show that in Q2 as a whole, sequential growth in mfg wages was the strongest since 2012.
The link between property sentiment in the PBC's depositor survey and interest rates isn't as close as for other real estate indicators. But the takeaway is still the same: property isn't reacting to rate cuts in the way it used to, even with mortgage rates in Q2 falling to new record lows.
TSMC's sales rose to another record high in July. Set against that, Taiwan's July export data look rather soft. I still haven't found a good explanation for the gap. I wouldn't have thought it can be the fabs in Japan?
Asia data is showing an industrial recovery that remains sluggish. Today's data for Taiwan, similar to Korea's earlier in July, shows export growth struggling to get into double digits. That's modest, when both economies should be the biggest beneficiaries of AI-related demand for tech hardware.
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.
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 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".
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.
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.
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.
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.