East Asia Econ

Given the relationship is far from perfect, it would be wrong to read too much into this first chart. However, it is still notable that the rebound in consumer confidence hasn't relapsed despite the continued strength of inflation expectations. That at least gives a hint of substantive change.

While full-time worker pay clearly matters, it is also important to watch wage inflation for part-timers. That this is already running at 4% illustrates the real tightness in the labour market. There's more upside ahead, with reports that the big retailer Aeon is planning another 7% hike in 2025.

Headline inflation ticked up in December to back above 2%, but core continued to ease. With property cooling too, the likelihood of further monetary tightening is receding. At the same time, the strength of semi equities and the services PMI mean no urgency to cut either.

Taiwan's export orders data today show another decline in the overseas production ratio, especially for electronics products. That implies some move in the supply-chain from China, which helps boost Taiwan's growth, but at the expense of more direct trade and a surging trade surplus with the US.

Today's data show inflation excluding all food and energy in November at 2% saar. Some of the details are also firm, with the diffusion stable and a further pick-up in rental inflation. That though is still at less than 1%, and anyway, wage inflation now seems more important for the BOJ than CPI.

The weak JPY is having little impact on Japan's export performance. Yesterday's November data show export volumes still very sluggish, and continuing to underperform the rest of the region. Services are doing better, though even here, Japan isn't clearly outperforming.

Services sentiment in the PMI is recovering from the October drop, but not as quickly as in other surveys. The tone on jobs and prices survived that dip, and concerns about "labour constraints and the impact of rising costs", with feed through to output prices, were prominent again in December.

With the strong trend growth in TSMC's sales since the end of 2023 holding, it makes sense that the pick-up in manufacturing wage growth is too. Neither TSMC nor manufacturing are the whole economy, but they are important components, and put Taiwan's cycle in a very different state to Korea.

Yesterday's BIS credit data for Q2 show why shifting to "loose" monetary policy isn't simple. The loosening of 2008-09 kicked off a rise in credit that hasn't stopped even though policy since then has been "prudent", and that in turn been a big obstacle to policy officially turning loose again.

On my estimate, China's seasonally adjusted trade surplus in November reached a new all-time high. This is partly about firm exports, more evident in volume than values. But it is also about weak imports, which however they are measured, have now been going sideways for almost two years.

In YoY value terms, November data confirm that the export cycle has peaked. However, there still isn't much slowing yet because in MoM terms, exports are still gradually trending up. Moreover, at least through October, exports volumes remained strong. Semi is leading the rise.

Today's 2nd release of Q3 GDP data was revised up to 1.2% saar, on the back of stronger capex and exports, but consumption was revised lower. The rise in today's EW survey suggests growth has improved further in Q4. The cycle is solid more than spectacular, but shows no damage from the July hike.

There's no sign of any faltering in the latest acceleration in nominal wage growth that began in 2023. That's true for both full- and part-time workers. For full-time workers, real wage growth is also improving, though so far, the extent of the change is just that earnings are no longer falling.

Inflation has eased, but outside of imported prices/goods, still isn't particularly soft. With the cycle also ok, the central bank won't be rushing to cut. So, while it would be usual to compare Taiwan's economy to Korea, in terms of current monetary policy, it has more in common with Japan.

China rates falling below Japan has attracted attention. Commentary in today's services PMIs explain the context. In China, cost inflation in November fell "to the lowest since the current sequence of inflation began in July 2020". In Japan, by contrast, "inflationary pressures remained marked.".

The PBC has followed up on earlier hints and announced household demand deposit inclusion in M1. That makes sense, and it will moderate the fall in M1. But while HH demand deposits are rising, time deposits are growing more quickly still, and it is this that needs to reverse for cycle recovery.

No wonder the BOK is worried. For exports, there was only a small rebound in November from the weakness of October. And, with exports closely following the lead from the equity market, it is unlikely there will be any renewed recovery from here.

The contrast between the Taiwan and Korean cycles is striking. In Taiwan, retail sales, while now rolling over, have been strong, and the decline is being offset by continued growth in IP. In Korea, weak retail sales aren't getting better, and IP continues to flatline.

Today's monitoring indicator from the government is another sign that the cycle has peaked. Activity is unlikely to get in a lot of trouble if TSMC continues to grow at around 20%. But it is difficult to see how growth can now surprise on the upside.

Profitability ticked up in October, but that was after a big fall the previous month, and the smoothed trend is still down. Relative to GDP, profits have only been lower than they are today in 2008-09 and 2020. The big drag continues to be heavy industry more than manufacturing.

The trend rise in upstream services PPI isn't faltering. With a decent MoM jump, the YoY ticked back up in November to the all-time high of 3.1%. This steady rise remains the clearest indicator of Japan's structural exist from deflation, and suggests also that the BOJ's cyclical story remains alive.

November consumer sentiment remained soft, staying barely above the survey's long-term average. That doesn't suggest consumer spending, which has been weak, is about to revive. At the same time, price expectations, firm all year, ticked up last month, warning that disinflation has run out of steam.

Latest data from the customs administration show no let-up in the export volume surge that began earlier this year. China's exports are growing as quickly they were during the pandemic. That's remarkable, given that in 2021-22 world trade was growing strongly, now it is hardly increasing at all.

It looks like labour market tightness has peaked, but the change isn't big enough yet to impact monetary policy. After ticking up in September, the unemployment rate was stable at 3.4% in October. That keeps it at a level not seen since the early 2000s.

YoY growth in Korean exports in the first 20 days of November didn't do much to reverse the October slump, a decline that feels more significant given the similar drop in the PMI in the last couple of months. Semi exports are still rising, but not much else is.