The platform for tracking and understanding East Asia macro
The official PMIs for June show China's cycle remains weak, weighed down by construction. There is unlikely to be a recovery until the property cycle stabilises.
Today's data releases show stronger Tokyo inflation, headline and core; no big change in the labour market; and a rise in IP.
Business confidence remains weak, and prices haven't fallen back. The one change in the June surveys was a further rise in exporter sentiment. That is starting to look more significant.
April SPPI was revised down, but the SAAR through May remains around 4%. With wage growth up, the BOJ's new measures of SPPI by labour content suggest inflation remains well-supported.
Catching up on wages, inflation, activity and the BOJ. Overall, growth is weaker, and inflation stronger, trends that are likely to intensify after the bank's lack of action earlier this month.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Given the confidence the bank has been expressing, the BOJ meeting this week was disappointing. By raising the RRR, Taiwan's CBC, by contrast, was somewhat hawkish.
A slide pack looking at cyclical and structural issues. The story is strongest in Japan and Taiwan; there's the potential for a break in trends in China; while we find Korea less interesting right now.
There's obviously noise from month to month, but the step-change in wage growth since the pandemic – following an earlier acceleration in 2017 – looks to be holding.
On a headline basis, the labour market is tight, but the details aren't so strong. Moreover, while employment hasn't fallen much, it does feel peaky, particularly given the weakness of the cycle.
PPI, as expected, was stronger in May. But any positive impact on market sentiment will be dampened by renewed weakness in core CPI.
A refreshed slide pack looking at China today and the experience of Asia in the 1990s, with a focus on deflation and rates, exports and mfg, and household income and consumption.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Far from gaining momentum, Taiwan's exports fell in May. That is at odds with some other indicators for the mfg cycle, but as long as exports are soft, the overall cycle will be too.
The big export growth markets of recent years – autos, BRICs, ASEAN – have lost some oomph. But cyclically, the modest recovery in exports is continuing, particularly in CNY terms.
Services inflation will likely ease, but there's upside risk for inflation overall, because of a potentially big rise in exports when import prices are recovering, and unemployment is low.
Of course, headline data matter. But not as much in Japan as elsewhere. Official data don't suggest a tightening economy, but in the last 6M, the BOJ has nonetheless become more confident that Japan is heading to sustainable inflation. We'd expect more rate hikes soon.
Wage growth in Japan is solid, and the macro backdrop, such as today's services PMI, indicates is probably accelerating. However, the pick-up isn't showing up in all the data.
There are some signs of stickiness in services inflation, but May data show that, overall, CPI continues to move in the right direction for the BOK.
The regional mfg cycle is recovering, but gaps between official and S&P PMIs mean it is difficult to gauge strength. However, all surveys do point to a broad-based firming in input price inflation.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Data this week show a return to JPY-driven inflation that erodes consumer incomes and spending. But shifts in BOJ language suggest a central bank that is less doveish, a shift that should start to matter for the currency.
Without effective property policy, there is still a mildly positive macro story, based on a rebound in PPI, and stronger exports. The PMI offers support for the first, but not the second.
In slides laying out a comparison with Korea, we argue that Taiwan's macroeconomy is close to a structural break to the upside. An export recovery that is as strong as has been priced in by equities would likely be the tipping point.
We have a look at services price momentum and the BOJ view, with April services CPI, services PPI, and deputy governor Uchida's speech yesterday, remarks that he concluded by saying: "this time is different"!