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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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China – uneasy recovery
Our view has been that China's cycle has bottomed, and that market sentiment has been too pessimistic. The official PMIs for March support that idea, but the details aren't convincing enough to think the cycle has real momentum.
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Japan – consumption ticks up
The upside risk for Japan and the Bank of Japan is a fall in headline wages and a long-awaited recovery in consumption that lifts aggregate demand. There are some signs of that process falling into place, but they remain tentative.
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Korea – activity still struggling
Business sentiment in Korea still isn't recovering. Exporter confidence has lifted, but continues to be offset by weakness among domestic firms. Price expectations in the consumer survey yesterday were probably still too high for the BOK's liking, but the probability of a BOK rate cut is growing
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Korea – consumer confidence and price expectations sideways
Consumer confidence remains around the historical average, which is not strong enough to remove BOJ concern about the sluggishness of the domestic economy. However, the March survey doesn't give the bank the all-clear to act, with price expectations picking up for the second consecutive month.
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China – past peak auto?
China's rising competitiveness in more capital-intensive manufacturing sectors is an important theme that we still buy into. However, relative to this belief, and the current global concern about China's EV export peril, recent export performance has been a little underwhelming.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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Japan – stepping back into Shirakawa's world
Former BOJ governor Shirakawa continues to argue Japan's problems are about demographics, not deflation. His thesis is worth studying, even if it is not shared by the current leadership in the bank.
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China – could it just be a cycle?
We aren't convinced that falling PPI shows China is stuck in a deflationary trap. China's PPI cycle isn't out of whack with global trends, and unlike Japan in the 1990s, monetary policy isn't reinforcing the drop. There's potential for nominal growth to look better this year.
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China – the government's confident narrative
Jan-Feb data validate the idea that the cycle has bottomed. The driver, however, is industry, which doesn't feel consistent with the continued weakness in property. Another leg-up in macro confidence likely still needs a real bottoming of real estate, and a strengthening of consumption.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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China – sideways
Our impression from the data released so far for January and February is the underlying economy is going sideways. The credit impulse is soft, but not especially weak; mortgage growth has slumped, but isn't worsening; and both M1 and excavator sales look a bit stronger so far this year.
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Region – the structural rise in wages
Not just in Japan but Taiwan too, there are signs of a structural break from persistently low wage inflation. The implication is that the gap between nominal monetary settings between both and the US is likely to be narrower in the future than it has been in the past.
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Korea – talk of a "pivot"
The main takeaway from the BOK minutes for February was concern about the weakness of consumption. Inflation being above target means that policymakers don't feel able to react to that yet, but the bank is sounding more doveish, and will turn further in that direction if exports disappoint.
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Japan – long- and short-term corporate sentiment
Two recent surveys from the Cabinet Office highlight Japan's labour market tightness. In its annual survey released at the end of February, hiring intentions are the highest since the 1990s. And today's quarterly survey shows worker shortages rose again from Q4.
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Japan – the good and bad of the GDP revision
It was no surprise that capex was revised up in the second release of Q4 data, but consumption was revised down. We would expect consumption to recover from here, as imported inflation eases and nominal wage growth accelerates.
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China – perhaps core CPI hasn't dropped since covid
It wasn't surprising that core CPI picked up in February. But the rise took average core in the last three months to 2% annualised, a rise big enough to challenge the idea that there's been a structural shift down in core since covid. That reinforces our view that underlying inflation has bottomed.
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Taiwan – everything but exports
Exports and manufacturing remain sluggish, but the leading indicators look strong. At the same time, services activity remains firm, unemployment is at 20 year lows, and inflation at 20 year highs. If exports do kick in as the leads suggest, it is easy to imagine the central bank having to hike.
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Japan – strong sentiment and wages, not consumption
Even more than the PMI, the EW survey points to Japan's cycle having decent momentum. There is upside risk around that, because consumption has yet to recover, while it looks like the shunto wage round will be strong. That is the backdrop for increasingly confident commentary from the BOJ.
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China – could it just be a cycle?
We aren't convinced that falling PPI shows China is stuck in a deflationary trap. China's PPI cycle isn't out of whack with global trends, and unlike Japan in the 1990s, monetary policy isn't reinforcing the drop. There's potential for nominal growth to look better this year.
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Korea – headline CPI up, details not
Inflation ticked up in February. That was expected by the BOK, and the details don't look particularly strong, with core stable, and trimmed mean continuing to fall. There is still an argument that inflation will be sticky, with personal services inflation remaining over 2%.
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Japan – inflation stable, cycle firm
Headline inflation in Tokyo in February rose from 1.8% YoY to 2.6%. So inflation isn't disappearing. But underlying measures don't suggest that inflation really is accelerating either, with core settling around 2% annualised. At the same time, the PMI shows services momentum remaining firm.
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Japan – stronger capex
The big bounce in capex in Q4 suggests an upwards revision for GDP, and if sustained, potentially better productivity growth. However, wage growth was soft, and as a result, there wasn't much reversal of the sharp fall in the labour share of Q3.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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Region – manufacturing cycle
It is always tricky to get a real sense of the manufacturing cycle early in the year when the data are so distorted by the LNY holiday. From what we can tell, it doesn't look like there's been a big pick-up yet, though leading indicators continue to point to upside ahead.