The platform for tracking and understanding East Asia macro
Perhaps the most important data point this week was the double-digit decline in import prices in June. That should reinforce the BOJ's conviction that headline inflation will fade in the coming months.
Property prices fell again in June. That takes our measure of all-economy inflation back to the lowest since 2008. The deflation back then was reversed by enormous policy easing, but that sort of easing isn't at all likely this time.
The PBC continues to ease policy. But that isn't reducing market rates. There are a few possible reasons: the PBC is cutting slowly; rates never move with fundamentals; the market expects growth to improve. All have some validity, but we think there is a real risk of policy being behind the curve.
The statistical surge in exports of March and April has now disappeared from the data. That leaves both exports and imports falling YoY, and leading indicators don't point to either recovering yet.
The BOK governor today did acknowledge the fall in core inflation in June, but otherwise the tone of the today's policy meeting remained rather hawkish.
Credit and money supply growth were soft in June. Without something changing, it seems unlikely there will be a rebound soon, with loan demand slowing, the property market weak, and liquidity preference still deteriorating.
Taiwan's desynchronised cycle can also be seen in wage growth, which is accelerating in services but slowing in manufacturing. This likely can't persist, and for wages and inflation to hold up, manufacturing demand needs to rebound. That isn't happening yet, with exports in June still subdued.
Both PPI and CPI inflation fell in June, with the overall momentum in real economy prices is now the weakest since 2008-09. There are some tentative signs that a floor will soon be reached for PPI, but no signs of any significant upturn in inflation.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
A short video discussing our current views.
Regular full-time worker wages lifted in May, just the sort of step-change that the shunto seemed to make likely. That is an important development. But part-time wage growth is more modest, and there was no big lift in the consumption activity index from the BOJ that was also released today.
Headline inflation is receding fast, but core inflation in Taiwan remains elevated, consistent with the low rate of unemployment. That will become important for the CBC if there is now any upturn in export growth.
The surge in the official PMI in June is at odds with other manufacturing indicators. But it is in line with the message being sent by the equity market, and recovery is worth keeping on the table as a scenario when unemployment is low and non-manufacturing sentiment continues to rise.
Headline inflation dropped in June, but there was also a first significant easing in core. That justifies the BOK being on hold, with the direction from here being dependent on external demand: does that now rebound on the back of AI demand for tech, or is DM about to take a dive into recession?
The key issue for macro in the region is whether exports are about to lift in the way equity markets are suggesting. Korean semiconductor exports did bounce in June. But manufacturing sentiment surveys in the region in June weren't strong, and early indicators for DM demand have weakened.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Two sets of data were released today. The Tokyo CPI statistics for June were mixed. More important for us were the national May labour market numbers, which continued to go sideways, and don't look strong enough to us to persuade the BOJ that this time really is different.
Orders-inventories did rise in the PMI today. But that is the one positive indicator. In most other ways, the PMIs were weak. Yesterday's Q2 surveys from the PBC also showed a fall in loan demand and continued weak price expectations. There's not much to suggest a turnaround in the cycle.
Retail sales were strong in May, but consumer confidence ticked down in June. This fallback wasn't big enough to be worrying, but is perhaps important when other indicators – namely the labour market – don't yet feel strong enough for the BOJ to be changing policy.
Business sentiment is going sideways. The weakest sector remains exporters, which suggests companies aren't seeing the recovery in external demand indicated by the equity market. The survey also gives the first hint that the goods price disinflation that began in early 2022 is coming to an end.
Consumption momentum in Taiwan remains decent, unemployment has fallen to a new multi-decade low, and there are now signs of a turn in the industrial cycle. It is starting to look more interesting for the CBC in 2H23.
In June the consumer confidence rose again; property price expectations picked up; and CPI expectations didn't fall. This probably isn't enough on its own to turn the BOK more hawkish. But if it is combined with better business sentiment and exports, then the bank will likely be back to hiking.
A slide pack on demographic dynamics, in particular addressing why the Japan experience doesn't tell us much about how changes in population structures will impact economies elsewhere.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Our latest slide pack summarising cyclical developments.