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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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Video – regional themes
A short video of this week's regional themes
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Japan – Taking Stock
Everything in the Japan macro story has fallen into place, except the labour market. Unemployment is going sideways, and wage growth hasn't picked up. We expect this is a soft patch, and as it clears, the BOJ will have more confidence to change YCC. July, probably, is too soon for that.
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Taiwan – a neutral pause
It was no surprise that the CBC kept rates on hold at its Q2 meeting today. The risk from here is that activity re-accelerates in line with the equity market, which would likely mean the bank's latest GDP downgrades are the last, and the bank in 2H isn't feeling so relaxed about inflation.
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China – debt and deflation
Today's data wasn't all bad, but the overall message is that economic momentum remains weak. With aggregate demand not strong enough to lift prices, deflation is worsening China's debt dynamics. In response, policy is once again loosening, but we think a real turnaround isn't likely yet.
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Korea – no labour market cracks
Employment rose and the unemployment rate fell to a new multiyear low of 2.5% in May. These aren't the sort of developments that will make the BOK fell more confident that the stickiness of core inflation is about to give way.
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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 – Taking stock
Regional data show three themes: 1) Differentiation: Japan strongest, Taiwan weakest; 3) Diversification in export markets: autos and DM holding up while tech and China remain weak; and 3) Desynchronisation: despite the weakness in exports and industry, services and retail sales are holding up.
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Korea – core inflation holding
Headline CPI inflation is now coming down quickly, and could drop below the BOK's 2% target by the end of Q3. But core inflation continues to hold up, and the BOK is unlikely to shift policy before that changes.
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Japan – labour data still soft
Consumer confidence improved again in May. That offsets the significance of the fall in April retail sales. But while employment sentiment in the consumer confidence survey also improved, it is still noteworthy that official labour market data through April continues to feel soft.
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China – no change in PMIs
The optimistic interpretation for the weak May PMIs is this is a soft patch that was inevitable after the strong Q1 bounce. But for manufacturing at least, that isn't especially persuasive, and the broad-based weakness of output prices is a warning of more more fundamental challenges.
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The China Diviner
If Japan's economic problems were about debt and deflation, then China is facing similar challenges. The one difference is the competitiveness of China's exporters. As a result, China is likely to see falling rates, but currency strength could be more of an issue for China than it was for Japan.
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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 – still soft
It has been a quiet few days for China data. What has emerged continues to look bearish, with the move of money into time deposits continuing, industrial prices falling more quickly, and corporate profits weakening.
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Korea – BOK on hold
It was no surprise to anyone that the BOK didn't change rates today. As things currently stand, we doubt it moves soon. It downgraded GDP forecasts today, but also revised up the outlook for core CPI. The combination obviously makes it difficult to hike, and hard to cut.
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Region – Taking stock
A slidepack summarising our cyclical and market views
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Taiwan – Taking stock
Taiwan continues to have a desynchronised story, with exports in recession, but domestic demand and the labour market holding up. This will keep the CBC on hold for now, with next steps being determined by whether the long-awaited DM recession materialises in 2H.
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Korea – BOK stuck
The BOK will likely remain on hold tomorrow. Falling headline inflation will create some space for the bank from here, but we think the labour market and core inflation need to soften to get rate cuts on the agenda. If the recent stabilisation of activity persists, that becomes less likely.
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Japan – strong PMI
The flash Markit PMIs in May were strong, showing the strong rise in economic momentum of the last couple of months is sustaining. According to the press release from Markit, price indicators were also firm, albiet not quite as heady as sentiment around activity.
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Korea – consumer sentiment rises
CPI expectations are falling, but consumer confidence and house price sentiment are rebounding. The easing of CPI expectations is another indication that further rate hikes are less likely. But it is unlikely the BOK will cut if the recent improvement in sentiment shows that the cycle is rebounding.
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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 – Taking stock
In his first speech as governor, Ueda Kazuo reiterated the BOJ's view that the current strength of inflation will prove transitory, and that the bank will be patient. To us, the case for this time being different is strengthening, but as yet has a missing component: labour market tightening.
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The China Diviner
Data inconsistencies are commonplace in economic analysis, and not just in China. Even so, that it is possible to claim that in the same month Chinese retail sales grew by 1%, 5% or 60% is problematic. We remain sceptical that the economy has recovered as much as official data suggest.
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China – property prices weaken
That property price inflation eased in April is no surprise, given the softening of all other real estate indicators this month. But it is still worth noting, especially given other data showing mortgage rates falling to new record lows. If policy can't turn the market around, then what can?
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China – soft cross the board
China's official activity data for April were soft, with IP, FAI and property construction contracting MoM, and retail sales slowing. Early indicators for May don't suggest a turnround, with the fall in industrial prices accelerating so far this month.