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Modest wage growth is gradually accelerating. Labour market dynamics are consistent with that continuing. There is upside risk, but that remains the same as it has been the last few months: normalisation of the economy after covid.
The industrial cycle is slowing, consumer confidence is weak, and a modest rise in inflation has likely peaked. Given all that, Taiwan is well-placed to be the first regional economy to cut rates. The risks are yet more aggressive Fed hikes, or a powerful economic turnaround in China.
Core inflation remains elevated, but the BOK is signalling it is near done with hiking. That's because of the deterioration in activity. That slowing of growth is sharp enough to make cutting a possibility, though the BOK likely needs to first see a fall in employment.
Korean exports fell again in November, and leading indicators suggest there is still more downside to come. The deterioration will test the BOK's ability to continue to hike rates.
The PMIs suggest renewed weakening of the economy in November. That perhaps explains the accelerated pace of property easing. That loosening is an important development, but as long as China remains mired in covid difficulties, the outlook for the economy will remain very difficult.
The population is starting to chafe against lockdowns, but isn't prepared for opening. The compromise path forward is rising covid cases signalling more eventual openness, but lockdowns continuing to be used to try to slow the spread of the virus. That's a very messy path for financial markets.
The BOK wasn't quite as hawkish as it has been, but is still some way from becoming dovish.
The business sentiment survey is suggesting a deterioration in activity, and a fall in inflation. The survey hasn't yet fallen into cutting territory for the BOK, but likely will in Q123. That will become a more important message for the central bank if the labour market also starts to slacken.
With inflation expectations remaining high in today's November consumer confidence report, the BOK will likely hike this week. But from today's survey, and the cycle more generally, a case is emerging for a BOK pivot.
It is no surprise that today's October data show Taiwan's export orders continuing to weaken. More interesting was that the data also showed weakness in orders from the US. That is what should be being seen, though it is a trend has yet to show up consistently in data across the region.
Korean exports are falling. Our model suggests there is still worse to come. From a market perspective, the next shoe to fall looks likely to be DM demand, which has remained surprisingly resilient in recent months.
Japan's exports are being helped by some normalisation of auto sales. But our regional leading indicator continues to point firmly down.
Data released this week show the central bank's balance sheet continues to hardly grow, and depositors continue to move money into time deposits. That is happening even though real economy interest rates are at or near record lows.
Property prices continue to fall, even though mortgage rates are likely at record lows. All the policy loosening of recent days should start to make a difference, but it is as yet difficult to imagine a big upswing in the property market.
In Q3, the economy contracted. Leading indicators suggests that this is noise, and that a mild rate of growth should resume. But corporate sentiment remains unstable, and consumers continue to feel the pressure of rising prices.
October data confirm the message of the PMIs that the cycle remains weak. There continue to some tentative signs of a floor, which has a bigger chance of holding given the policy moves of the last few days. But the softness of property sales suggest the foundations for any recovery remain weak.
The authorities have relaxed covid and property restrictions. It feels very unlikely that the economic disruption caused by efforts to contain the pandemic is yet over. But taken together, the policy shifts do further rebalance what previously were overwhelmingly downwards risks for the economy.
The monetary data aren't bullish, but are more constructive than the headlines suggest. That's because credit growth outside of government borrowing is rising. This keeps alive the possibility that China is through the worst, though such an interpretation is a stretch as long as M1 growth is weak.
In October, headline PPI fell back into deflation, and CPI inflation eased quite sharply too. But there are signs that China is nearer the end of this deflation shock than the beginning.
It isn't enough yet, but there are signs that the labour market is starting to cool. The unemployment rate remains low, but employment was more or less unchanged in October for the fifth consecutive month. The risks for the BOK are shifting.
Exports are starting to contract YoY, and inflation remains stable. Core CPI bears some monitoring, but it is unlikely the CBC will hike again.
Underlying dynamics in both the labour market and consumption suggest the economy remains on a recovery path. But the positive impact of these trends continues to be offset by inflation.
The two big recent catalysts have been 1) that the new leadership ends China's growth story; and 2) zero covid is about to end. All told, this chatter hasn't taken the market far. For the industrial cycle, there remain tentative signs of a bottom.
YoY export growth fell to zero in October. More downside is ahead, though surging car shipments suggest autos might buck this trend. Import demand is also slowing. It should contract aggressively in the next 6M, though that looks pessimistic given commodity prices and imports in the PMI.
Early data show some deterioration in China's financial account in Q3. The shift though isn't as significant as might be expected, and the current account improved. The data won't do much to boost the CNY. But at face value, they aren't a reason for a sharper sell-off.