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June data improved, and in July the economic indicators will likely be stronger again. But it doesn't feel like the conditions are yet in place for a sustained recovery in economic momentum through 2H. Indeed, it feels like there is a rising risk that the recovery runs out of steam.
China's exports continue to show some resilience, but there's nothing to suggest a repeat of the 2020-01 boom that helped lifted the domestic economy out of the first covid shock.
The BOK was yet more hawkish today, signalling controlling inflation, and specifically inflation expectations, remained the bank's top priority.
The June labour market release wasn't significant for the BOK. There was a pause in the rapid tightening of the last few months, but the unemployment rate remains very low, and employment high.
After a bit of a pause earlier in the quarter, import price inflation accelerated again in June, signalling a further rise in CPI.
Credit data were strong in June, and big enough to help short-term market sentiment. But the details were weaker, with the rebound being driven by government bond issuance.
Machine orders softened in May, but not by enough to outweigh the improvement of the previous two months.
The economy is still recovering from the lockdowns of April and May, and that recovery likely still has some room to run. But it feels like downside risks are now growing again. This week's export and monetary data will be useful in evaluating just how large those risks are.
The labour market is tightening. But while wage growth is accelerating, the pick-up is modest, and doesn't look sufficient to create a lot of upwards pressure on prices.
Headline inflation rose again in June to the highest since 2008. That was mainly food and goods prices. There are some signs of inflation broadening out, but for now, they remain tentative, and core is stable at around 2% YoY.
The BOJ's consumer survey provides granularity on the negative impact on spending of rising prices. However, the survey also shows overall confidence being mixed rather than outright negative, with two offsets being a tight labour market and rising incomes.
Exports held up again in June, but the outlook is changing as expectations for the semiconductor industry become more bearish. The recent equity sell-off suggests Taiwan's exports could be falling 10-20% YoY in the coming months.
June's data still don't show much inflation in China. And, outside of food prices, there's not much sign of that being about to change.
The fall in manufacturing sentiment is concerning, and there's clearly concern about input prices. But commentary in the survey overall didn't seem particularly negative, including further signs of a normalisation of consumer behaviour after covid.
Despite all the JGB buying in June, Japan's monetary base actually contracted in the month. That was because of the winding down of the Covid-19 lending programme, and shows monetary expansion isn't as wild as headline data alone would suggest.
China didn't ease like the US in 2020, tightened in 2021, and yet leverage is still rising. In the short term, there's unlikely to be a change without more policy support for households. With Beijing against welfarism, that seems unlikely, which suggests a structural outlook of lower interest rates.
Korean inflation rose again in June. Worryingly for the BOK, while goods price inflation is softening a touch, domestic services inflation is still accelerating.
The themes for China cycle are unchanged: recovery; not huge stimulus; an ongoing commitment to zero covid; and a lack of underlying inflationary pressure. These themes need to be challenged before there are bigger shifts in China's financial markets.
Taiwan's manufacturing PMI has been surprisingly weak the last couple of months. There is a risk this is directly related to the China lockdowns which are now easing, but the internals of the survey are also soft, suggesting the underlying cycle is still weakening.
The sharp acceleration in CPI inflation of the last couple of months faded in June in Tokyo. Without a new driver emerging, it seems likely that national inflation is close to peaking, though JPY weakness will likely prevent inflation from falling too far.
The labour market is fairly tight, and the gap between demand and supply is continuing to narrow. But the pace of tightening is gradual, and doesn't seem likely to create a lot of wage inflation any time soon.
With respect to activity, the BOJ Tankan sends a somewhat mixed message, with sentiment stable, and capex quite strong. On inflation the survey corroborates the message of other leading indicators, suggesting that the acceleration in CPI is losing some momentum.
Activity in Korea continues to hold up reasonably well. There are some signs of inflation peaking, which might be important for the BOK, but not until later in the year at the earliest.
The PMIs rose in June, but the neither the size of the improvement nor the details of the surveys suggest that the economic recovery out of Covid will be particularly strong.
Not only were the headlines in the PBC's quarterly sentiment surveys weak, but so were the underlying indicators that usually lead the overall economy. With little resilience in these indicators, the pace of recovery from the covid lockdowns looks likely to remain modest.