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Taiwan – cycle slowing, CPI stable
Exports are starting to contract YoY, and inflation remains stable. Core CPI bears some monitoring, but it is unlikely the CBC will hike again.
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Japan – inflation overhang
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.
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China – taking stock
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.
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China - export growth stops
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.
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China - modest net outflows
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.
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Korea – stubborn core CPI
The tick-up in headline CPI shouldn't persist. Core CPI inflation will likely prove more stubborn, but rather than prices spiralling up, the bigger risk right now is a sharp slowdown in economic activity in 1H23. This should provide justification for a BOK pivot, as long as the Fed does the same.
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Taiwan – weak
The official manufacturing PMI ticked up in October, but only to 45.4. The Markit version fell to a new post-2009 low of just 41.5. The economy is likely contracting, and with inflation pressure already not particularly strong, it seems unlikely the central bank will feel a need to hike rates again.
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Korea – exports still falling
Korean exports are now falling in YoY terms, and there is more downside ahead. This is another sign that activity will soon be in cutting territory for the BOK. The fall in exports is meanwhile keeping the trade balance in deficit, meaning flows remain a negative factor for the KRW.
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China - weak again
The PMIs remain weak, with the only bright spots being construction, and prices. The cycle may have found a floor, but only a weak one.
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Taiwan - industrial cycle downturn
Taiwan's IP data are another sign of a sharp downturn in the region's industrial cycle. IP fell more than 5% MoM in September for only the fifth time since 2008. This weakness hasn't yet started to affect the domestic economy, with the labour market and retail sales stable in September.
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China – summary slides
Some slides from a brief presentation I gave yesterday. It was in three parts: the deflation problem; the short-term outlook; and the Congress contradiction.
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Korea - close to cutting territory
It didn't quite there yet in November, but in the next couple of months business sentiment will most likely be back at levels where, far rather than hiking 50bp, the BOK has historically been cutting.
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Korea - inflation expectations tick up
Inflation expectations rose in October. That will keep the BOK hawkish, even though falling property price expectations add to downside risks for growth into 2023.
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China – tentative signs of a floor
There are signs that the economy is bottoming, in the form of property sales, excavator sales and, to a lesser extent, property starts. These though are tentative, and need to strengthen before concluding the economy is through the worst.
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Japan – inflation higher, domestic activity recovering
The EW survey suggests the economy is growing, but slowly. Inflation is rising, dampening consumer sentiment, and manufacturing sentiment has weakened, but there's some offset from post-covid normalisation. This picture suggests the BOJ can for now continue to tolerate the weakening of the JPY.
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Korea - exports down again
Exports fell again in October, and excluding ships, are now down almost 20% from the peak. So far, the weakness is concentrated in shipments to Asia. The real risk is sales to DM will be the next shoe to fall.
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Taiwan - DM demand holding up
Unsurprisingly, export orders fell YoY in September. The weakness remains concentrated in demand from China. Orders from the US and EU have so far remained elevated. The risk is that this demand from DM will be the next shoe to drop.
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China - monetary indicators still mixed
With September's monetary data suggesting a further fall in liquidity preference and M1 growth, it still doesn't look like the economy is poised for a turnaround. But it is starting to feel like the risks around the cycle are less to the downside than they have been for the last few months.
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Korea – still too inflationary for the BOK
Korea is starting to look a bit less inflationary, with import price inflation easing, and the labour market no longer tightening. But the BOK remains hawkish, worrying that the weakness in the KRW will drive inflation higher.
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China – in deflation
While the rest of the world is in inflation, China, at least on a sequential basis, has sunk into deflation. Apart from food and property prices, there's no sign of inflation coming back.
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Taiwan – exports falling sharply
Exports fell in August for the second consecutive month. This fall is warning of a sharp downturn in external demand, a development that has regional implications. For Taiwan itself, with inflation low, the CBC likely won't be hiking, meaning more cyclical pressure for TWD depreciation.
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Korea – headline down, core up
Headline inflation is easing, which should start to impact expectations of how much more the BOK will hike from here. But core inflation on a MoM basis remains elevated, supported by rising services prices. That suggests cuts from the central bank aren't a near-term prospect.
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Japan - warming up, gradually
The Tankan suggests that growth should be just about strong enough to produce a further closing of the output gap. In this sense, while they aren't particularly solid, some of the foundations are falling into place for a broadening of inflation away from just import costs and goods prices.
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Taiwan - weakest since pandemic
Taiwan's manufacturing PMI fell again in September to 44.9. The manufacturing recession means inflation is unlikely to rise further, taking pressure off the CBC to hike. The sharp fall in Taiwan's PMI also continues to signal downside risks for the regional export cycle.
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China – Beijing blinks
Policymakers have blinked, announcing a raft of measures to support property. On their own, these aren't sufficient to have conviction that the economy will turn. But with improvement in the construction PMI, they do suggest that for the first time in a while, not all the cyclical risks are down.