Paid Members Public Korea – still weakening Business sentiment continues to fall, taking the BOK into what would usually be loosening territory. However, there is now some risk of second derivative improvement, with exporter sentiment and the diffusion both ticking up through February. Paid Members Public Korea – inflation expectations up Inflation expectations ticked up in January. That probably reflects a stabilisation of headline CPI on the back of higher utility prices. It would be more significant if improving market sentiment towards the global cycle starts to show up in a real strengthening of Korean industrial data. Paid Members Public Korea – less worse Exports remain weak, and should deteriorate further in Q1. However, shipments in January weren't as bad as they might have been, and with our regional leading indicator showing early signs of bottoming out, there is now a risk of second-derivative improvement in Korean exports through Q2. Paid Members Public Korea – careful what you wish for Korea's property market is reversing sharply. That turn will help control CPI inflation, but also increases the downside risks to growth. That in turn makes BOK rate cuts more likely. Paid Members Public Korea – last hike The BOK hiked again today, but the meeting gave strong hints that this is the last in the current cycle. The probability of a cut will likely start to grow in Q1, though for the BOK to actually do that, the bank will need more confidence that inflation is going to decline. Paid Members Public Korea – unemployment up Unemployment rose and employment fell in December. This deterioration in the labour market is part and parcel of the BOK's attempts to control inflation, and weaker data for one month won't start the bank loosening. But the December data do make further hikes less likely. Paid Members Public The East Asia Economist Our model suggests the BOK doesn't hike this week, and the inputs point to the bank being pulled into loosening territory during the year. The risks are that domestic factors, rather than exports and the industrial cycle, prove to be bigger drivers of inflation than they have been in the past. Paid Members Public Korea – inflation now turning Activity has been weakening for a while, and there are now signs that inflation – for services as well as goods – is starting to turn down too. Rate cuts should be a possibility through Q2. A pre-condition is a more obvious weakening of the labour market. Paid Members Public Korea – a clear turn Exports and the property market are turning down sharply. Employment growth has stalled, but the number of jobs hasn't yet fallen much, being held up by the services sector. That should be the next shoe to drop, and if it does, will open up a possible path for BOK rate cuts. Paid Members Public Korea – core CPI still high 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. Paid Members Public Korea – exports drop again 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. Paid Members Public Korea - BOK still hawkish The BOK wasn't quite as hawkish as it has been, but is still some way from becoming dovish. Paid Members Public Korea – cutting on the agenda 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. Paid Members Public Korea – the case for a pivot 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. Paid Members Public Korea – DM exports holding up 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. Paid Members Public Korea - labour market turning 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. Paid Members Public 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. Paid Members Public 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. Paid Members Public 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. Paid Members Public 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. Paid Members Public 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. Paid Members Public 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. Paid Members Public 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. Paid Members Public Korea – still slowing Headline growth in Korean exports slowed to 2.8% YoY in September. Our model points to a further decline in the next few months to around -10% YoY. Paid Members Public Korea - becoming more interesting The business sentiment survey for October shows confidence continuing to fall, particularly in manufacturing. It is likely by the end of this year that, for the first time in this cycle, the strength of activity starts to become a concern for policymakers.