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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.
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.
Exports are starting to contract YoY, and inflation remains stable. Core CPI bears some monitoring, but it is unlikely the CBC will hike again.
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.
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.
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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