Issue covered today: EU-China auto trade, machine tool orders in Japan, trade for the first ten days of October for Korea, and September reserve money data in Taiwan. Also (again) a link to the podcast I did last week with Macro Hive.
China's auto trade balance with Asia and the EU, the manufacturing upturn in Japan, another large current account surplus in Korea, and further acceleration in Taiwan's exports. Also, I was very happy to have the chance to go back on the Macro Hive podcast, with the link included here.
I don't think the China-EU sectoral deal means a China-EU CNY deal is coming. The cycle continues to improve in Japan. Export momentum in Korea and Taiwan remain strong, with more signs of spillover into inflation in Taiwan. Links to all last week's research, as well as my latest podcast appearance.
China's upstream price data confirm the rebound in costs seen in the PMI. Nonetheless, the PBC continued to inject liquidity in September. Details of aggregate household incomes in Japan in Q2 are useful for understanding Japan macro, though the data don't all point in one direction.
Q2 aggregate consumption was weak because incomes were too. Asset incomes are rising, but wages are soft, and in cash terms, the tax burden has been increasing. But while spending in aggregate terms is constrained, the population is falling, so in per capita terms there is actually recovery.
The BOJ's regional report, an important input into the monetary policy process, showed strength in industrial activity and inflation. Korea's August CA surplus rose again, implying higher nominal GDP growth. Far from slowing down, Taiwan's exports in September accelerated again.
The strength of the current account in August shows Q3 will be another blowout for nominal GDP, improving all Korea's macro ratios. That provides cyclical and structural reasons for KRW strength and relative outperformance of longer-term KTBs. The headwind remains equity outflows.
There were a few releases in Japan today that were worth summarising. Taiwan's September CPI data was important, showing inflation remaining firm. Korea's Q2 flow of funds offered another illustration of the broad impact that the chip boom is having on the macroeconomy.
Taiwan's price data still don't suggest the economy is overheating. But pipeline pressure is strong, computer prices are surging, indirect energy prices can't be easily controlled by policy, and underlying inflation still looks firm. That all stands out when real interest rates are still negative.
The overall impression from all today's releases is continued inflation pressure supported by a stronger mfg cycle. The signs of a fall-off in services momentum, however, bear monitoring, perhaps showing signs that tightening might actually be biting. If so, the implication is a flatter curve.
No data releases today, and the work I've been doing on China's global market shares isn't finished. So instead of individual economies, today's daily is a review of regional trade patterns: exports, imports, prices, major products, and balances.
Commodity prices show pipeline inflation pressures across the region remain substantial. In Japan, domestic price pressures are also apparent, with a renewed rise in the positive output gap in Q2 and high consumer inflation expectations. Taiwan's fx reserves fell in September.
I am trying out a free weekly, highlighting four charts that illustrate macro trends across the region. Today's covers input prices in China, broadening CPI inflation in Japan, exports in Korea and the property market in Taiwan.
China's incremental policy is unlikely to move the cycle. Japan's nominal growth is strong enough to make the October BOJ meeting interesting. In Korea, the mainstream MPC view of one hike in the next 6M looks light. The revival in property sentiment in Taiwan is important given negative real rates.
Inflation in the full Tankan was stronger than in the summary, and actual CPI for Tokyo for September showed signs of broadening too. Korea September CPI was also strong, though more cost-push than demand-pull. Taiwan's property market remained weak in September. However, sales are up from the lows.
I have been thinking that underlying inflation remains modest compared with headline. That is still true, but today's inflation data were strong. Tankan price measures for all firms were firmer than for large firms alone. And Tokyo September inflation was broad as well as strong.
Underlying inflation was firm in September, because of energy, and the surge in semiconductor prices raising the price of electronics devices. September data show the chip shock isn't over yet, and the BOK expects demand-pull inflation to also become more obvious in the coming months.
Japan's Tankan was strong enough for faster rate hikes, though likely not at the October meeting. Korea's positive terms of trade shock remains intense, with exports surging again in September. The details of Taiwan's PMI were weaker than the headline, but price pressures are rising again.
The Tankan survey suggests nominal growth stronger at the margin, but not gaining a lot of new momentum. The tone of the summary of opinions of the September meeting looks similar: likely faster rate hikes, but no sense of the sort of urgency that would make October a live meeting.
Not unusually, China's PMIs in September were mixed – a picture consistent with yesterday's announcement of incremental policy support. IP and retail sales in Japan fell in August, partly because of temporary factors. Korea data were also weaker last month, but that followed strength in June-July.
Softer output and capex in August is most likely noise, reflecting temporary issues in auto production, and lumpiness in investment spending on transport equipment. Even with that, Q3 GDP growth is tracking around 1% QoQ.
The manufacturing PMIs remain mixed. The S&P version is much stronger. And while weak in level terms, prices in the official versions are strong. This is the context for the latest, incremental, policy measures: from Beijing's perspective, conditions just aren't bad enough to warrant a new approach.
Lots of data updates today: August services trade and Q2 current account in China; export and labour market updates in Japan; for Korea, the September business confidence survey from the BOK; and finally in Taiwan, leading indicators for August and consumer confidence for September.
Despite a real surge in profits in tech hardware, overall industrial earnings in China continue to go sideways. Services PPI inflation in Japan points to real upside pressure for headline CPI in Japan in the next 6M. In CPB data, the recent strength in global trade volumes held up in July.
The main cycle news in China is the rebound in input prices that likely further postpones monetary loosening. In Japan, the market will be waiting for this week's summary opinions of the September meeting. Korea has the strongest cycle momentum. In Taiwan, monetary policy looks too loose.
