Machine orders in March and trade in April show Japan's cycle doing well before the war; the PMI for May points to deterioration since, and yet higher inflation. April PPI shows inflation going higher in Korea too, but strong exports so far through May show downside risks to overall growth are less.
Today's main data releases were in Taiwan: another enormous CA surplus in Q1, which strong export orders for April suggest isn't about to decline much in Q2. Japan's May Reuters Tankan was solid, but the outlook weak. Finally, some charts from my China trade dashboard, available on the website.
Japan GDP for Q1 and services output for March were both firm, but there are clear downside risks because of the War. Korean quarterly household loan growth accelerated, which adds to the reasons for the BOK to be hawkish. Also today, my latest podcast, in which I discuss these and other issues.
A discussion with IRF about my views on the region
A lot on China today, with the release of the main official economic indicators for April, Friday's BOP data for Q1, and today's fx settlement figures. Also, an update on the implications for Taiwan of Trump's interview to Fox news following his summit with Xi Jinping.
My initial interpretation of the Xi-Trump meeting looks wrong. While in the official talks neither side gave much, in a subsequent interview with Fox news, President Trump softened US support for Taiwan. Over the medium-term, that could be significant for politics in Taiwan, and currency valuations.
Most of the headline activity data in April weakened, with goods retail sales being particularly bad. So, clearly no macro recovery. But services retail sales picked up, and the stability in home sales and household liquidity preference, and firmer pricing, continue to suggest broad stabilisation.
The main regional themes weren't challenged by events last week: macro stabilisation in China; upside risks to inflation, particularly in Japan; and upside risks to growth, a theme for both Taiwan and Korea as long as the energy crisis in the Middle East doesn't derail the semiconductor super cycle.
Highlights of a longer note exploring why China's imports have suddenly picked up so sharply. Also, some analysis of trade price data for Korea and Japan: import prices in both are rising fast, but it is export prices increasing at record-breaking rates. Finally, yesterday's monetary data in China.
Data today for Japan and Korea show the inflationary impact of the War, with import prices in both economies rising at double-digit rates. However, such rises have been seen before. By contrast, export price inflation is setting records, offsetting the hit from energy prices to domestic growth.
The big trade story this year is the sudden rise in imports. There are some signs of firmer domestic demand. But 80% of the increase is from two categories alone: precious metals and semiconductors. And most of the semi strength is volumes, which is puzzling when global IC prices are rising so much.
A quick review of inflation trends in China, with the release today of upstream price data for the first 20 days of May. Also, highlights of the speech by BOJ policy board member Masu Kazuyuki.
A longer piece on how the impact of pricier energy imports is being offset by big increases in electronics export prices. Today's data releases showed competing cycle indicators in Japan: strong bank lending versus a weak EW survey. Some contradictions also in Korea, with low UE, but soft wages too.
The Iran War will push up inflation. But for growth, transmission is via the terms of trade, and higher import prices are being offset by historical rises in export prices, increases that are unlikely to be just cyclical. That supports growth in Asia, at the expense of even more inflation for ROW.
Signs of less loosening in China, in both the PBC monetary policy report for Q126, and the April release of the central bank's liquidity operations. In Japan, the summary of the April MPC show more pressure to tighten. Consumption data for March and trade data for early April were stable.
China CPI and PPI data for April showed a further strengthening of inflation. Korea's trade data for the first 10 days of May indicate no slowdown in semi exports (or rise in energy imports). Data for Taiwan through March point to a slowdown in wage growth in recent months.
PPI inflation accelerated again in April, and with CPI inflation firm, the GDP deflator is on track to rise in Q2 for the first time in 2022. The turn is being led by energy and commodity prices. There are some signs of a stabilisation in underlying prices too, but so far, they are tentative.
Stabilisation in China seems to be becoming a more popular view. Hope is building for a BOJ hike in June, but one won't be enough. KRW should be strengthening, but likey needs more Middle East certainty. The big event for the region this week is the Xi-Trump meeting.
After doing nothing for 3 years, imports are suddenly growing 20%. Chips are one component, but while I thought that related to prices, official data show the bigger diver of overall imports is volumes. I am not sure that's because of domestic demand, but it is starting to reduce the trade surplus.
Korea March data finally showed a fall in offshore buying by residents, only to be replaced by domestic selling by foreigners. Taiwan's April trade data show limited Iran impact. Japan wage growth in March was strong, but only at the headline level. And my latest video, on why Taiwan macro matters.
April trade data show little damage from the Iran war. If the crisis remains limited to energy prices, Taiwan should be somewhat insulated. Energy imports are small relative to chip exports, and while import prices will rise, export prices are now also increasing for the first time in a generation.
Latest video, discussing one of my main themes: that Taiwan macro is more relevant for global investors than it has been for a long time.
March data offer more evidence that the KRW just can't get a break. Finally, retail outflows into foreign assets eased, only to be replaced by huge domestic selling by overseas investors. That has normalised in April, so perhaps investors are realising that a CA surplus of 20%+ of GDP should matter
Highlights of longer notes on the regional outlook, and growth trends in Korea. Also, a summary of today's inflation data in Taiwan, where import prices are rising, but export prices are too. Finally, high-frequency upstream price data in China, and the April monetary base update in Japan.
The BOK's current forecast assumes no GDP growth in the rest of the year, and contracting exports. But export growth still looks to be picking up, capex indicators are improving, and there is a tailwind from growth in real Gross Domestic Income in Q1 being faster than any time since the 1990s.