Monetary data for China for May and April wage growth were released late in the day, so some charts summarising both. And while semi-driven nominal growth is near 20% in both Korea and Taiwan, the volume and price composition is very different.
Japan's quarterly MOF and Cabinet Office survey showed business sentiment declining, but the labour market still tight and capex intentions firm. Korea's 10-day exports were strong again, especially in KRW terms, another sign of the huge nominal income growth Korea is currently experiencing
Korea is experiencing a large positive terms of trade. As that isn't being accompanied by any KRW appreciation, the result is enormous growth in KRW nominal indicators. Not all sectors are benefiting. But for monetary policy, the strength of nominal growth is impossible to ignore.
PPI inflation in China continues to rise, but CPI is constrained. Imported upstream inflation is even stronger in Japan, but export prices are rising too. The same chip boom that is boosting Japan's export prices is feeding into wages in Korea. TSMC sales rose again in May.
The corporate surplus is surging, and at first glance, that supports the idea that the semi-led cycle won't trickle down. However, while the labour share is falling, the rise in national incomes has been so strong that growth in labour compensation is accelerating. That should support spending.
The renewed rise in import prices is certainly inflationary, especially when the level of prices remains elevated after the hikes of 2021-22. However, this time export prices are rising too, and while that isn't enough to prevent the ToT from falling, it does limit the damage to the domestic economy
The rise in PPI that continued in May is of macro significance: it is pushing up industrial sector earnings, and the GDP deflator will likely turn positive in Q2. But it is difficult to find signs of domestically generated inflation that would suggest a real upturn in the economy.
China's May exports and imports were both strong. The details showed continuation of the steady uptrend in auto exports, big falls in energy imports, and strong trade in semiconductors. Chips exports remain the dominant story in Taiwan's trade, though imports have also been rising.
Chips rather than energy have been the bigger driver of trade patterns this year. That's true for exports and imports, though there are other drivers of both reaching record highs in May: autos for exports, ores and likely gold for imports. Despite the rise in imports, the trade surplus remains big.
Three things today. A review of the policy and data releases in Japan the last few days. Some charts on Taiwan's property market before next week's CBC meeting. And I've reworked my China dashboard for tracking trade flows, to make it faster, and incorporate auto data for Japan, Korea and the EU.
The narrowing budget deficit and widening BOP surplus likely won't move market opinion on either rates or fx. What is needed remains a more hawkish BOJ. Accelerating credit and wage growth push in that direction, though the wage data aren't great quality, and sentiment surveys are still weak.
Events in Japan in the next couple of weeks will likely be critical for the region. If a combination of a strong US jobs report and equivocal BOJ meeting push $JPY through 160, KRW and TWD will likely be dragged higher too. The implication would be higher inflation, and more pressure for rate hikes.
Lots today – initial observations from a big database I've been building on regional auto flows, a note on the KRW and today's BOP data, a short piece on today's higher inflation data in Taiwan, and charts on strong consumption in April and other secondary data from Japan.
Services inflation averaged 0.7% in the 20 years before 2020. In the last five years it has been 2.3%, and is now rising again. Some of that reflects energy prices, with air fares rising 10% YoY in May. But there is also the backdrop of a strong economy, rising stockmarket and rising wage growth.
KRW weakness was blamed on USD strength, then CNY weakness, then JPY weakness. Flows have gone from NPS, to domestic retail, to foreigner institutional. These rationalisations feel a bit like moving the goalposts. But weak KRW does have implications, one likely being a more hawkish BOK.
China's auto export surge has been less painful for Asia than for the EU. Japan's domestic market is more protected, and Korean exporters have little dependence on the China market. In third markets, exports have also held up, with tentative signs that China's exports are creating new demand.
An update on price trends. First, some charts on inflation pressure resulting from the Middle East conflict. Second, a review of real estate prices, which aren't as hot as equities, but are rising quickly in Tokyo and Seoul, and starting to rebound in Taipei.
The highlight today was the BOJ governor's speech, which I thought was about as hawkish as it could be. In China, while the official services PMI last month was weak, the RatingDog/S&P version was strong. Also in China, PBC liquidity withdrawals suggest May was another strong month for fx inflows.
Some highlights from governor's speech today: his remarks about strong bank lending, higher prices being a bigger burden to firms than rising rates, the link between low policy rates and the rise in market yields, and the upside risks to prices now that the "deflationary mindset has been dispelled".
A review of today's CPI release in Korea, a video discussing the market and macro consequences of the chip cycle, and some charts on the last trade release for April in China covering prices and volumes. Also, three charts highlighting why Governor Ueda's speech tomorrow is so important.
My latest video, a discussion of everything you need to understand the macro implications of the huge chip cycle – what's driving it, why prices and volumes matter, the role of China, the growth and inflation consequences, and what it all means for markets.
The rise in inflation is mainly about energy. But that headline inflation is now above 3% YoY – and private services over 4% – also reflects two other drivers: a high starting point, and the rise in chip prices that via cost-push is showing up in the CPI in higher prices for electronic devices.
The PMIs point to strong demand in Taiwan and Korea, supply disruptions in both economies and Japan, and elevated price pressures everywhere. In China, the same themes are apparent, but not to the same extent. Also today, Japan Q1 profits, Korea May trade data, and a strong non-mfg PMI in Taiwan.
Four themes: broader inflation risks, for the region and world; feedthrough from exports to domestic demand; semi cycle rather than energy as the dominant dynamic; likelihood of monetary tigtening.
In today's official data, headline PMIs for both manufacturing and services remain around 50. The details of the manufacturing PMI don't suggest much Middle East disruption. The run-up in prices that pre-dated Iran is, however, sustaining. On the other hand, employment remains weak.