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.
Japan being back from holiday allowed the delayed released of the BOJ's underlying inflation data for August. Holidays elsewhere mean no other data, so I've spent some time looking at the claims from Taiwan's central bank that its monetary policy stance is "on the tight side".
The CBC last week claimed that even with the policy rate staying at 2%, its monetary stance "remains on the tight side". I am not persuaded, but it is worth studying the bank's argument.
The further rise in upstream prices in China is likely to keep new monetary easing off the agenda. Japan's flash September PMIs softened, but manufacturing sentiment is still strong compared with recent years. M2 growth in Taiwan slowed, but private sector credit growth remains strong.
Highlights of a longer note on fiscal conditions in Korea and Taiwan. Consumer confidence in Korea in September remained elevated. Taiwan's IP growth slowed in August, but that follows the surge seen in the previous 6M. Retail sales growth is stable at around 5% YoY.
In many advanced economies, governments are drowning in debt. But in Korea and Taiwan they are floating up on the flood in revenue generated by the semiconductor boom. There is so much money that both economies plan looser fiscal policy while also paying back debt.
Some highlights of August country-level data for China's trade in autos, rare earths, semiconductors, batteries, industrial robots and solar. Also, data from Taiwan showing another rise in export orders, and the unemployment rate remaining pinned at 25-year lows.
An update on China's capital goods imports. They are dominated by the AI-tech trade, but underlying capital goods imports haven't fallen in the way that the weakness of FAI data would suggest. That AI tech trade isn't over yet, with Korea's 20 day exports for September rising strongly again.
The cycle isn't bad enough from Beijing's point of view to shift policy. With growth strengthening, it is reasonable to expect 25bp hikes/quarter in Japan. The BOK's dot plot looks light against nominal growth of near 30%. The CBC on hold is light when real rates across the curve are negative.
Highlights of the BOJ meeting, and charts of the CPI release. China export data for August show some weakness in EV shipments, but that is likely noise after a very strong July. PPI inflation in Korea ticked up in August, and with the rise in oil prices, is likely to be higher again in September.
Japan's Q2 flow of funds data give an update on several underlying aspects of the economy. Some charts on Korea's 2027 budget. And also, a couple of pieces on Taiwan, covering the CBC's on-hold decision today, and why I thought rates would (should) be higher.
