Headline official PMIs continue to closely hug the 50 threshold. I am not sure that tells us much about the economy. But two components of the PMI are useful. The ongoing slump in construction indicates no property revival. Price indicators show PPI still strong, but warn of some weakening in CPI.
The BOJ said today that risks for overall inflation are still on the upside. Korea's month-end data releases were strong for activity and capex, weaker for consumption. Taiwan's economy re-accelerated in Q3. It is plausible that the export contribution to GDP in China rose in Q3.
Rather than slowing as the government had forecast just a couple of months ago, GDP growth re-accelerated in Q3 to 14.4% YoY. That was because of domestic demand rather than net exports, and while that was mostly capex, consumption is growing more than 5%, and the positive output gap widened.
The BOJ argues today not just that "underlying inflation" has reached 2%, but that it is expected to stay there. However, it seems clear that stability won't be achieved without some help, as its analysis also says that all the risks to prices are to the upside.
Earnings releases and September macro data show the cycle has strong momentum. Growth is dominated by semis, and so dependent on the global cycle. However, the doubling in tax revenue in September shows one way in which the benefits of the semi cycle can start to broaden out.
Highlights of a longer note that takes stock of Japan before the BOJ meeting tomorrow, with the theme being short-term nominal strength. In China by contrast, equity market falls highlights deflationary risk. Business sentiment in Korea ticked up. Taiwan's monitoring index in September was strong.
With both growth and inflation strengthening, it will be tough for the BOJ not to hike faster – whatever Takaichi thinks. However, back-to-back or 50bp moves are unlikely. Moreover, the peaking of property prices and sluggishness in some wage indicators point to MT headwinds.
Foreign equity holdings are another example of the huge impact of the AI cycle in Korea and Taiwan. Trade volume data in China illustrate again that imports are as weak as exports are strong. Money supply and credit data in Taiwan are strong, but likely not strong enough to push the CBC into action.
September money and credit data for September are like other indicators for Taiwan: quite strong, but not high enough on their own to think that they suddenly break the CBC's apparently strong desire not to change policy.
The main data event today was Q3 GDP in Korea. In addition, China released profits data for September. There were two inflation updates in Japan, with the BOJ's measures of underlying CPI as well as services PPI. In Taiwan, we had consumer confidence for October.
Today's Q3 GDP data continue the same story: real growth is solid, but more importantly, the huge windfall income gain from the surge in semiconductor prices remains a major tailwind for growth in 2027. The question remains how much of that income windfall will be spent.
CPB's trade volume data show China's exports remaining strong, but imports flat-lining. Domestically, the second round of upstream price pressure in China since the start of the Iran War has lost momentum. That, however, is because of coal rather than oil prices.
Highlights of last week's indicators: the fall in the consumption share of GDP in China; why JPY depreciation hasn't boosted Japan's export volumes; the prospects for another double-digit rise in nominal GDP in Korea in 2027; and how wage growth in Taiwan is leading the region.
The sustainability of the AI cycle is critical for the region. If it ends, rates will likely be lower, but currencies not necessarily weaker. Otherwise, my themes are: China – tougher 2027; Japan – flatter curve; Korea – macro spillover; Taiwan – market spillover.
As expected CPI inflation in Japan picked up in September, and leading indicators point to further upside ahead. Taiwan softened last month, but that is at odds with strong exports. Retail sales, by contrast, were strong, consistent with labour market dynamics explored in a longer note on wages.
Like so much else in Taiwan, labour market dynamics will be determined by the fortunes of the AI cycle. If that turns down, it will be hugely important. A sharp downturn hasn't, however, been the CBC's expectation, but existing wage trends seem inconsistent with the bank's view that inflation slows.
The BOK didn't change rates today, but laid out a much more positive view on the outlook than is being expressed by regional equities. One casualty of the equity sell-off is the TWD, which will further push up inflationary pressure in Taiwan. Also today, the BOJ's senior loan officer survey.
There was no change from the BOK today, and the decision to stay on hold was unanimous. That wasn't a surprise. However, the meeting was informative, with the clear takeaway being BOK confidence that this cycle will run through 2027.
A note reviewing developments in Korea ahead – just about – of the BOK meeting tomorrow. In addition, some charts showing the continuing gap between weak auto sales in China v strong car exports. That is affecting Japan, though overall exports there in USD terms rose again in September.
The BOK is unlikely to move tomorrow when it hiked twice recently, the KRW has finally firmed, and there is nervousness about the AI cycle. However, if those worries are just a wobble, then there's still much room for the semi surge to feed into domestic demand, and tomorrow will just be a pause.
The usual second-day release of more detailed GDP data for China showed investment particularly weak in Q3. In contrast, fx settlement data in September was firm, showing continued capital inflows. In Taiwan, export orders last month don't indicate that the cycle is yet turning down.
The highlight today was the Q3 GDP release in China. Along with an update of all the usual cycle charts, I've also updated my guide to China's consumption data. In Japan, growth in services activity eased back in August, with a rare contraction in consumer-related services activity like eating out.
From the perspective of a government that wants to meet a 2026 growth target without having to shift policy, the September data are encouraging. But the 2027 outlook for the domestic economy is looking more challenging. That will become more visible if global demand and price trends change.
Highlights of last week's indicators: China's import shortfall, loose financial conditions in Japan, rising export prices in Korea, and more evidence of labour market tightness in Taiwan.
With regional macro dependent on continuation of the US AI build-out, the equity sell-off last week matters. That said, there are still complications: TSMC still sounds very bullish, and while for bad economies, it isn't clear that an end of the AI cycle would be so negative for currencies.
