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.
Highlights of three longer notes today: a thematic look at the regional drivers of inflation (it isn't just energy); mixed end-month data in Korea; and very strong Q1 GDP in Taiwan, with a bullish government forecast for 2026. Also, some charts summarising all the many data releases today in Japan.
Today's Q1 GDP data show the economy growing more quickly than any time in over 40 years. The government thinks that continues: in the forecast, downside risk from Iran isn't mentioned, but trickle down from semi to the real economy is. CPI was also revised up, even if it remains (just) below 2%.
Two of the key issues for the economy are whether the chip boom trickles down, and what damage the Iran war will cause. April data show a bit of both. ICT capex rose for the third month, and there were more signs of a floor in the labour market. Overall output fell, but remained above the Q1 average
Big oil price hikes matter, but have been seen before. It is the rise in chip prices, and the gap between surging trade surpluses and weak currencies, that is unprecedented. If fx markets don't price these developments, central banks and fixed income will have to do so instead.
The BOK meeting was the main event today. For releases across the region, it has been a quiet day. Taiwan's monitoring indicator in April stayed in the range that represents "economic boom". Export data for the first ten days of May in Japan were stable, but Toyota sales in April were weaker.
The BOK didn't change rates today, but signalled that despite continued uncertainty, higher rates are coming. The pace will depend on dynamics in the energy and chip markets. I would also be watching for how core CPI performs against the BOK's modest forecast of 2.4%
Highlights of a longer note reviewing cycle developments in Korea before the BOK meeting, and from a short analysis of today's profits release in China. Also, charts on today's other releases: business confidence in Korea, consumer confidence in Taiwan, and services PPI in Japan.
The bounce in headline profits in April was largely base effect, but there are signs of underlying improvement: revenues have started to rise, the increase in PPI is boosting profits in heavy industry, and hasn't yet derailed the post-2024 increase in total downstream manufacturing earnings.
The BOK's main considerations for policy are growth, inflation, KRW and housing. Three were already pointing to hikes, and tomorrow the bank is likely to raise expected growth above potential too. That makes a rate hike likely. The risk is it still just a bit too early.
A longer note on the implications of the chip boom for China. Also today, the BOJ's charts on underlying inflation, which show the bank's preferred measure of core rising to 2.8% YoY. IP growth in Taiwan slowed in April, but remains at over 20% YoY, and the recovery in retail sales is continuing.
The surge in semiconductor exports that is such an import theme across the region is also an important dynamic in China. But in China, the semiconductor trade has broader implications: for the trade surplus, import demand, the export outlook, and inflation, both in the region and ROW.
Today has been quiet for data releases. The main indicator of cyclical importance is 10-day upstream price data for China, which show an easing of inflation pressure since May. Elsewhere, Taiwan tourist arrivals data continue to lag behind the big recoveries seen in Korea and Japan.
Two of the cycle themes in the region are the strength of the AI trade, and macro stability in China. These in turn form the context for the third: the impact of the Iran war. If that conflict, finally, is near some kind of resolution, market confidence around rate hikes could actually increase.
A few things on Japan today: CPI and export data in April, and Koeda's interesting speech yesterday. Consumer confidence in Korea rebounded in May, but property price expectations also firmed. Taiwan's labour market remains tight, with unemployment firmly pinned at the 20-year low of 3.3%.
Tuition as well as energy subsidies make inflation look particularly low relative to the likely upside from the Iran war. The conflict will also slow growth. However, both export data for April and Koeda's speech yesterday indicate that growth downside will be limited if global tech demand sustains.
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.