I am away the next few days, so this week's summary focuses on what appeared on the site in the last week. I am back on Monday 14th September.
Korean BOP data for August, an update on upstream prices in China, which have been stronger than I had been expecting, and PBC liquidity operations through August. Foreign exchange reserves in Taiwan rebounded in August. I am away next week, so the next update will be Monday 14th September.
Today's BOP data show that after selling more than USD30bn of domestic equities in June, foreigners purchased USD6bn in July. That swing goes a long way to explain the sudden appreciation of the KRW. That should be able to continue, given CA surplus of over 20% of GDP, strong economy, and BOK hikes.
An update on import price pressures across the region, as well as the services PMIs for China and Japan in August, and my monthly regional chart pack.
50 slides covering regional themes, and dynamics in the individual economies.
The main release today was Korean CPI inflation for August, which remained firm. Japan tax revenue ticked down last month, but the uptrend of recent years remains intact. However, the monetary base is falling fast. Also today, a comprehensive guide and online model to Japan's fiscal position.
I thought the underlying data in today's CPI release were firm. Despite an easing in travel expenses, core inflation (excluding mobile phone bills) remained at 2.8% YoY, the trimmed mean rose, and the diffusion across all items ticked up.
A step-by-step guide to understanding Japan's fiscal position. By using this, you will have a better idea of how to make the assumptions needed for each component of the standard gross debt equation, which can then be plugged into our online model.
A busy day of data today, with regional PMIs, Q2 profits data for Japan, and foreign trade in August for Korea. Japan is leading in both relative manufacturing activity and prices. Taiwan activity is also strong, and not benefiting from the ccy appreciation that is dampening input prices in Korea.
The PMIs show Japan's manufacturing cycle is the strongest in the region. That might be because the measures in Taiwan and Korea struggle to capture the macro impact of chip strength. Even so, it is still an important take-away, especially when the PMIs show Japan also leads in price strength.
Defying BOJ fears of a slowdown, this year's surge in corporate profits continued in Q2. The big driver this year has been manufacturing, and today's PMI shows the recovery in the sector isn't over yet. Relative to the strength of profits, capex and wages are sluggish.
The PMIs continue to show no change in China's economic cycle. By contrast, the cycle in Japan is improving, and in Korea output, capex and fiscal revenue in July were all strong.
Output in July retained the gains of June, and capex spending rose further. Both suggest a strong start for GDP in Q3. Retail sales were weaker last month, but the household sector should start to benefit as the government spends the 20% growth in tax revenue of recent months.
The PMIs continue to show no economic cycle. Construction activity continues to drop, but the manufacturing PMI continues to hover around the 50 mark. Input prices have rebounded again, so this year's recovery in PPI isn't ending just yet. None of these changes point to a shift in policy.
The market themes I think are about rates v currencies. Ranking by moves in rates, the order is Korea, Japan, Taiwan then China. In currencies, by contrast, it is Korea, China, Taiwan, then Japan. That raises some interesting discrepancies.
Services trade in China in July suggests net trade continued to make a positive contribution to GDP growth at the start of Q3. In Japan, Tokyo CPI in August confirms the expected rise in inflation in 2H. Exports early in the month were strong, but Toyota sales through July look to be slowing.
The highlights today were deputy governor Himino's speech in Japan, and the BOK meeting in Korea. Tech profits in China remain strong, but aren't lifting overall earnings. Consumer confidence in Taiwan weakened in July, while the official Monitoring Index continues to point to an economic boom.
Today's BOK meeting didn't throw up any big surprises: core CPI and growth forecasts were raised against the backdrop of the TOT shock, and the bank hiked again with the aim of being "pre-emptive". However, Governor Shin's remarks at the press conference produced a lot to digest.
Deputy governor Himino's argued today that all the main macro dynamics are pushing up prices, underlying inflation has been rising, and so there is now a risk of "underlying inflation exceeding 2%". Unsurprisingly, he didn't spell out the policy implications, but it does sound quite hawkish, no?
Back-to-back rate hikes aren't common, and since July, stronger KRW and lower equities have tightened FCI. However, the economic backdrop is unusually strong, so I would still expect the BOK to hike at its August meeting. That said, rather than rates, it is the KRW that looks more interesting here.
The strength in services PPI inflation in Japan is related to the Iran war and the weakness of the JPY. However, wage growth indicates more upside for PPI inflation in sectors with high labour intensity. The BOK's August survey, business sentiment in Korea continued to rise.
Lots today: trade volumes and prices for July in China; underlying inflation trends in Japan; consumer confidence for August in Korea; and industrial production and retail sales in July in Taiwan.
Upstream prices in China have picked up again during August as global energy and copper prices rebounded. An unemployment rate below 3.5% in Taiwan in July shows that the labour market remains tight, in turn explaining why wage growth continues to trend up.
Japan July CPI and August flash PMI point to rising inflation and a stronger cycle; Korea July PPI inflation softened, but exports in the first 20 days of August rose; Taiwan export orders in July also increased, with incremental drivers being servers and cooling products for AI devices.
Summary of a recent outlook note on China; trade data in Japan that continues to be boosted by AI tech demand; a collapse in Korea's net foreign assets because of the rise in the Kospi that boosted the value of foreigners' domestic equity holdings; and another quarter of 20%+ CA surplus in Taiwan.
