Three things stood out in TSMC's earnings call yesterday: the lack of talk of "tariffs", the bullishness on demand, and confidence on margins despite TWD strength. The message has macro significance, with one risk that while TSMC and the government expects a much slower 2H, that is too pessimistic.
In June, headline fell, BOJ core rose, and international core was flat at 1.6%. So, not a clear message...and then there's the uncertainty about tariffs and politics. Some tariff deal – like a TRQ – I think gets the BOJ engaged again. But I don't expect much dovishness without a US recession.
The Q1 tick-up in overall export volumes has ended, but hasn't reversed. That's partly because of the willingness of the auto firms to cut USD prices. However, prices fell less quickly in June than May, and reports suggest the car firms are now starting to raise prices.
Overall, the big recent drop in upstream prices has stabilised. But for building material prices, there's no respite, now being lower than any time since 2016. That shows the ongoing weakness in the property sector, which none of the policies of the last few years have managed to turn around.
The labour market loosening that is one of the big themes for Korean macro isn't visible in headline data, which show employment high and UE low. It is clearer in a nice box in the BOK's economic outlook report, that discusses in detail why the employment situation is in fact "subdued".
While there's been jitters around tariffs and inflation, business sentiment overall continues to hold up remarkably well, as shown by today's Reuters Tankan. For mfg, weakness in autos is being offset by an improvement in tech. That theme is visible in equities, but not yet in actual export data.
Today's release of more details of Q2 GDP are interesting, if puzzling. GDP was held up by a larger contribution from investment, even though construction contracted for the first time since early 2022. The weakness of construction does, however, further the economy's steady shift towards services.
The labour market remains slack, with employment dropping in June. Wage growth is also declining, and other data released today show import prices dropping 6% in June. This all suggests inflation will remain constrained, giving room for the BOK to continue to cut rates.
My latest video, discussing the JPY outlook in the context of this year's two shocks: tariffs, obviously, but also the rebound in inflation that caused a new sharp fall in consumer confidence. The risk from US policy is still growing, but, importantly, the rebound in prices is losing momentum.
Two things stand out in today's big macro release. First, more signs of property bottoming. But there's no indication of a pick-up, which matters given the second takeaway: the weakness of nominal GDP. On my numbers, that grew just 2.4% QoQ annualised, with the fall in the deflator accelerating.
Property price deflation intensified in June, albeit only mildly. Leading indicators suggest there shouldn't be a new step-down, but only interest rates point to real upside – and interest rates stopped being a reliable lead for the property market some time ago.
Continuing recent trends, credit and money data were stronger in June. That helps put a floor under the cycle. The details were softer, with credit growth dependent on government borrowing and mortgage lending still slow. But there are some signs of an upturn in lending to the non-state sector.
The drop in sentiment in today's BOJ consumer survey is somewhat backward-looking; more recent consumer surveys point to some improvement as rice prices fall. The tone of Friday's broader regional report from the BOJ was also positive, but with one big caveat: clear anecdotal concern about tariffs.
There aren't signs – yet – of China's export juggernaut hitting a wall. The big fall in US exports eased in June, allowing overall exports to continue to creep up, reaching a new post-2022 high. Imports, meanwhile, continue to flat-line, so the trade surplus remains large.
Core machine orders dropped in May. It would be easy to think that was tariff related, but it really is too early to tell. The data are volatile, April was particularly strong, and May is still above the pre-April level. Still, the data do feel soft, though more because of softer domestic orders.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
The pop in exports in June faded in the first part of July. That was perhaps because the pop in the DRAM price eased as well: semi exports have risen again in July, but at a slower pace, and exports of other products still aren't doing much. In terms of countries, there's also no big change.
Wage growth slowed in May in manufacturing, but the trend is still up, and in recent months it has been firm in services too. That CPI is slowing is partly due to the TWD, and partly productivity. In separate news, TSMC's sales were softer in June, but financial markets don't seem concerned.
Given the rise in house prices, that the BOK didn't cut rates today wasn't a surprise. However, the bank sounded much more confident than I'd expected that the rebound in house prices would be temporary. So, this really is just a pause, and the bank made no change in its "rate cut stance"
Data today show more feed through into PPI from the easing of import prices. Weekly rice prices have also dropped again. These trends lower goods price inflation, but will boost household spending power. At the same time, the sharp fall in auto export prices shows the negative impact of tariffs.
I am away from my desk, so for now, just a few charts on the CPI/PPI release. Deflation is deepening, which for PPI is broad-based. Core CPI is more stable, but that's partly due to a rise in "other" prices. Headline CPI is lower on food prices, which have started dropping again.
Overall exports, and the trade surplus with the US, continued to surge in June. That Taiwan nonetheless wasn't the recipient of a Trump letter may be because of the sharp rise in the TWD. Other data today show that helping to push down inflation, opening up space for interest rate cuts.
Japan in 2025 has suffered two negative shocks: tariffs, and a rebound in CPI that's eroded real incomes. June surveys, such as today's EW, show the household mood starting to improve as the price shock wanes. But that won't matter if Trump proceeds with the yet higher tariffs he's now threatening.
Nominal wage growth remains firm, but real wages to continue to fall. That in turn is weighing on consumption, which other data today show remained sluggish in May. The cycle in 2H will likely depend on goods prices, because that will determine the strength of real wage growth and consumer spending.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.