A couple of notes on China today, one covering today's inflation release, and the other a slide pack making the case for higher rates. Elsewhere, Taiwan released FDI data for September. Outflows have eased in recent months, but the clear shift away from investing in China is persisting.
For the first time since 2021, my models show a fall in the probability of easing. The backdrop is effective monetary policy: inflation is low, but there aren't signs of rising real rates. For now, my base case is rates stop falling. For rates to rise, inflation needs to show up outside of equities.
The stabilisation of PPI is fragile, with continued sharp falls in some of the sectors targeted by anti-involution, as well as continued weakness in building materials prices. In CPI, falling food prices will eventually reverse, but soft services prices shows underlying CPI inflation remains weak.
An update on pensions in Japan, which are being cut in real terms. Also, wage growth in Taiwan, which is accelerating. The pick-up is mild, but is still important, showing that the near-deflation experience of 2000-2020 isn't being repeated.
China full-month exports for September (still strong), and Korean exports for the first 10 days of October (including only 3.5 working days, so too few to reach strong conclusions). Also, the new monthly summary of PBC liquidity operations, showing steady balance sheet expansion.
Shipments to the US remain as low as in May. But with exports to other regions continuing to rise, the uptrend in overall shipments that began in mid-2023 remains intact. At the same time, imports in the last few months have risen a bit, so the trade surplus, finally, has eased back.
The short-term theme is uncertainty, with the ruptures in both the US-China trade truce and the LDP-Komeito ruling coalition in Japan. Both are negative for risk appetite. In terms of the data flow, the highlights in the next few days are China inflation, and TSMC's quarterly earnings.
Two releases from the BOJ today, one showing PPI inflation remaining firm, and the other, its consumer confidence survey, indicating that the firmness of inflation continues to erode household sentiment. Also today, an update on China's inflation in advance of next week's releases for September.
Upstream prices in level terms have stabilised, but as with food prices, are still falling YoY. With aggregate spending and PMI output prices remaining weak, core inflation is unlikely to be rising. The one upside risk is an end to the multi-year trend of households shifting money to time deposits.
In September, even before the renewed JPY depreciation of the last week, PPI inflation rose. By raising import prices, USDJPY back above 150 will mean input price inflation remains stronger for longer. The (relative) hawks at the BOJ will be becoming more convinced that inflation is sustainable.
My latest video, looking at the three Ds that are challenging Korea's structural growth prospects: Demographics, Debt, and a Development model that is struggling to cope with the competition emerging from China.
The only data release today was Taiwan trade for September, which showed exports finally gave back some of the amazing strength seen this year. Also, some charts on how global commodity prices affect the region.
Even though Governor Ueda didn't in the end deliver the speech he was initially due to give today, there have been plenty of developments in Japan: wage data, business sentiment surveys, and household incomes. Elsewhere, Taiwan reported inflation data for September.
With JPY depreciation unpopular and the cycle intact, it is unlikely that the Takaichi administration can really make the BOJ hike even more slowly than it has been. The policy that would work better for defusing the cost of living crisis would be fiscal loosening to raise household incomes.
One of the data points that challenges the BOJ's confidence on wage-price developments is slowing part-time wage growth. That ticked up in August, as did base pay for full-time workers. By historical standards, both are high, but growth in overall earnings growth continues to trail price inflation.
Today's data releases show fx reserves in China rising, providing further evidence of the resumption of capital inflows. In Japan, the BOJ's preferred measure of consumption weakened in August. In September, the monetary base also fell, but exports look to have stabilised.
Today's main event was Japan's markets pricing in Takaichi's victory, likened to an Abenomics 2.0 of fiscal and monetary loosening. But in Abenomics 1.0, fiscal policy wasn't loosened. And today's BOJ regional report, showing the cycle intact, doesn't allow much room for monetary loosening.
Market volatility is poised to rise again. In Japan, the obvious reason is the election of Takaichi, whose Abenomics-leanings are in conflict with the ongoing firmness of inflation. In Korea and Taiwan, the trigger is US relations. China, by comparison, looks more stable.
For a second day, there's most to report in Japan, with a speech from Ueda, the services PMI, labour market data and an updated output gap. With most of the surveys now in for September, we can also update regional comparisons of the soft data.
The main takeaway from Governor Ueda's speech today was that he remains concerned about the impact of tariffs. That isn't unreasonable, and more than today's rise in UE, is a reason to think rate hikes aren't a done deal. However, I still think the Tankan has pushed the BOJ further in that direction
Yesterday's summary release of the Tankan showed price pressures remaining firm. That message is a bit stronger still in today's comprehensive release. Despite rising prices, consumer confidence edged up in September. Elsewhere, NPS outflows in Korea continue to offset the large CA surplus.
Inflation indicators in yesterday's summary release of the Tankan were already firm. Today's comprehensive release paints a picture that is stronger still. The implication is that one of the BOJ's older measures of underlying inflation, the trimmed mean, is likely to remain above 2% for the next 6M.
As usual on the 1st of the month, today there's the PMIs and full-month trade data from Korea, as well as the Q4 Tankan for Japan. The regional manufacturing cycle is soft, but Japan non-manufacturing is strong, the Korean PMI bounced, and weak PMIs haven't mattered for actual growth in Taiwan.
Tomorrow's comprehensive release will add more details, but today's summary Tankan looks solid, for overall sentiment, the labour market, and inflation. For BOJ doves looking for reasons not to hike further, the Tankan doesn't supply them.
Today's September PMIs in China were mixed (construction PMI weak, S&P services firm), and Japan's August retail sales fell. There should have been more data, but Korea's stats website is still down following a fire, and after a holiday, Taiwan's consumer confidence survey has yet to appear.