China's trade data are published over the course of four releases each month. We are now onto the second, with three main takeaways: auto exports are accelerating again, import demand is up, and the trade surplus continues to broaden.
I am catching up with things after my break. Surveys of the last few days and today's trade data for August show tariffs aren't yet triggering a big macro dislocation in Japan. That's important for the BOJ. In China, the macro data for August show the bottoming of the activity remains fragile.
Manufacturing sentiment in the EW (Aug) and Reuters Tankan (Sep) surveys is back above the long-term average. Export volumes have softened the last couple of months, but are still above end-2024 levels. This is probably a lesser impact from tariffs than the BOJ had expected.
The major themes: the ending of the first stage of China's post-2020 forced structural adjustment; in Japan, peaking of inflation but BOJ still to hike; BOK cuts but inflation higher than I would have expected; expecting renewed TWD strength. I am now away for a few days, back on September 16th.
A long-ish slide pack summarising themes and views for China, Japan, Korea and Taiwan.
In today's summary: for Japan, wages, consumer activity, and 20D exports ; and for Taiwan, FX reserves and price data. Also, one more thing to note: I will be away from a few days from Monday. The next daily update will be on Wednesday 17th September.
August data today show the impact of the weaker TWD since July: fx reserves fell, import prices ticked up MoM, and CPI inflation rose. The lesson is that without currency strength, the step-change in economic growth since 2020 is more likely to show up in domestic prices.
Headline full-timer wages data were strong in July. But the details of the overall wage release were softer, and warn of some lessening of labour market tightness. In other data today, consumption was soft in July, and exports in the first 20 days of August also weakened.
High-frequency price data continue to show deflation in China is as much about weak aggregate demand in construction as over-supply in manufacturing. Elsewhere, BOK BOP data show NPS buying continues to create capital outflows, offsetting the KRW impact of the structural CA surplus.
July BOP data show that KRW appreciation continues to be restrained by substantial buying of overseas assets by the NPS. But the tone of capital flows has started to change as foreigners buy onshore equities, and should shift more later this year with Korea's entry into the FTSE Russell's WGBI.
Today, top-down and bottom-up data in Korea show wage growth still slowing; the August S&P services PMI in China rose, but also reported continued pricing pressure; and the services PMI in Japan remained firm, which continues the narrative of a cycle led more by domestic than external developments.
The breakdown of income in the detailed Q2 GDP data shows the labour share falling, but remaining well above the pre-covid level. That implies wage growth has slowed to a bit over 2%. Bottom-up wage data for June look similar. A floor is probably close, but there's no sign of a re-acceleration yet.
The only major data release today was August inflation in Korea. The headlines moved a lot, but the underlying picture was stable. In Japan, BOJ deputy governor Himino gave an interesting speech. In China, a reminder of the drivers of deflation and how they might be changing.
The content of deputy governor Himino's speech today was thoughtful and so interesting, covering both tariffs and the outlook for prices. But consistent with the ponderous tone, the conclusions weren't particularly forceful.
Two shocks affected CPI in August: bad weather that pushed food prices up, and big cuts in mobile phone bills. The latter impact was bigger. Excluding all that and core remains around 2%, and the BOK expects that to continue. I would have expected more downside risk, but there's no sign of that yet.
My latest video discussing the inflation outlook. Apart from the anti-involution drive, the stabilisation of demand deposits and property do ease the downwards pressure on prices. But the weakness of aggregate demand remains, and as yesterday's PMI suggested, the outlook for prices remains subdued.
As usual, the first day of the month is busy for data, with PMIs across the region, and also Korean export data for August, and Q2 corporate profits in Japan. The picture painted is a regional manufacturing cycle that remains soft, but hasn't been delivered a new blow by tariffs.
Full-month exports in August were firm, but that still leaves growth in single digits, and neither data nor commentary from the business sentiment surveys suggest that is about to change. Indeed, today's August PMI remained well below 50, and reported a "sharp decrease in incoming business inflows".
The Q2 rise in the labour share promises support for consumption, but without yet depressing profits. Manufacturing earnings did drop in Q2, and that questions the sustainability of capex. But IT investment was also strong, and the PMI suggests that overall, manufacturing is coping with tariffs.
China's structural downturn since 2021 has likely bottomed. But I think real recovery is needed for a further rally in equities. Japan's growth and inflation have survived the tariff hit, putting the BOJ back in play. For Korea, I am questioning the BOK's outlook for inflation and thus rates.
While the PMIs don't point to any real improvement, in nominal terms there's been a lift, with input prices above 50 again. That's in line with the credit impulse. But the credit impulse might already have turned, and while PPI deflation has lessened, output prices don't suggest stronger CPI.
It's been a big week for data in Korea, and there was more today, with the end-month activity numbers. Retail sales bounced, but other sectors remained subdued. Data for Japan today showed retail sales being weak, but consumer confidence has improved, and UE has fallen to a new post-covid low.
The fall in the UE rate in July to 2.3% isn't substantively important. The mechanics behind it were more noteworthy, in particular a ticking down in the part rate. Other data today show a softening of inflation in Tokyo in August, and nationwide retail sales falling to the lowest level in 2 years.
There's been enough data on Korea already this week, so just briefly on today's end-of-month July data. There was a nice bounce in retail sales, reflecting the impact of fiscal policy. But IP was flat, and construction ticked down, so all economy output remains range-bound.
Today's big event was Korea's MPC, and the separate release of the local version of JOLTS data. In Japan, July unit sales at Toyota and nationwide exports in the first 10 days of August were stable. Taiwan's monitoring index in July was also unchanged, suggesting GDP growth has slowed, but not much.