The PMIs point to strong demand in Taiwan and Korea, supply disruptions in both economies and Japan, and elevated price pressures everywhere. In China, the same themes are apparent, but not to the same extent. Also today, Japan Q1 profits, Korea May trade data, and a strong non-mfg PMI in Taiwan.
Four themes: broader inflation risks, for the region and world; feedthrough from exports to domestic demand; semi cycle rather than energy as the dominant dynamic; likelihood of monetary tigtening.
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.
