Latest video, discussing one of my main themes: that Taiwan macro is more relevant for global investors than it has been for a long time.
March data offer more evidence that the KRW just can't get a break. Finally, retail outflows into foreign assets eased, only to be replaced by huge domestic selling by overseas investors. That has normalised in April, so perhaps investors are realising that a CA surplus of 20%+ of GDP should matter
Highlights of longer notes on the regional outlook, and growth trends in Korea. Also, a summary of today's inflation data in Taiwan, where import prices are rising, but export prices are too. Finally, high-frequency upstream price data in China, and the April monetary base update in Japan.
The BOK's current forecast assumes no GDP growth in the rest of the year, and contracting exports. But export growth still looks to be picking up, capex indicators are improving, and there is a tailwind from growth in real Gross Domestic Income in Q1 being faster than any time since the 1990s.
With the full consequences of the Iran War yet to be felt, the outlook remains uncertain. But so far, upside risks to inflation in the region are dominating the downside risks to growth. The big driver is the semiconductor cycle. The pack starts with regional themes, then 15 charts for each economy.
The S&P/RatingDog PMI suggests China's services sector is doing much better than is indicated by the official version. Korean CPI data for April today showed the impact of the energy price spike has so far been modest. Taiwan's fx reserves last month bounced after the fall in March.
Dearer oil boosted pump prices and so headline CPI in April, but also airline fares and so services inflation. That is another reason to think that personal services inflation of near 4% YoY isn't a true reflection of underlying prices. But it will still matter for the BOK if the chip cycle holds up
Some charts from today's longer piece looking at the BOJ's analysis of inflation in its outlook report last week. Obviously, the BOJ's big focus was the impact of Iran, so also today some charts looking at the direct feedthrough from oil prices into pump prices and CPI across the region.
With the Iran War meaning both uncertainty and a negative terms of trade shock, the BOJ can justify some caution in moving rates. But the bank's detailed analysis last week was heavy on upside risks to inflation. Not addressing that means underlying upwards pressure on $JPY likely persists.
The main releases today were Korea and Taiwan PMIs. In terms of prices, the surveys show clear inflation pressure. For growth, the message is more mixed; firmer PMIs in part reflect supply disruptions. But exports still look strong, and in Taiwan, the non-mfg PMI has risen too.
As usual, a recap of research over the last week but today, no refresh of market themes. I am now away for a few days, so updates will re-commence when I am back on May 4th.
Three longer pieces today: on the regional chip cycle, Japan in the run-up to next week's BOJ meeting, and a video discussing two macro puzzles in Korea. Also, charts summarising today's three data releases: upstream prices in China, and in Japan, CPI and services PPI.
The BOJ seems to be messaging that it will stay on hold next week. That seems risky to me, given that while the Iran War might dent growth, it is highly likely to raise inflation. A BOJ that is further perceived as too slow will put pressure on the $JPY to pass through the artificial barrier of 160.
Whether the AI cycle sustains will be as important for East Asia markets as the Iran War. That's because the region is facing a negative energy supply shock, but also a positive semiconductor demand shock. Semiconductor trade trends are now critical for macro, as shown by these 12 charts.
My latest video, discussing two of the issues that puzzle me about Korea: the weakness of the KRW despite surging export growth, and the strength of inflation despite GDP growth – until today – being well below potential.
Taiwan's export orders and IP in March were strong. Exports in Korea's Q1 GDP likewise show the continued strength of the semiconductor cycle, and Japan's April manufacturing PMI also rose. By contrast, domestic demand and consumer indicators across the region are weaker.
Today's consumer confidence survey warns of higher inflation but slower growth. That is the BOK's base case, and if growth does slow, then there is a reason to look through inflation. But today's Q1 GDP data show much higher growth, boosted by a semi cycle that isn't yet ending.
Japan's trade data for March show some of the trends seen elsewhere in the region: strong semiconductor sales, and as yet, no big rise in energy imports. In Korea, goods PPI signals further rises in goods CPI, and the BOK's loan officer survey warns of a rebound in lending to the household sector.
Yesterday's loan officer survey and today's PPI print both warn about inflation risks. However, in PPI, it is only goods prices that offer clarity. Services PPI has risen too, but seems to suffer from the sort of distortions that are making trends in CPI services inflation difficult to interpret.
A longer note today on whether the recent lessening of deflation in China is sustainable. I think it might be. Also, data for the first 20 days of April in Korea showing continued chip export strength, and the SLO survey for Japan indicating stable lending standards.
The three red lines and covid delivered a huge, multi-year blow to the economy. Multiple signs have started to emerge that this hit has been absorbed, and that China macro is stabilising. This suggests that the recent lessening of deflation might prove durable, with broad implications across markets
China's detailed data show chip exports and imports well up in March and imports from the Middle East sharply down. EV exports weren't strong, but shipments of solar panels were. Elsewhere, Japan services activity remains strong. Consumers are happy about incomes, but still worried about prices.
Two themes stand out. First, macro in China is stabilising following the multi-year decline triggered by the twin shocks of the three red lines and zero covid. Second, the chip supercycle has yet to be derailed by the Iran War.
China's detailed Q1 GDP data aren't obviously consistent. By expenditure, net exports were down while investment were up. But by industry, manufacturing rose while construction contracted. Across the region, the decline in oil prices will be welcome, but government energy subsidies remain large.
Two things today. First, China's big data releases, which show broad macro stabilisation. Second, TSMC's quarterly earnings. Management comments were positive again, forecasting revenue growth of over 30% this year. That has read through for total exports and Taiwan's overall economy.