Last week, next week

Paul Cavey -

This is what happened on East Asia Econ this week.

Highlights

Thematic

Region – monthly chart pack. Three themes stand out: the confidence of the BOJ; the significance of policy that tackles property inventories in China; and Taiwan remaining as the big post-covid winner.

China – the big shift in consumer behaviour. The big change in household behaviour isn't from spending into saving – in both respects, pre-covid trends have been regained. Rather, the shift is savings into bank deposits and out of financial and property investments. That matters for inflation, and for policy.

Cycle

China

Cycle update – No lessening yet of PPP deflation. CPI deflation is stabilising, though because of food prices rather than domestic demand. The surprise in April was the lack of any lessening of PPI deflation, despite some improvement in leading indicators.

Cycle update – first-ever drop in M1. The fall in credit in April, while unprecedented, can be argued away as reflecting a temporary shortfall in official bond issuance. It is more difficult to dismiss the equally unprecedented drop in M1 in the same way.

Japan

Cycle update – part-time wage growth at 5%. Part-time wage growth is now finally reflecting the labour market tightness seen in survey data, and so supports the BOJ's confidence in the macro cycle.

Cycle update – JPY weakness reinforcing BOJ confidence. It feels to us that, with so much of the market's focus being on $JPY and the MOF, not enough attention has been paid to the increasing confidence being expressed by the BOJ.

Quick take charts

Japan – weak consumption isn’t just wages
The market focus in on real wages, but the elderly are even worse off than workers, the result of a policy of deliberately cutting pensions in real terms.
East Asia EconPaul Cavey
China – solid services growth
The S&P PMI shows China’s services sector continues to grow at a solid rate. The outlook also remains firm, with new business growing in April by the quickest rate in almost a year.
East Asia EconPaul Cavey
China – PBC balance sheet expansion slows
PSL lending, which seemed like it might become a thing for 20204, hasn’t: yesterday’s April data showed no new lending, so with previous loans maturing, PSL outstanding has fallen back again.
East Asia EconPaul Cavey
Japan – “Charge inflation hits a 10-yr high”
The PMI shows strong services momentum and prices charged rising “at its steepest since April 2014...reflecting another sharp rise in input costs....which was mostly linked to greater salary payments.”
East Asia EconPaul Cavey
China – PPI flat
Prices might be drifting down a bit, and there’s big product differences (steel weak, copper strong), but high-frequency data don’t suggest any real deflation emanating from China’s industrial sector.
East Asia EconPaul Cavey
Taiwan – inflation still firm
Headline inflation dropped below 2% YoY in April, and core eased too. But underlying services inflation – a proxy for domestically generated price pressures – remains at almost 3%, a near 30-year high.
East Asia EconPaul Cavey
Region – perhaps the weak KRW helps as well
It seems reasonable to think the cheap JPY is contributing to Japan’s tourism boom. But Korea’s visitor numbers are also closing in on pre-covid levels. Recovery in Taiwan, by contrast, is lagging.
East Asia EconPaul Cavey
China – has anything really changed?
It is often thought that China is transforming into a mfg-led, services-light economy. Relative growth did slow post-15. However, as a proportion of GDP, the services sector has never been bigger.
East Asia EconPaul Cavey
Taiwan – export recovery falters in April
The nominal export recovery across the region has lost momentum, with Taiwan’s April exports fading YoY and MoM.
East Asia EconPaul Cavey
China – moderate export recovery
Underlying trade values show the moderate export recovery that began in mid-23 is continuing, while imports are flat-lining.
East Asia EconPaul Cavey
Japan – no consumption recovery yet
PMIs, CPI, wages, profits....most macro indicators look positive. The one weak spot remains consumption, with little sign of improvement through March.
East Asia EconPaul Cavey
Japan – another weak consumption indicator
While a bit stronger than the beginning of this year, the household survey shows real consumption spending still 2% lower than in 2019.
East Asia EconPaul Cavey
Taiwan – wage growth slower in March
Cyclically, wage growth has slowed from over 2.5% YoY in 23 to 1.4% now. But the structural rise in manufacturing wage growth is persisting, which will have macro significance if the sector convincingly lifts out of recession.
East Asia EconPaul Cavey
China – mortgage rates still falling fast
Data in yesterday’s Q1 monetary policy report showed another sharp fall in mortgage rates to well below 4%. But while they worked before, rate cuts in this cycle have shown no sign yet of boosting buyer sentiment.
East Asia EconPaul Cavey

Next week

The data highlight for China will be Friday's April activity releases, as well as property prices. For Japan, it is Q1 GDP on Thursday, which, given the auto-related disruptions to IP and the ongoing weakness of consumption, is unlikely to surprise on the upside. For Korea, there's today's data for foreign trade in the first ten days of May, as well as labour market data on Friday.