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The BoK hiked by 25bp, worried about inflation becoming entrenched.
Alongside the hike, however, the central bank also sounded a more dovish note.
The BoK is finally conceding the downside risks to growth, and we think the cycle has nearly peaked.
Early Korean export data suggest that global trade is still slowing, particularly if energy is excluded.
China’s Omicron lockdown and reopening distorted the data, but the underlying trend is clear, and grim.
Chinese easing efforts still look inadequate, but the central government is finally stepping in.
Japan’s trade deficit widened again in July, thanks to a surging import bill.
Energy costs are a big part of the problem, but recent yen weakness is more curse than blessing.
Exports are yet to benefit from the currency’s fall, and key imports are insensitive to price changes.
China reported another record trade surplus in July, thanks to surprisingly strong export growth...
...but exports are starting to slow, at the margin, and still face structural headwinds this year.
Generous government subsidies cannot hold back the tide indefinitely, and risk political blowback.
China’s PMIs fell in July, reversing the June bounce, as the gains from reopening were exhausted.
Other sources of demand are few and far between, with stimulus efforts limited in scope and ambition...
...and global demand on the wane amidst multiple headwinds, as clearly shown by Korean export data.
Japan’s Tokyo CPI inflation was marginally stronger than expected, but still driven by cost-push factors.
Yen weakness should relieve pressure on the BoJ, and confirms an outlook of policy stability into 2024.
China’s Politburo has emphasised zero-Covid over growth, with few signals of significant stimulus.
Markets have responded optimistically to news of a
Chinese property rescue fund...
...But the sums involved are too small to save the sector, and likely have more modest aims.
The growing role of the central government is nonetheless an encouraging signal; more is needed.
China’s loan prime rates were left unchanged on Wednesday, continuing the PBoC’s passive streak.
Monetary easing would have little effect at the moment, with loan demand falling.
Credit is increasingly being used to plug balance sheets, rather than support productive activity.
Little over a month after reopening, China’s economy is again threatened by rising Covid cases.
Restrictions are tightening in response to flare-ups across China, and are already hitting activity.
Slow progress with vaccinations means zero-Covid seems likely to persist into 2024.
We think China entered a balance sheet recession in Q2, and policy needs recalibrating to fix it.
The combination of the property downturn, tech crackdown, and zero-Covid, have hit asset values.
Balance sheet repair takes time, and breaks monetary transmission; fiscal support is needed.
Chinese activity continued its reopening recovery in June, particularly outside manufacturing.
The surveys point to month-on-month growth, but not enough to save GDP from a quarterly decline.
More stimulus is needed to sustain this bounce, with households and SMEs still under pressure.
Chinese industrial profits fell again in May, despite the reopening from lockdown.
Government support likely propped up profits in some sectors, demand still looks weak.
The PBoC is injecting liquidity again, but this is about quarter-end management, not stimulus.
Profits are still under pressure, despite reopening and policy support
A helpful reminder that Japan’s inflation remains very different
Japanese manufacturing slowed further in June, likely reflecting weakening global demand.
The service sector extended its recovery from the Omicron-induced lows, but will peak soon.
Price pressures rose further, but the labour market still looks soft, so no change likely from the BoJ.
Policy rates remain on hold in China, alongside a broader pause in monetary easing.
More accommodative policy seems unlikely to drive growth, given lacklustre credit demand.
Monetary policy needs fiscal help, if it is to regain traction, and not add to financial risks.
China+ Document Vault, Pantheon Macro, Pantheon Macroeconomics, independent macro research, independent research, ian shepherdson, economic intelligence