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- China posted a new record-high trade surplus in December, boosting the renminbi.
- Behind the headline, however, lurks a troubling weakness of imports and domestic demand.
- Korea's central bank hiked rates to 1.25%, and signalled more to come this year.
Trade data points to weaker Chinese demand
A hawkish hike from the BoK
- China's money and credit growth improved in December, but this isn't a stimulus surge.
- The authorities are laying down the groundwork to bail out swathes of the economy.
- We expect the Q4 GDP reading to be the weakest since the start of the pandemic.
- Tokyo CPI inflation reached a two-year high in December, thanks largely to energy prices.
- Inflation will climb further yet, but will still fall short of the BoJ's 2% target.
- Chinese reserves data show the PBoC has been leaning against renminbi appreciation.
- The BoJ kept its main policy tools unchanged in December, but tinkered around the edges.
- An announced reduction in corporate debt purchases had already begun in practice.
- The taper is offset by an extension of SME lending, which has been a bigger balance sheet driver.
- Early Chinese data point to a stabilisation—at low levels— of economic activity.
- Infrastructure investment likely rose in November, partially offsetting the property slowdown.
- Prepare for a harsher crackdown on the private sec- tor in 2022, and more infrastructure spending.
- Evergrande, and a nudge from upstairs, seem to have forced the PBoC's hand.
- A 50 bps cut to the RRR frees up funds to deal with the clean-up operation, not supercharge growth.
- More cuts will be needed, with growth likely to remain soft in Q1 of next year.
The Bank of Korea hiked as expected, taking the policy rate to 1.00%, from 0.75%.
Further hikes were made conditional on a plethora of factors, providing plenty of wriggle room.
We expect a pause until mid-2022, as Covid cases spike, and with an election looming in March.
Turning more hawkish, but caution remains the order of the day
- Korean trade data show further signs of an easing in congested supply chains.
- Chinese policymakers turn more dovish, but no real relief for the property sector.
- Renminbi strength starts to bother the PBoC, but "two-way volatility" is more likely than devaluation.
- No change in policy settings from the BoJ, but a decided turn for the worse in the growth outlook.
- The coronavirus, coupled with supply-side issues, is weighing on the short-term outlook.
- Currency weakness is drawing greater attention, and we think the BoJ will need to act next year.
A return to headline inflation for Japan masks ongoing core deflation.
Surprising strength from the manufacturing PMI.
The axe is yet to fall for Evergrande.
- A weak third quarter GDP print for China is a certainty, with the economy facing multiple headwinds.
- Early data hint at the damage done, but September is just the start.
- The real pain from the dual crises will be felt in Q4 and beyond.
- The BoK struck a hawkish note despite holding rates, strongly suggesting a November hike.
- Household debt remains the focus of policy, but there's a risk of complacency over growth.
- China is still deteriorating, and data over the next fortnight will be just a taste.
- In one line: No back to back hikes from the BoK, but a November hike is all but assured
- No cause for concern in foreign exchange reserves data.
- Capital outflow pressure appears modest and re- serves sufficient, for now.
- Property sector stress is growing, however, and cracks are appearing for key actors.
- Evergrande stumbles on, but more interlinkages with other sectors are being uncovered.
- China's property sector as a whole is really the Evergrande situation writ large.
- The anticipated economic fallout will not be isolated to China, expect significant regional spillover
- Evergrande's vague statement won’t cut it, but the PBoC is on the case, for now...
- ...More will be needed from both parties, though, particularly with dollar debt default still looming.
- BoJ green policy has potential, but it needs fiscal support to be realised.
Fear of Evergrande contagion is dragging the PBoC into liquidity injections; an RRR cut is in the offing...
... But weak GDP growth will also force the Bank to drive market rates lower through OMOs.
The new green plank of BoJ policy struggles on the implementation details.
- The Monetary Policy Board kicked off normalisation yesterday with a 25-basis point hike, to 0.75%.
- Korea still is deep in the Covid woods, especially as protection from prior infection is very low...
- ...But rapid jabs give the BoK room to manoeuvre, and re-focus towards curbing financial imbalances.