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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.
Korean exports beat expectations in November, though we think the data overstate performance. Supply chains are still improving at the margins, even if U.S. ports remain congested. The Omicron variant is a risk to this recovery, but will not derail it entirely.
Chinese economic momentum stabilised in November, thanks to policy action. The end of the energy crisis has boosted output, and eased some bottlenecks. Infrastructure support looks to be arriving, propping up construction as property struggles.
Policymakers are low on options to support economic growth amidst multiple headwinds. Infrastructure investment is the surest way to ensure money is actually spent... ...But local governments may still have difficulties spending it, given a lack of viable projects.
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.
Japan's October exports repeated the message of other regional trade data... ...Supply chains remain snarled, and bottlenecks are still narrow, and tight. We think November will prove to be a high-water mark, but tankers have a big turning circle.
China's economy likely slowed in October, as energy outages worsened and property stress spread. We think recent excitement over property sector stimulus is misplaced. Retail sales should do better than expected, but it won't last.
Food and energy prices drove Chinese consumer price inflation sharply higher in October. Partial energy liberalisation, coupled with soaring coal prices, led to record PPI inflation. We think both spikes will be transitory, and will not necessitate a monetary policy response.
Euro area energy inflation will rise further in Q4, but we think the core rate has peaked. Risks are tilted towards persistently high core and headline inflation in the next 12 months... ...But that doesn't justify the leap in Eurozone rate expectations in the past few weeks.
German core inflation is still rising; we think it will hit 3%-plus in Q4, before easing in January. Electricity inflation in Spain is still rocketing, threatening consumer's real incomes and industry. Core inflation in Spain is now back at its pre-virus rate; should we be looking for an overshoot now?
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.
Inflation in Switzerland likely has peaked, keeping it lower than the headline HICP in the EZ... ...Currency effects will soon be a drag on headline inflation, to the SNB's dismay... ...Meanwhile, rising natural gas prices are no worry for the Swiss, and wage pressures are limited.
Our 2022 core inflation forecast signal that trouble is brewing for markets and the ECB. Core inflation will fall in Q1, but it will be back at just under 2% by spring, and through the summer. The ECB will stay dovish, but it will lift its inflation forecasts further; this will unsettle markets.
Core inflation in the euro area rocketed in August, but we doubt that markets will notice. PEPP tapering is coming, but the overall tenor of the ECB's communication remains as dovish as ever. The EZ survey data are now softening, but that won't matter for GDP in Q3; for Q4, however, it might.
Both M1 and M2 growth missed expectations in July, but the former arguably is due a turnaround. Slowing household demand for credit isn't exactly concerning, as they are still sitting on piles of cash. Japanese machine tool orders remain solid, indicating that the recovery in global IP is on track.
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Virus cases fell throughout the second quarter, allowing EZ governments to ease restrictions and the economy to roar back to life.
The PBoC followed through with a Reserve Requirement Ratio cut of 0.5 percentage points on Friday, hot on the heels of a strong hint to do so from the State Council meeting earlier in the week.
It's easy to fall into the trap of thinking that the Chinese monetary authorities are shifting to a broad-based easing stance.
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