G-7 Macro: There wasn’t a lot of G-7 macro news to get your teeth into yesterday. We had some further dovish comments from the Fed’s Lisa Cook, who said that she had “wholeheartedly” supported the recent 50bp cut. 2Q24 GDP was unchanged at 3.0% in the third revision, and the core PCE index rate was also left unchanged at a 2.8% annualized QoQ rate. Jobless claims were fairly steady, though there was a little upward drift to the continued claims series.  Today is a bit more interesting, with the main focus likely to be on the core PCE price index for August. The consensus 0.2% MoM reading will likely deliver a slight increase in the year-on-year rate from 2.6% to 2.7%, subject to any rounding issues. We also get University of Michigan sentiment indices and inflation expectations.  Europe also publishes a lot of confidence data today, and the ECB publishes inflation expectations numbers as well.

China: Comments from yesterday’s politburo meeting have confirmed that the authorities are shifting gears in their efforts to boost the economy and stabilize confidence. Holding the meeting in September rather than waiting until the normally scheduled December meeting is in itself a signal that the authorities are willing to take more urgent action to achieve the 5% growth target. We saw a more aggressive than expected policy package from the PBOC this week and it is reasonable to expect other policies will soon follow.

We will likely see fiscal policy support measures pick up soon, as the meeting discussed “increasing the intensity of countercyclical adjustment of fiscal and monetary policies, ensure necessary fiscal expenditures, issue and use long term bonds and special local government bonds in order to better drive government investment”. It also continued to mention stabilising the real estate market via controlling new construction, improving quality, and increasing loan support for whitelisted projects. Fiscal policy targeting investment is probably the most direct and quickest way to support GDP growth, but for longer-term sustainability, it would be beneficial to funnel more resources toward supporting household consumption as well.  

Japan: Tokyo consumer inflation cooled to 2.2% YoY in September (vs 2.6% in August, 2.2% market consensus) and core inflation excluding fresh food also eased to 2.0% YoY (vs 2.4% in August, 2.0% market consensus). Inflation fell -0.2% MoM sa, the first decline in five months, with goods prices down -0.6% and services prices unchanged. We don’t think the slowdown in inflation in September will have much impact on the BoJ’s decision, as the outcomes were mostly in line with the market consensus and the slowdown was mainly driven by the government’s subsidy programme, but as Governor Ueda specifically mentioned at the last meeting, October inflation will be the key to watch.

Other than the Tokyo CPI number, markets will closely watch the ruling Liberal Democratic Party’s leadership election.  There are three strong contenders in the race, with Mr Ishiba seen as hawkish on monetary policy, Mr Koizumi as neutral and Ms Takaichi as dovish. The results of the first round will be announced at 14:20 local time. If there is no majority, there will be a run-off between the top two candidates, with the result to be announced at 15:30.

South Korea: The Composite Business Sentiment Index (CBSI) in all industries fell to 91.2 in September (vs 92.5 in August), falling for the third consecutive month. As for the outlook, the index also edged down to 92.6 (vs 92.7 in August). Sentiment in the manufacturing sector improved but was more than offset by the decline in the non-manufacturing sector. In the manufacturing sector, new orders and financial conditions are expected to improve, while inventory conditions are expected to deteriorate, supporting our view that the export-led recovery will continue. For non-manufacturing, financial conditions declined the most, indicating that firms are suffering from tight monetary conditions and sluggish demand. Taken together with yesterday’s softening of consumer sentiment data, the overall survey data point to a cloudy outlook, particularly for domestic growth.

Ahead of the Bank of Korea’s meeting in two weeks, August Industrial production, September trade and September CPI results will all be released. We expect inflation to ease while domestic demand deteriorates, which should support the BoK’s rate cut at its October meeting.