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Economist at UOB Group Ho Woei Chen comments on the upcoming BoK meeting later this month. Key Takeaways “Both the headline and core (excluding agriculture and oil prices) inflation strengthened in Oct. The more worrying was core inflation which rose to a fresh high since Feb 2009.” “We expect headline inflation to stay above 5% until Feb 2023 before a high base effect sets in and estimate inflation to average 5.2% for 2022 and 3.5% for 2023.” “The stronger than expected advance GDP in 3Q22 has not changed our more pessimistic economic outlook for South Korea. High frequency data including the S&P Global South Korea manufacturing PMI and exports in Oct are in line with this outlook while there are also risks that the private consumption recovery could stall as domestic interest rates rise to a decade high.” “The monetary policy decision on 24 Nov will be the last for the year and the next meeting is scheduled on 13 Jan 2023. We continue to see the “terminal” base rate at “around 3.50%” given higher Oct inflation and Fed indicating in Nov FOMC that the ultimate level of interest rates in the US will be higher than previously expected.” “However, with a slowing economy and rising interest rate adding to strains in the credit market, the BOK might have to take smaller steps ahead. Thus, while we see another 50bps hike (similar to Oct) as imminent in Nov to bring the base rate to 3.50%, the BOK may decide to dial down the magnitude and hike in two steps instead, by 25bps each in Nov 2022 and Jan 2023.”  

Two central bank meetings will be the highlight for the region next week In this article Bank Indonesia to hike rates as growth beats estimates BSP governor to make good on his promise China to leave rates untouched Japan’s GDP and inflation Other important releases: China’s activity data and Australia's jobs report Source: Shutterstock Bank Indonesia to hike rates as growth beats estimates Bank Indonesia will likely hike rates by 50bp to help steady the Indonesian rupiah, which has been under some pressure of late. The third-quarter GDP growth report was better than expected, giving the central bank some room to be aggressive with its tightening now that core inflation is moving higher. BSP governor to make good on his promise In the Philippines, Bangko Sentral ng Pilipinas (BSP) will increase policy rates by 75bp next week. Governor Felipe Medalla pre-announced his intention to match any rate hike by the US Federal Reserve and will likely make good on that promise to push the policy rate to 5.0% next week. China to leave rates untouched China's central bank, the People's Bank of China, should keep the 1Y Medium Lending Facility rate unchanged at 2.75% and rollover with no change for the net injection of liquidity. Put simply, we expect no change in monetary policy in terms of interest rates and liquidity. The economy has weakened with the rising number of Covid cases and the relaxing of restrictions since August will not have helped the economy much as the main weakness stems from the partial lockdowns of some cities. Japan’s GDP and inflation Third quarter GDP in Japan is expected to grow 0.5% quarter-on-quarter, seasonally adjusted, which is a slower pace than the previous quarter. Reopening effects still led the overall growth but higher inflation and the weak yen partially offset the recovery. Meanwhile, CPI inflation should rise to 3.5% year-on-year in October with utilities and other imported goods prices rising. Other important releases: China’s activity data and Australia's jobs report China will also release activity data next week and we expect almost no growth in retail sales in October despite a long holiday for the month, as shown by the recent PMI numbers. Industrial production should also be slower than the previous month due to soft orders from the external market. Investment activity should speed up slightly due to a pickup in infrastructure investment. However, property investment activities should continue to be in contraction. Meanwhile, October is a quiet month for the job market, and therefore we expect no change in the surveyed jobless rate at 5.5%. Lastly, Australia releases its jobs report for October. The market consensus expects the unemployment rate to remain at 3.5%.   Asia Economic Calendar Source: Refinitiv, ING Tags Emerging Markets Asia week ahead Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

US After a round of soft inflation data triggered a buy-everything relief rally, Wall Street will focus on Fed speak and a plethora of data points that might show the economy remains resilient.  The key economic readings include manufacturing activity, retail sales, and housing data. There will be no shortage of appearances by the Fed this week. Brainard and Williams speak on Monday, while Tuesday includes speeches by Harker, Cook, and Barr. Wednesday brings Williams, Barr, and Waller, and on Thursday we will hear from Bullard, Bowman, Mester, Jefferson, and Kashkari. In addition to a swathe of economic releases, traders will also closely monitor big retail earnings from Walmart, Target, Macy’s, and Kohl’s. We should learn more about the health of the consumer and if we should expect a further easing of prices as we enter the holiday season. EU  It’s a relatively quiet week for the EU with the two standout economic releases being flash GDP and final HICP. With the economy facing a recession, the GDP data will be an interesting insight into how quickly growth is slowing going into an uncertain winter. The inflation data will naturally be of interest but it may take a significant revision to really grab investors’ attention. UK The Autumn statement has been a long time coming, it feels. The markets have calmed down a lot since the ridiculous mini-budget but it will still take time for the government to regain credibility and the confidence of the markets. It starts next week and all eyes will be on Parliament as we learn how the new government plans to balance the books while not piling more misery on the economy. The BoE monetary policy report hearing next week is another highlight but there’s also a lot of economic data due. The path for interest rates remains uncertain so it’s not just what policymakers have to say that matters, it’s whether the data allows them to slow the pace of tightening going forward as they so clearly want to do. CPI on Thursday is the obvious highlight but there’s plenty more throughout the week. Russia A quiet week with no economic data of note. South Africa Another quiet week with the only economic release being retail sales on Wednesday. Turkey No major economic releases next week, with investors still focused on the central bank and inflation. Switzerland Tier three data dominate next week. Focus remains on what the SNB will do in December, with Chair Jordan acknowledging on Friday that monetary policy isn’t restrictive enough to bring inflation back into the range of price stability over the medium term. The risk of a pre-meeting rate hike remains. China Weeks of speculation around China’s commitment to its zero-Covid policy have spurred a recovery in local stocks and we may be about to get more information on what that will entail. A relaxation of quarantine measures has been announced in recent days and a press briefing is now reportedly scheduled for Saturday. At the same time, China is seeing a steady rise in Covid cases resulting in more restrictions and mass testing.  China’s October retail sales, industrial production, and investment data will be released next week.  The PBOC is also expected to keep its one-year medium-term lending facility rate at 2.75% in November.   India A key inflation report could show pricing pressures are easing which might allow the RBI to be less aggressive with its tightening path.  Headline inflation is expected to ease from 7.4% to 6.7%.    Australia & New Zealand The focus for both Australia and New Zealand might stay on China and their weakening outlook due to their struggles with COVID.  Australian employment data is expected to show job growth continues, while unemployment remains at 3.5%. Wage pressures in the third quarter are expected to rise, but some of that is attributed to the increase in the minimum wage.    In New Zealand house sales data and producer prices will be released. Japan Japan’s third-quarter GDP reading is expected to show significant weakness as import costs skyrocketed.  Japan’s core inflation is also expected to surge from 3.0% to 3.5%, which should clearly weigh on consumer spending.  Given the weakness in the US dollar, the BOJ might save its ammunition and hold off intervening anymore in the foreign exchange market. Singapore It is expected to be a quiet week with the exception of non-oil domestic export data.   Economic Calendar Sunday, Nov. 13 Economic Data/Events China medium-term lending The ASEAN summit concludes in Cambodia. Monday, Nov. 14 Economic Data/Events Eurozone industrial production India trade, CPI, wholesale prices New Zealand performance services index Fed’s Williams moderates a panel at the Economic Club of New York ECB’s Fabio Panetta speaks in Florence ECB’s de Guindos speaks in Frankfurt. BOJ announces the outright purchase amount of Japanese government securities Tuesday, Nov. 15 Economic Data/Events US empire manufacturing, PPI France CPI Poland CPI  Eurozone GDP Hungary GDP Canada existing home sales China retail sales, industrial production, surveyed jobless France unemployment Germany ZEW survey expectations Japan industrial production, GDP Mexico international reserves New Zealand home sales, net migration South Korea export/import price index, money supply UK jobless claims, unemployment G-20 summit in Bali IEA monthly oil market report ECB’s Elderson speaks Fed’s Harker speaks at GIC Annual Monetary & Trade Conference Former US President Trump is due to make an announcement in Florida RBA releases minutes of its November interest rate meeting Wednesday, Nov. 16 Economic Data/Events US business inventories, cross-border investment, retail sales, industrial production Australia leading index Canada CPI, housing starts China property prices Israel GDP Italy CPI Japan machinery orders, tertiary index, department store sales Philippines Bloomberg economic survey Russia GDP South Africa retail sales UK CPI EIA crude oil inventory report G-20 summit in Bali BOE Gov Bailey appears before the Treasury committee   Fed’s Williams and Brainard, SEC’s Gensler speak at the 2022 Treasury Market conference ECB Financial Stability Review ECB President Lagarde speaks ECB’s Fabio Panetta speaks Thursday, Nov. 17 Economic Data/Events US housing starts, initial jobless claims Italy trade Singapore trade Australia unemployment China Swift payments Eurozone CPI, new car registrations Hong Kong jobless rate Japan exports, trade balance New Zealand PPI Singapore non-oil exports UK fiscal statement, economic forecasts Fed’s Kashkari and Jefferson speak at the Federal Reserve Bank of Minneapolis Fall Institute Research Conference Fed’s Mester speaks at the Federal Reserve Bank of Cleveland and the Office of Financial Research Annual Financial Stability Conference Fed’s Evans speaks ahead of his retirement BOE’s Silvana Tenreyro speaks SNB’s Maechler speaks at Money Market Event in Geneva BOE’s Huw Pill speaks at the Bristol Festival of Economics on ‘What Next for Central Banks’ Friday, Nov. 18 Economic Data/Events US Conference Board leading index, existing home sales Norway GDP Japan CPI Thailand foreign reserves, forward contracts, car sales ECB President Lagarde, Nagel, and Knot speak alongside BOE’s Mann Fed’s Collins speaks at the Federal Reserve Bank of Boston Economic Conference BOE’s Jonathan Haskel speaks Sovereign Rating Updates Italy (Fitch) Sweden (Fitch) Turkey (Fitch) Ireland (S&P) South Africa (S&P) Portugal (Moody’s) South Africa (Moody’s) Denmark (DBRS) This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

A rate hike by the Bank of Korea, and inflation data from Tokyo and Singapore are just some of the highlights in the region next week In this article BoK to hike rates but expect a slower pace of tightening Inflation remains elevated in Japan and Singapore Export and manufacturing data for Taiwan Other important data reports: Loan rates in China steady and growth downgraded in Singapore Source: Shutterstock BoK to hike rates but expect a slower pace of tightening The Bank of Korea (BoK) will meet next Thursday and we expect it to carry out a 25bp hike. Consumer prices edged up in October but inflation appears to have passed its peak.  The recent FX market move probably would be one factor for BoK to adjust its pace of tightening after its recent jumbo increase. However, given that financial market stresses remain high, the BoK will need to consider market stability for its policy decision.  Inflation remains elevated in Japan and Singapore Next week, Japan will release November CPI inflation for Tokyo. We expect Tokyo inflation to accelerate to 3.6% year-on-year, from 3.5% in October. The travel voucher programme probably cooled down some of the service price pressures although other commodity prices rose to offset this decline. In Singapore, inflation is expected to remain elevated for both headline and core, although the headline number may dip from last month. Evident price pressure should keep the Monetary Authority of Singapore hawkish to close out the year as it monitors the impact of recent tightening.    Export and manufacturing data for Taiwan Taiwan will release data on export orders and industrial production. We project both figures to post a YoY contraction due to softer demand for semiconductors. Demand for electronics has been dampened by a mix of high inflation data in some economies and slower growth for others. More upside however could be anticipated in next month’s data as China’s Covid-19 measures have been eased. Other important data reports: Loan rates in China steady and growth downgraded in Singapore China will release its Loan Prime Rate next Monday and we expect no change from the current 3.65% for 1Y and 4.3% for 5Y. Loan prime rates will likely be untouched as the Medium Lending Facility Rate was put on hold by the People's Bank of China.   Lastly, Singapore will report revised third-quarter GDP figures and we expect a downward revision to the earlier report. Both retail sales and non-oil domestic exports have shown signs of moderation as higher inflation and slowing global trade appear to be taking their toll on the growth momentum. Asia Economic Calendar Source:Refinitiv, ING TagsAsia week ahead Asia Pacific Asia Markets Asia Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The Bank of Korea (BoK) will hold its Monetary Policy Committee (MPC) meeting on Thursday, November 24 at 01:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of six major banks.  BoK is expected to hike rates by 25 basis points to 3.25%. At the last policy meeting, the bank hiked rates by 50 bps to 3.00%.  SocGen “The BoK is likely to hike rates by 25 bps to 3.25%. A plunge in USD/KRW exchange rate in November will support a ‘baby step’ hike, just as the surging USDKRW exchange rate in September justified the ‘big step’ of a 50 bps hike. A slight rebound in October headline inflation has seen calls for continued monetary tightening, while clearer signs of a slowdown in activity indicators and the sustained ‘credit crunch’ in the corporate credit market also lessen the chances of a 50 bps hike. In the quarterly review of macroeconomic forecasts, the BoK is expected to lower its 2023 GDP forecast but maintain its inflation forecasts.” ANZ “We expect the BoK to hike its policy rate by 25 bps to 3.25%. The combination of still elevated inflation, with the latest headline print at 5.7% YoY and core inflation at 4.2% YoY and a hawkish US Federal Reserve means that the central bank’s rate-hike cycle has further room to run. Amid climbing concerns about growth and the credit market, the case for hiking at a more gradual pace has strengthened further. We are sticking with our terminal policy rate forecast of 3.50% by Q12023.” Standard Chartered “We expect the BoK to hike the base rate by 25 bps, moderating the pace of hikes; it had hiked by 50 bps in October. We think the BoK will be under pressure to provide more liquidity to the market to maintain financial stability, especially amid growing concerns about a liquidity crunch in the bond market. Recent KRW appreciation and foreign capital inflows should provide breathing room for the BoK to relax its hawkish stance. Still, we expect the central bank to continue hiking its base rate, in order to narrow the interest rate differential with the Fed. Also, inflation remains elevated at above 5%; further tightening of monetary policy is therefore expected.”  ING “We expect the BoK to carry out a 25 bps hike. Consumer prices edged up in October but inflation appears to have passed its peak. The recent FX market move probably would be one factor for BoK to adjust its pace of tightening after its recent jumbo increase. However, given that financial market stresses remain high, the BoK will need to consider market stability for its policy decision.” TDS “Inflation stayed elevated in Oct but BoK Governor Rhee struck a less hawkish tone and noted that prices have ‘somewhat stabilise’". We think the BoK has little appetite to proceed with a big hike given the increase in financial market volatility recently. Further, KRW has rebounded 6.9% MTD against the USD and lessens the need for BoK to proceed with big hikes to support KRW.” MUFG “We see the BoK likely to raise its 7-day repo rate by 25 bps to 3.25%.”    

Markets react positively to Fed minutes - a bit of an overreaction? Covid cases and movement restrictions rise in China, Japan's PMI contracts and Bank of Korea hikes rates 25bp In this article Macro outlook What to look out for: Bank of Korea policy meeting   Source: shutterstock Macro outlook Global markets: The relevant sentence in the minutes of the Fed’s November 1-2 meeting, as far as financial markets need to be concerned is this, “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate”. Yes, there was lots of talk about how committed everyone was to achieving the 2% target (though none about whether that target was in fact appropriate), and for the hawks, there is this, “…with inflation showing little sign thus far of abating, and with supply and demand imbalances in the economy persisting, their assessment of the ultimate level of the federal funds rate that would be necessary to achieve the Committee’s goals was somewhat higher than they had previously expected”, which nods in the direction of James Bullard’s concerns that rates may have to rise considerably above the market’s peak Fed funds assumption of 5%. However, the balance of opinion seems to have been with the more dovish comments, and US equities staged a modest further rally - the S&P500 rising 0.59% and the NASDAQ rising 0.99%.  Equity futures are also indicating a slight further gain at today’s open. 2Y US Treasury yields dropped back 3.7bp and the 10Y yield declined 6.3bp to 3.693%. All of which left the way open for the USD to retreat considerably. EURUSD is now back to 1.0418 after a day of steady increases and is looking to continue those in early Asian trading. The AUD has risen about a full big figure to 0.6743, Cable has reattained the 1.20 level and is now 1.2072, while the JPY has fallen back below 140 again and is now 139.30. Asian FX was mixed yesterday, with the THB down 0.47% and CNY soft again (7.1605) but today will likely see currency pairs clawing back losses against the USD to keep track with moves in the G-10. A final thought: Are today’s moves excessive? To be honest, they do feel a bit much given the fairly even-handed nature of the Fed minutes -  there wasn’t all that much else going on, so it may be an idea to fade this move today. See also this from James Knightley on how the recent market moves will not be what the Fed wants to see. G-7 Macro: Besides the Fed minutes, yesterday’s releases centred on the November purchasing manager indices, which for Europe at least, remained solidly in contraction territory. The US indices were no better, and do indicate that the US economy is beginning to slow down. University of Michigan consumer sentiment showed a slight improvement, but the 1Y ahead inflation expectations figure dropped to 4.9% from 5.1%. October new home sales were surprisingly perky, rising at a 632,000 annual pace, up from 588,000. It’s Thanksgiving today in the US and so there is no data out of the US. In the rest of the non-Thanksgiving G-7, Germany’s Ifo survey marks the most interesting release. Trading will likely be light heading into the weekend. China: Covid cases continue to rise across much of the country, and mobility restrictions (lockdowns in all but name) are increasing. This is bound to have an impact on the fourth quarter GDP result, and as a result, could impact the outlook for 2023 GDP estimates which could be adversely affected by a year-end dip like this. Contemporaneous indicators for 4QGDP in China are looking quite bad right now. And it is probably with this in mind that the State Council was reported by CCTV yesterday as looking to get the PBoC to implement another RRR cut “in a timely and appropriate manner”. That suggests quite soon – maybe in the next few days. South Korea: The Bank of Korea has met for its policy decision meeting this morning and has delivered a 25bp hike (7-day repo rate now 3.25%) in line with market expectations. Recently released data suggest that the economy is headed for a contraction, while forward-looking price indicators suggest that inflation will slow further in the coming months. Today’s PPI inflation decelerated to 7.3% YoY in October (vs a revised 7.9% in September). The Bank of Korea is also due to release an updated forecast report, with GDP expected to be revised down to around 1.7% (from Aug forecast of 2.1%) and inflation to around 3.3% (from Aug forecast of 3.7%). What to look out for: Bank of Korea policy meeting Japan PMI (24 November) Korea BoK policy meeting (24 November) Japan Tokyo CPI inflation (25 November) Malaysia CPI inflation (25 November) TagsEmerging Markets Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The Bank of Korea raised its policy rate by 25bp today with a hawkish tilt, expecting inflation to remain higher than its target of 2% throughout next year. But, given the falling pipeline prices and growing concerns over growth, we believe that the BoK is close to its final destination in raising interest rates Source: Shutterstock   3.25% BoK's 7-Day Repo Rate    As expected Terminal rate debate will be continued The Monetary Policy Board unanimously decided to raise rates by 25bp today. Compared to the previous month, volatility in the FX market has calmed significantly and the credit squeeze in the short-term money market has worsened, thus the BoK returned to a normal rate hike pace. However, the board seems to have quite different views on the terminal rate - one for 3.25%, three for 3.5%, and two for 3.5%-3.75%, not including Governor Rhee Chang-yong's own opinions. Regarding future policy decisions, Governor Rhee mentioned that as CPI inflation over the next two months is expected to fall due to the high base last year, the BoK will be cautious about reading into those figures and will wait to see whether inflation rebounds again in January and February. Also, the Korean won has appreciated meaningfully but external factors such as the Federal Reserve's December rate hike and China's Covid policy stance are uncertain, so FX moves in the coming months are another factor to consider in future policy decisions.  We are maintaining our call for a 25bp increase in 1Q23, and now see a better chance of a rate hike in February rather than January unless the Fed surprises the market with another large step in December. As inflation is expected to slow in the future, we believe that financial market stability and growth should be the focus of the BoK from now on. Also, the BoK is expected to adjust its hiking pace as there is limited room for further rate hikes.    The BoK has downgraded its 2023 GDP and CPI inflation forecasts The BoK revised down quite meaningfully its GDP forecast for 2023 from 2.1% to 1.7%. Most of the downward adjustments come from the external demand component, with growth in major trading partners such as the US (0.3%), the EU (-0.2%) and China (4.5%) expected to slow down in 2023.  Meanwhile, the BoK forecast that next year's inflation would be only marginally lower, at 3.6% from 3.7%. The accumulated pressure to raise prices is expected to continue until next year, offsetting much of the weakening pressure on the demand side due to the economic slowdown. For the next couple of months, base effects will play a major role in inflation thus CPI inflation is expected to fall to the 4% level temporarily but rebound to the 5% level in January. The BoK expects prices for gas, electricity, and manufactured food to rise further early next year, thus headline inflation is expected to stay above 4% in the first half of next year. What we see similarly to BoK's outlook First, Korea's growth is largely dependent on the external demand condition. Both ING and BoK have a cloudy global outlook, which is expected to negatively affect Korea's growth next year.  Second, the semiconductor cycle is expected to bottom out in the second half of next year. The recent slump in exports is mainly driven by sluggish semiconductor exports, but exports should rebound in the second half of next year.  Third, investment is expected to fall due to tight financial conditions and the bleak outlook for the construction sector. Fourth, although credit tightening in the short-term money market and some market jitters will likely continue, this shouldn't threaten the overall financial system. We think some losses are expected in the Project Financing and construction industry, but the shock is expected to be contained within the sector. (Please see "South Korea: corporate debt is a concern for the economy). What we see differently to the BoK's outlook First of all, ING's 2023 GDP forecasts for the US and the EU are -0.4% and -0.7% year-on-year, respectively, which is weak compared to the BoK's own forecasts of 0.3% in the US and -0.2% in the EU. As mentioned earlier, considering Korea's high dependency on external demand, we see a bigger negative impact on Korea's exports and overall growth.   Second, private consumption is expected to shrink in the first half of next year as the debt service burden increases, while the BoK expects consumption to continue to recover. More than 70% of household debt is based on floating interest rates and more than 65% of households are indebted. We have been seeing the deleveraging of household debt mostly in personal loans for several months which is a good sign for long-term growth but, in the short term, the propensity of households to spend should weaken. In addition, the wealth effect of Korean households is expected to weaken as real estate prices will likely continue to adjust further. These are the reasons that we foresee sluggish private consumption in 1H23. Third, we believe that inflation will decline faster than the BoK's forecast. It is true that there have been accumulated price pressures in utilities and other service prices and Korea's CPI is more sensitive to supply-side inflation factors. But, we think the price declines in rent and housing should have a bigger impact in leading to a sharp decline while price hikes from reopening will likely dissipate as well.  ING vs BoK's outlook BoK, INGBoK releases bi-annual %YoY forecasts only. ING estimates quarterly growth based on the BoK's bi-annual numbers Forward-looking price components point to further deceleration in coming months In a separate report, the BoK announced its Producer Price Index for October. Headline PPI inflation slowed to 7.3% YoY in October (vs 7.9% in September) with goods prices down the most. Goods prices such as fresh food (4.1% vs 7.1% Sept) and industrial products (7.7% vs 9.6% Sept) all declined due to good harvesting of winter vegetables and the drop in gasoline prices. Meanwhile, utility (32.4% vs 25.2% Sept) and services prices (3.4% vs 3.3% Sept) continued to rise, reflecting the recent gas/electricity rates hike. The utility rate hike will have some lingering effects, pushing up service prices in a few months, but we believe that headline prices will continue to decelerate as demand-side pressures are expected to turn weak with higher interest rates.  We expect CPI inflation to decline quite sharply to 5.1% YoY in November (vs 5.7% in October) for the following reasons. The Korean won significantly stabilised compared to October, gasoline prices continued to decline, and fresh vegetable prices came down meaningfully during the month. Also, we believe that inflation will likely decelerate to the 4% level in 1Q23 although there will be additional utility rate hikes next year. Pipeline prices continued to drop since early summer CEIC TagsMonetary Policy GDP CPI inflation Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

South Korea hopes to achieve carbon neutrality by 2050 by expanding its renewable energy sources, namely nuclear power. In this article, our senior economist in Seoul looks at South Korea's journey to net-zero, and how this has been impacted by the war in Ukraine In this article Korea's electricity supply and demand South Korea’s efforts to achieve its net-zero 2050 target The Transition Committee’s five policy guidelines How has the war impacted the energy market? The Kori nuclear power plant in South Korea is the world's largest fully operational nuclear generating station    Korea's electricity supply and demand South Korea wants to pursue reliable and cheaper energy sources. In the following charts, we look at the reliability of South Korea's current energy supply. Industry (manufacturing) consumes more than half of electricity/energy Industry depends on more reliable and cheaper energy sources IEA, Kepco (LHS). KEEI as of 2020 (RHS)World as of 2019, Korea as of 2020 (LHS) This is to do with the structure of the Korean economy/industry Top electricity consumer shifted from Heavy Industry to IT. Both require a steady/reliable supply of electricity KEPCO Thus, Korea has been highly dependent on 'reliable' conventional energy Electricity generation heavily depend on coal, LNG, and nuclear Renewable facilities have grown fast to 14.5%. Power generation accounted 6% as of 2020 KEPCO   In the next set of charts, we look at how inexpensive power is in Korea. Inexpensive power: electricity consumption per capita ranked 13th Electricity is an important factor in the Korean economy, supporting the activities of industry and households BP statistical review of World Energy 2021 Almost 100% overseas dependence & isolated national power grid system The economy heavily depends on energy imports and households are more sensitive to energy prices KEEI and CEIC Higher energy prices affect Korea’s macro economy: inflation Households are more sensitive to energy prices and pay for electricity on a progressive rate KEEI, CEIC Higher energy prices affect Korea’s macro economy: trade balance CEIC Production of renewable energy (calorific unit) Renewable production increased steadily Korea Energy Agency, as of 2020Non-renewable waste data has been excluded since 4Q19 Inexpensive power: power purchasing unit cost by energy source Unit cost of renewable has lowered and has reached comparable levels for coal and hydro (if excluding RPS) KEPCOFore renewable, excluding RPS (Renewable Portfolio Standard) South Korea’s efforts to achieve its net-zero 2050 target Where does it want to be? South Korea has become the 14th country in the world to legislate a carbon target, aiming for a 40% reduction in emissions from 2018 levels by 2030 to achieve carbon neutrality by 2050 What has it been doing to get there? Since its formation in May 2021, the 2050 Carbon Neutrality and Green Growth Commission has implemented several measures in an effort to gradually move towards total carbon neutrality. The Carbon Neutrality Act, for example, became effective in March 2022 and aims to facilitate the transition to a carbon-neutral society and increased green growth. Alongside legislative changes, the government has also increased its 2022 carbon neutrality budget to KRW 12 trillion from the previous year’s KRW 7.3 trillion, with a newly established KRW 2.5 trillion climate fund. Following a change of government in early 2022, progress on energy policy has come to a halt. Although the previous administration was criticised for setting overly ambitious goals and disregarding corporate voices, the new government has confirmed that it intends to stick to the original plans, with details set to be reviewed more closely moving forward. The Ministry of Trade, Industry and Energy (MTIE) announced on 5 July that the government will resume the construction of Shin Hanul Units 3 and 4 nuclear reactors and maintain the current level of reactor capacity if safety is ensured. As a result, nuclear will be responsible for more than 30% of power by 2030, up from 27.4% last year. In addition, the Korean government plans to create a new law for disposing of high-level radioactive waste in order to reduce potential hazards, organising a team exclusively for nuclear waste management. The revised outline, including the target for renewables, will be detailed in the 10th Basic Plan on Electricity Demand and Supply due in the fourth quarter of 2022. The Transition Committee’s five policy guidelines 1. Feasible Carbon Neutrality Plan and energy mix No change for the internationally committed carbon neutrality objectives, but the implementation plans should be amended by embracing nuclear energy in its decarbonisation efforts. 2. Market-Based demand efficiency A market-based initiative to promote energy demand efficiency, and foster market principles and market competition. 3. Energy policy as a new growth engine Invest in nuclear power technology and export the K-nuclear plants. as well as foster renewable technologies such as solar, wind, and hydrogen as new growth engines 4. Strengthen resource security Secure a reliable supply chain of energy and core minerals and reinforce resource security. 5. Strengthen energy welfare policy Provide energy welfare policies for low-income households and reduce coal power generation, under the consideration of jobs and the local economy. How has the war impacted the energy market? Similar to other energy importers, South Korea is suffering from the ongoing war due to high inflation and worsening trade conditions. However, as a major refining/petrochemical exporter, South Korea has significantly reduced its oil imports from Russia and this trend is likely to continue. Meanwhile, LNG and coal imports have fallen but at a slower pace due to the high dependence on power generated by fossil fuels. South Korea plans to expand its renewable energy sources, with the anticipated gap likely to be filled by nuclear power. Given its value as a reliable and affordable renewable energy source, nuclear power is expected to become an increasingly critical point of focus for the government moving forward. What’s happened since the Ukraine war? South Korea’s imports of oil, coal, and LNG (in volume terms) CEIC Oil has seen the most dramatic change KITA (Korea International Trade Association) LNG: total imports volume declined -2.6% YoY due to high price Russia’s LNG import share significantly declined in 2022 and diversified imports sources 80% of LNG is provided under long-term contract KITA (Korea International Trade Association) Coal: Russian import share actually increased in 2022 KITA (Korea International Trade Association) TagsHydrogen Energy crisis Energy Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Markets were quiet yesterday, as the US was closed for Thanksgiving. European markets mostly surfed on the positive reaction from the US equities to the Federal Reserve (Fed) minutes released a day earlier. EU Stocks The German DAX advanced to a fresh 5-month high, as the French CAC40 hit a fresh 7-month high, thanks to the euro’s appreciation against the greenback, which somehow eases the inflationary pressures for the European companies, along with the falling energy prices. Central Banks Elsewhere, the latest minutes from the European Central Bank (ECB) released yesterday revealed that ‘a few’ officials favored a smaller rate increase, than the 75bp that the bank delivered last month, citing the other monetary tightening measures that would help restricting the monetary conditions. The Swedish Riksbank raised its interest rates by 75bp yesterday and said that the monetary tightening will continue to tame inflation in Sweden. The Korean Central Bank raised its interest rates by another 25bp to the highest levels since 2012 and the won gained, whereas the Turkish Central Bank CUT its policy rate by another 150bp points, but said that the easing is perhaps enough at 9%, and that risks on inflation – which stands around 85% officially, and 185% unofficially – increase from here. China In China, the central bank signals lower reserve ratios for banks, and conducts reverse repo operations to boost liquidity in the system, as news of fresh Covid restriction measures creep in. The Chinese news certainly prevent oil bulls from jumping in the market right now, and the American crude consolidates below $80pb this morning, with solid offers seen at $82/85 range. Credit Suisse In Switzerland, Credit Suisse continues making the headlines. The stock price flirts with all-time-lows, as UBS sees its share price extend gains as outflows from CS reportedly benefit UBS. Watch the full episode to find out more! 0:00 Intro 0:32 Soft USD boosts European stocks 4:02 Will the USD further soften? 5:40 Central bank roundup 7:44 China re-closing weighs on oil 8:11 Credit Suisse outflows benefit UBS Ipek Ozkardeskaya  Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #DAX #CAC #FTSE #EUR #GBP #USD #FOMC #ECB #minutes #Riksbank #CBT #SEK #TRY #China #Covid #crudeoil #CreditSuisse #UBS #Thanksgiving #BlackFriday #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary _____ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr _____ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 _____ Let's stay connected: LinkedIn: https://swq.ch/cH

Due to a weaker-than-expected export outcome in November, the downside risks to GDP this quarter have increased. The Bank of Korea (BoK) is likely to slow down its hiking pace next year due to the sharp deterioration of real activity data   -14.0 Exports % YoY  Lower Trade deficit widened again due to soft exports in November Exports fell for a second consecutive month (-14.0% YoY in November vs -5.7% in October), and were weaker than the market consensus of -11.2%. By export items, automobiles (31.0%), petroleum (26.0%), and batteries (0.5%) grew, while semiconductors (-29.8%), and petrochemicals (-26.5%) dropped sharply. By destination, exports to the US (8.0%), the Middle East (4.5%), and the EU (0.1%) continued to increase. Yet, inter-regional exports continued to decline, with exports to China (-25.5%) and ASEAN (-13.9%) down. We believe that catch-up demand in the auto sector will persist for a while with lifting supply constraints. However, the outlook for IT investment and consumption is cloudy. We interpret the sluggish exports to China and ASEAN as being more strongly related to global IT demand rather than necessarily to regional demand. China's lockdown itself should work against Korea's exports, but what's more worrisome is that the final demand for IT seems to be falling very quickly.  Meanwhile, imports rose 2.7% YoY in November (vs 9.9% in October) with continued increases in commodities (27.1%). As a result, the trade deficit widened to -USD7.0bn in November (vs -USD6.7bn in October).  Exports contracted for a second straight month in November CEIC November manufacturing PMI rebounded but remains below the neutral level November's manufacturing PMI improved to 49.0 (vs 48.2 in October), but stayed in the contraction zone for a fifth consecutive month. Sluggish semiconductor performance appears to be driving weak output and orders, which means that semiconductor activity is likely to remain sluggish in the near future.   Manufacturing PMI suggests soft manufacturing activity ahead CEIC GDP outlook The Bank of Korea released its revised report on 3QGDP this morning as well. Headline growth of 0.3%QoQ was unchanged from the advance estimate, but the details have changed slightly. By expenditure, private consumption (1.7% vs 1.9% advance) and construction (-0.2% vs 0.4% advance) were lowered, while facility investment was revised up to 7.9% (vs 5.0% advance) as machinery and transportation investment increased. 3QGDP growth was mainly led by domestic demand components, but consumption and facility investment are likely to weaken due to interest rate hikes. Construction, which already contracted last quarter, is struggling with the ongoing tight financial conditions and sluggish real estate market. Meanwhile, China's weak PMI (48.0 official manufacturing) and strict corona policy mean that Korea's exports will face strong headwinds in the coming months. Making things worse, the nationwide truckers' strike is adding an additional burden on the economy. Considering the sluggish October IP outcomes yesterday and dismal exports this morning, the downside risk for the current quarter’s GDP forecast (-0.1% QoQ) has substantially increased. GDP outlook is likely to be revised down Bank of Korea, INGBank of Korea releases bi-annual %YoY growth forecasts. ING estimated the quarterly growth figures based on the bi-annual forecasts. The Bank of Korea will slow down its hiking pace next year Consumer price index (CPI) inflation data for November will be released tomorrow. We expect inflation to decelerate to 5.1% YoY (vs 5.7% in October) mainly due to falling gasoline and fresh food prices. Although base effects will also work to calm inflation in the coming months, we see additional signs of inflation slowing further. The recently released data signals a sharp deterioration in the economy in the current and subsequent quarters. We, therefore, expect the BoK to deliver its last hike this cycle in February. Beyond the first quarter, the BoK will likely adopt a wait-and-see stance, together with hawkish comments. But if we are right about contracting growth and inflation falling to around 3% in 1H23, then the BoK will likely consider easing policies in 2H23. Financial market updates Korea's equity market and the Korean won are rallying on the back of relatively dovish remarks from Jerome Powell last night. The KRW recorded its best performance in the region for a month. We think that the KRW will likely strengthen further by the year-end, but we still have to be cautious in the next quarter. We expect further widening of the yield gap between the US and Korea and uncertainties in China to extend into the next quarter, which together with a weak trade performance, could adversely affect the won.  TagsKorean trade GDP Exports Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The sharp slowdown in consumer price growth in November was largely due to stable gasoline and fresh food prices, but also to a high base last year.  But we believe that today's outcome is not enough to dispel concern within the Bank of Korea (BoK) about inflation. And we expect the BoK to maintain its hawkish tone until early next year  Source: Shutterstock.com 5.0% Consumer price inflation YoY Lower than expected Food and energy prices were the main reasons for the decline. Consumer price inflation eased more than expected in November, with headline inflation declining to 5.0% YoY in November (vs 5.7% in October, 5.2% market consensus). The main cause of November's inflation decline was a fall in agricultural prices (-2.0%), and gasoline prices returned close to pre-Ukraine-war levels. However, service price inflation remained at an elevated level, with core inflation up 4.8%. Eating-out prices rose the most (8.6%) in November while other service prices gradually stabilized. We believe that rents will continue to slow down as market-observed rentals declined in November. Since Korea's lease contracts are usually for two-year terms, the degree to which falling rents will be reflected in the CPI is limited. However, the recent rapid decline in Jeonse prices is expected to be visible in the price index with about a 6-month time lag.  Rentals will decline gradually over the coming months Source: CEIC BoK outlook Today's lower-than-expected inflation is unlikely to change the BoK's policy stance. Governor Rhee Chang-yong had already mentioned last month that base effects leading to a temporary slowdown in CPI inflation would not change the BoK's inflation outlook. Also, core inflation is still high. Consequently, we expect the BoK to stay on a hiking path until early next year. We believe that rate increases in power and gas will follow early next year, but rent and service price growth should slow down. As a result, inflation will likely soften further throughout next year. We maintain our view that the BoK will take a pause until 2Q23 after raising 25bp in February.  Read this article on THINK TagsHousing Prices CPI Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Entering 2023, we expect headline CPI to head down to 4%. Gasoline prices and utility fees are set to rise meaningfully but base effects will anchor headline CPI Source: Shutterstock 5.0% Consumer Price Inflation % YoY Lower than expected Headline CPI rose by 5% YoY for a second month in December Both headline and core inflation were unchanged for a second month in December. Headline CPI remained at 5.0% YoY, slightly lower than the market consensus of 5.1%, with core CPI remaining at 4.8%.  Electricity, Water and Gas (EWS) rose the most - by 23.17% - while fresh vegetable prices fell (by 2.5%) for the second month. Among services, rent slowed to 1.4% in December (vs 1.6% in November). Given Korea's two-year lease structure, the sharp declines observed haved have only gradually been reflected in CPI. We expect the trend to fall in the coming months.  Rents set to decline in the coming months Source: CEIC, ING estimates CPI Outlook The government and KEPCO announced today that electiricity rates will rise by 11.4 won (9.5%) per KWh from 1 January, pushing up CPI by about 0.15 pt. On top of this, gasoline tax cut will be reduced from 37% to 25% also from 1 January, adding another 0.12 pt. Combined, the two will boost CPI by about 0.3 pt in January.  This will trigger the secondary effect of further price hikes over time, and other public service fees such as public transportation rates are also planned to rise.  Thus, headline CPI is set to remain above 2% throughout the year. We still expect downward pressure to grow due to sharp declines in rents and weak demand-side pressures.  Base effects will likely lower headlince CPI early next year, thus we look for a level of 4% for CPI in 1Q23.  CPI inflation set to stabilize in 2023 Source: CEIC, ING estimates Read this article on THINK TagsSouth Korea CPI inflation Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Next week’s data calendar features China's growth numbers, inflation readings from Australia and India, plus a key central bank meeting Source: Shutterstock Inflation finally on the downtrend? The new monthly Australian inflation series should show a further small decline in the inflation rate to 6.8% year-on-year, down from October’s 6.9% rate – still too high for the Reserve Bank of Australia to stop tightening, but moving in the right direction. And in India, further falls in food prices and stable gasoline should bring the price level down by 0.1/0.2% month-on-month, although similar falls last year mean that the inflation rate could hold up at around 5.9%YoY for a second month – still, within the Reserve Bank of India’s target range and indicating that we may be closing in on peak rates.   China activity and loan data due in the coming days China will announce loan data between 9 and 15 January and activity data and GDP data between 10 and 27 January. Loan growth should have slowed in the last month of 2022 even after the People's Bank of China cut the required reserve ratio (RRR) to absorb liquidity. The impact of the RRR cut in December should be reflected in loan growth data for January and support economic activity post-reopening. China also reports activity data and we expect retail sales to face a deeper contraction on a yearly basis. Meanwhile, industrial production could turn from positive growth to mild contraction in December. This suggests that growth was supported mainly by fixed-asset investments for the period. As a result, GDP growth for the fourth quarter of 2022 should fall into a slight year-on-year contraction. BoK could surprise with a pause Bank of Korea (BoK) will meet next Friday. The market expects a 25bp hike, but we maintain our minority view that the BoK will likely stand pat this time. Since the last meeting, both inflation and inflation expectations decelerated quite meaningfully while the Korean won stabilised under the 1300 level despite a widening yield gap between the US and Korea. The BoK is expected to use the rate hike card more carefully as there is little room left to raise interest rates in this cycle given sluggish exports and economic activity. However, given the recent rise in gasoline and power prices, upside risks remain high and thus the BoK should retain a hawkish tilt despite the pause. Philippines exports likely to reverse recent surprise gain Exports are expected to revert to contraction following a surprise jump in the previous month. Electronics form the bulk of outbound shipments from the Philippines and given slowing global demand we could see the overall exports sector fall back into the red. Imports on the other hand should continue to expand, resulting in the trade deficit widening to roughly $4.4bn.  Key events in Asia next week Source: Refinitiv, ING Read this article on THINK TagsAsia week ahead Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Next week’s data calendar features China's growth numbers, inflation readings from Australia and India, plus a key central bank meeting In this article Inflation finally on the downtrend? China activity and loan data due in the coming days BoK could surprise with a pause Philippines exports likely to reverse recent surprise gain   Shutterstock    Inflation finally on the downtrend? The new monthly Australian inflation series should show a further small decline in the inflation rate to 6.8% year-on-year, down from October’s 6.9% rate – still too high for the Reserve Bank of Australia to stop tightening, but moving in the right direction. And in India, further falls in food prices and stable gasoline should bring the price level down by 0.1/0.2% month-on-month, although similar falls last year mean that the inflation rate could hold up at around 5.9%YoY for a second month – still, within the Reserve Bank of India’s target range and indicating that we may be closing in on peak rates.   China activity and loan data due in the coming days China will announce loan data between 9 and 15 January and activity data and GDP data between 10 and 27 January. Loan growth should have slowed in the last month of 2022 even after the People's Bank of China cut the required reserve ratio (RRR) to absorb liquidity. The impact of the RRR cut in December should be reflected in loan growth data for January and support economic activity post-reopening. China also reports activity data and we expect retail sales to face a deeper contraction on a yearly basis. Meanwhile, industrial production could turn from positive growth to mild contraction in December. This suggests that growth was supported mainly by fixed-asset investments for the period. As a result, GDP growth for the fourth quarter of 2022 should fall into a slight year-on-year contraction. BoK could surprise with a pause Bank of Korea (BoK) will meet next Friday. The market expects a 25bp hike, but we maintain our minority view that the BoK will likely stand pat this time. Since the last meeting, both inflation and inflation expectations decelerated quite meaningfully while the Korean won stabilised under the 1300 level despite a widening yield gap between the US and Korea. The BoK is expected to use the rate hike card more carefully as there is little room left to raise interest rates in this cycle given sluggish exports and economic activity. However, given the recent rise in gasoline and power prices, upside risks remain high and thus the BoK should retain a hawkish tilt despite the pause. Philippines exports likely to reverse recent surprise gain Exports are expected to revert to contraction following a surprise jump in the previous month. Electronics form the bulk of outbound shipments from the Philippines and given slowing global demand we could see the overall exports sector fall back into the red. Imports on the other hand should continue to expand, resulting in the trade deficit widening to roughly $4.4bn.  Key events in Asia next week Refinitiv, ING TagsAsia week ahead Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The weaker-than-expected labour report flags that interest rate hikes may have begun to weigh on the broader labour market and eventually consumption. The Bank of Korea will pay attention to the slowdown in the labour market as well as inflation  Source: Shutterstock 3.3% Jobless rate   Higher than expected The jobless rate rose to 3.3% in December (vs 2.9% in November and 3.0% market consensus). By industry, manufacturing (-26k) and construction (-27k) jobs declined while services (+18k) added jobs in December. Manufacturing employment accounts for about 16% of total employment and has fallen for four months in a row. And given the weak business surveys on employment, the outlook is quite gloomy. Construction employment also declined for a second month, reflecting the difficulties the industry is experiencing. As we expect the downturn for construction to continue throughout this year, employment also will likely worsen. Overall, the service sector has increased jobs, but the details were disappointing as major services such as wholesale/retail sales and transportation stayed weak. The reopening boost appears to be gradually disappearing as hotels/restaurants added only a smaller number of jobs (+12k) than before and recreation and leisure fell for the third month. In addition, with the Covid-19 policy getting normalized, health and social work dropped for the first time in five months. We think health and social work will continue to decline this year.  The jobless rate rose to 3.3% Source: KOSIS Labour outlook and BoK watch Today’s report is in line with our view that labour market conditions will likely deteriorate considerably this year. Companies have been encouraging employees to take “voluntary early retirement” packages since last quarter, which has not yet been reflected in December data, and workforce restructuring is expected to increase further in the future. Thus, the unemployment rate will head towards 4% this year. Usually, we think the labour report is secondary data for the Bank of Korea (BoK) when they decide policy rates. But, currently, with a sharp and sudden rise in unemployment and a bleak outlook for this year, it could have a greater impact on policy decisions. We maintain our non-consensus view for an "on-hold" decision at the BoK’s Friday meeting. Service employment was strong in 2022 Source: KOSIS Read this article on THINK TagsUnemployment rate South Korea Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The Bank of Korea (BoK) will hold its Monetary Policy Committee (MPC) meeting on Friday, January 13 at 01:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of five major banks.  BoK is expected to hike rates by 25 basis points to 3.5%. At the last policy meeting on November 24, the bank hiked rates by 25 bps to 3.25%.   Standard Chartered “We expect the BoK to hike rates by 25 bps. We expect the BoK to continue hiking the base rate on inflation concerns despite slowing growth momentum. As of now, we think the BoK will prioritise CPI inflation concerns over growth concerns, maintaining its hawkish stance.” TDS “We think the BoK is nearing its terminal rate as growth concerns take hold, with exports contracting for the trade-reliant nation. While Dec’s headline inflation still remains above the BoK 2% target at 5% YoY, inflation has cooled rapidly from the highs in Jul'22. The BoK may opt to stick with an elevated policy rate of 3.5% for longer rather than continuing to hike rates.” Read next: The EUR/USD Pair Maintains A Steady Upward Trend, The Aussie Pair Keeps Close To 0.69| FXMAG.COM SocGen “The BoK is expected to hike rates by 25 bps to 3.50% at its policy meeting on 13 January, which is likely to mark the end of its rate-hike cycle. We have reduced our terminal policy rate forecast from 3.75% to 3.50%. The data continue to indicate weak economic activity and peaking inflation. The concerns surrounding financial stability have persisted due to high corporate leverage and housing market weakness, which would be bearish for growth outlook. Meanwhile, a further decline in the USD/KRW exchange rate reduces the pressure on the BoK to follow the Fed’s tightening cycle.” ANZ “We expect the BoK to conclude its current rate hike cycle with a 25 bps increase this Friday, which will take the policy rate to 3.50%. Nonetheless, the odds that the central bank will stand pat have also risen.”    ING “We maintain our minority view that the BoK will likely stand pat this time. Since the last meeting, both inflation and inflation expectations decelerated quite meaningfully while the Korean Won stabilised under the 1300 level despite a widening yield gap between the US and Korea. The BoK is expected to use the rate hike card more carefully as there is little room left to raise interest rates in this cycle given sluggish exports and economic activity. However, given the recent rise in gasoline and power prices, upside risks remain high and thus the BoK should retain a hawkish tilt despite the pause.”

The Bank of Korea (BoK) raised its policy rate to 3.50% from 3.25%. The big question now is whether this will be the end of the current hike cycle. We expect the BoK to top out at 3.50% but the central bank seems to want to leave the door open for further hikes as inflation remains high 3.50% 7-day repo rate   As expected The BoK board is divided on rate hikes Today's rate hike decision was not unanimous as expected, with two members disagreeing about today's 25bp hike call. At the press conference, Governor Rhee Chang-Yong said that board members have different opinions on the terminal rate level over the next three-month horizon. Three members see the terminal rate at 3.5% and the other three think that 3.75% should not be ruled out.  Although we thought the BoK would pause this time considering the recent slowdown in inflation and growing concerns over growth, resuming rate hikes in February, the BoK seems to have focused more on the high inflation figure rather than the fact it is on a downward trend, as the uncertainty over inflation is still large. The BoK also announced today that the short-term market stabilisation measures will be extended for another three months until the end of April. The short-term financial market has been stabilising since last November, but the risks surrounding PF financing and credit markets are still significant. This extension will therefore support improving market liquidity.   It ain't over till it's over Listening to Governor Rhee, it is clear he was trying not to give a definite answer to the market about whether this will be the end of the current hike cycle or not. But in his remarks about inflation, growth and the housing market, we understood that the BoK is primarily focused on stabilising inflation. Thus, if inflation does not go down faster than expected, there will continue to be the possibility of further rate hikes.  As for the economic outlook, the current inflation path is in line with the current BoK's forecast (3.4% year-on-year), while growth is expected to fall short of the current forecast of 1.7% YoY. Rhee added that the economy may have contracted in the fourth quarter mainly due to sluggish exports and domestic demand, but GDP in the first quarter is expected to rebound on the back of fiscal spending, better-than-expected growth in the US and EU, and the possibility of a rapid recovery in China based on the latest preliminary data. It seems to us that the BoK believes the economy is heading for (a mild) recovery after bottoming out last quarter. The first half of this year will be tough, but it is still too early to tell whether the economy will fall into recession. Regarding the recent housing market adjustment, Rhee drew a line that monetary policy should not target a specific sector of the economy, and that the recent easing measures would not likely reverse the housing market situation.  We still think the BoK has ended its tightening cycle We believe that inflation is going to slow down faster in the coming months. Global commodity prices continued to fall over the last quarter and the strengthening Korean won will likely lighten the burden on domestic pass-through inflation. Today's import price index levelled down from 14.0% in November to 9.1% in December. We expect CPI to decelerate to the 4% level in the first quarter despite the recent hikes in utilities and gasoline prices.   As for growth, weak growth in the fourth quarter could provide a technical rebound in the first quarter. However, as interest rates have remained in restrictive territory for more than three months, the negative impact of the interest rate hike on the economy is expected to increase. Credit market conditions have been stabilising mainly due to supportive policy and has helped companies raise operating funds, but it is not expected to encourage companies to invest in Capex given the high level of interest rates. As for consumption, a temporary rebound can be seen in December as weather-related consumption should rebound and impact of the tragic Itaewon crowd crush should fade. But, the debt service burden on households will likely weigh on consumption, and labour market conditions also seem to be weakening. We have to closely monitor how China's Covid-19 situation evolves, but in our view, the positive impact is expected to materialise in the second half of the year.  Thus, apart from the hawkish comments from the BoK, we think that the central bank will take a pause for a while on rate hikes. We maintain our rate cut call in the second half of this year.  BoK is expected to stand pat for a while Source: BoK, ING estimates Read this article on THINK TagsKorea monetary policy Korea inflation Korea GDP Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

It’s been another lively week in financial markets and one in which investors have become increasingly hopeful that 2023 won’t be as bad as feared. In a way, the week started with the jobs report the Friday before as it was this that enabled the enthusiasm to build. The labour market has been a major barrier to optimism as the Fed was never going to pivot quickly unless there were signs in the labour market that slack was building and wages cooling. We’re now starting to see that. That optimism has been compounded by the first monthly inflation decline in two and a half years and further sharp annual declines in both the headline and core readings. While the final hurdle to 2% may be the most challenging, there’s no doubt we’re heading in the right direction and the threat of entrenched inflation has greatly receded. Now it’s over to corporate America to potentially spoil the party as the enthusiasm on inflation is not yet matched to the economic outlook. We haven’t seen mass layoffs yet but a number of firms, starting in the tech space but spreading further, have warned of large redundancies in the coming months. The fourth quarter earnings season may bring investors back down to earth with a bang. The start of the year has been fantastic but the rest of it will still be very challenging. More bleak Chinese trade data That’s very evident in the Chinese trade data, as it has in the data of other major trading nations in recent months. Imports and exports both slumped again, albeit to a slightly lesser degree than expected. The drop in imports reflects the Covid adjustment which is likely weighing on demand and the local economy. Exports is a global issue, with those to the US and EU sliding the most, reflecting the challenging economic environment. That may not improve in the near term but there will be a hope that it could in the second half of the year. Can UK avoid recession? The optimists may put to some of the recent data as an indication of some resilience in the economy but I’m not convinced. Take the UK, for example. It may not be in a technical recession after all, with spending around the World Cup enabling a better performance in November, delivering growth of 0.1% after a 0.5% gain in October. Aside from the fact that December could be worse as a result, or some of those gains could be revised out, those numbers don’t change the reality of the cost-of-living crisis and if accurate, it more likely reflects shifted spending patterns as opposed to a more willing consumer. A recession may be delayed but the economy is still under immense strain. The end of the tightening cycle The Bank of Korea may be among the first central banks to bring its tightening cycle to an end, after raising the Base Rate by 25 basis points before removing reference to the need to hike further. This was replaced with a commitment to judge whether rates will need to raise rates depending on multiple factors including incoming data. I think most others won’t be far behind, with in most cases the end coming at some point in the first quarter. All we have to contend with then is the economic consequences of the tightening. BoJ under pressure to abandon YCC And then there’s the anomaly out there. I’m not talking about the CBRT which I just can’t take seriously and that’s saying something at the moment. The Bank of Japan shocked the markets in December by widening its yield curve control buffer around 0% and it’s been paying the price ever since. Another unscheduled bond buying overnight occurred on the back of the 10-year JGB breaching 0.5%, as investors bail on Japanese debt on the belief that the YCC tool is being phased out and will be abandoned altogether before long. This makes the meeting next week all the more interesting. Revival underway? The risk rally over the last week has even lifted bitcoin out of its pit of despair. It goes without saying that it’s been a tough few months for cryptos but the lack of recent contagion in the space, or new revelations, and the risk rebound in broader markets has lifted it off its lows to trade at its highest level since the FTX scandal erupted. It’s trading at $19,000 and traders may harbour some hope of a move back above $20,000, a level once deemed a disturbing low but now potentially representing a sign of a revival. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

The Franklin Templeton Fixed Income (FTFI) Central Bank Watch is a qualitative assessment of the central banks for the Group of Ten (G10) nations plus two additional countries (China and South Korea). See full methodology on page 6. Key highlights Stepping down pace of hiking ≠ outright dovish pivot. A majority of developed market (DM) central banks should gradually reach their respective peak policy rates through the first half (H1) of 2023. The US Federal Reserve (Fed) and the European Central Bank (ECB) remain on the most hawkish end of the spectrum. The Bank of Korea (BoK) may well be the closest to a dovish pivot. Tight labor markets and sticky inflation are still the primary concerns. Although headline inflation may be receding, central banks remain concerned about tight labor markets keeping wages elevated, which in turn can spill over into the stickier components of inflation. Bank of Japan (BoJ) surprises with a policy tweak. A wider trading band for 10-year Japanese government bonds (JGBs) has already had implications for global bond markets and US dollar dominance. Although the BoJ insists its latest move isn’t a step toward broader tightening, a policy move in 2023 is very much on the table. Latest thoughts on global central bank policy Far from done on tightening policy; markets think otherwise As expected, the Fed downshifted to a 50-basis point (bp) hike at the December Federal Open Market Committee (FOMC) meeting. “Ongoing increases” in the policy rate were deemed to be appropriate— giving the Fed optionality in February. Despite recent downside surprises in inflation, the Fed raised its median inflation projections, prompting a higher median peak policy rate in 2023. Fed Chair Jerome Powell welcomed the deceleration in monthly core inflation but noted that services inflation excluding housing remains uncomfortably high. Meanwhile, in our view, the ongoing strength of the labor market and a still-elevated level of demand-supply imbalance will keep wage and services inflation well supported. Despite Powell’s hawkish rhetoric, markets continue to price in a peak rate of just 4.9, with rate cuts beginning in September 2023 and 50 bps of cumulative cuts by the end of the year. We, on the  other hand, expect a total of 75 to 100 bps of increases, given the still-negative real policy rate and the likely persistence of services inflation. However, smaller (25 bp) hikes wouldn’t come as a surprise  since the FOMC intends to “feel their way” to an appropriate policy stance. Once at the peak rate, the Fed will signal a pause through 2023 as it gauges the full economic impact from all the tightening. Closing in on a pause? After raising rates at a record pace of 400 bps over the past nine months to 4.25%, the BoC signaled  a willingness to pause at its next policy meeting on January 25. The December statement was in sharp contrast to the one from October, when the bank was expecting rates to go even higher. However,  the Bank did not firmly close the door on future rate hikes, placing the onus on the evolution of economic data to determine future action. The BoC noted that the economy continues to operate in excess demand, and that while sequential measures of core inflation may be losing momentum, they remain uncomfortably high. We believe the BoC’s adoption of a more neutral tone is meant to gauge how tighter monetary policy is working its way through the economy; it is not indicative of an outright dovish pivot.  If inflation data were to surprise to the upside, we would not rule out a final 25-bp hike in January. While we expect the BoC to remain on pause throughout 2023, it faces a challenge in convincing markets not to expect a shift to cutting rates—especially as bond yields fall. Smaller hikes = more tightening The ECB raised its policy rates by 50 bps in December, slowing the pace from two consecutive 75-bp jumbo hikes. However, the message coming from the statement and press conference was extremely hawkish. ECB President Christine Lagarde affirmed that rates need to go significantly higher, at a steady pace (of 50 bps) and over a period of time. This effectively erases any dovish pivot expectations of a  more careful calibration going forward, reinforced by explicitly pushing back against market pricing of a sub-3% terminal rate, and indicating that rates will remain in restrictive territory to dampen demand  and inflation expectations. The balance sheet shrinkage will accelerate in 2023 with the beginning of passive quantitative tightening (QT) on its asset purchase program (APP), starting in March at a pace of EUR 15 billion per month (approximately half of expected redemptions) to be reviewed in June. Inflation is forecasted to remain above target until mid-2025, supported by higher wages, while a soft-landing scenario for growth looks increasingly optimistic over the medium-term. We now see the terminal rate at a minimum of 3.25% with upside risks linked to the inflation dynamics of the next two quarters. Source: cbw-0123-u.pdf (widen.net)

Latest thoughts on global central bank policy (continued) Persistent wage pressures make pivot unlikely in 2023 The RBA’s policy moves so far have been in line with our expectations, and we anticipate three more hikes in early 2023 to take the cash rate to 3.85% by the second quarter of 2023. The RBA’s challenge will present itself in the form of persistent inflation (October CPI was at 6.9%) amid a strong labor market and subsequent wage growth of 4%–5%. Growth has been resilient in the face of hikes and slowing property prices, but household consumption data are starting to feel the pinch. Yet, a recession is not our baseline scenario. Inflation will continue to be the prime focus for policymakers, even in 2023. While a slowdown  in price pressures will be evident in 2023 due to base effects and easing supply chains, the outlook  will hinge on wage growth and commodity prices. Elevated wage pressures could see the cash rate move beyond 4% as well, which will add to heightened growth risks. For now, we expect an extended pause from the RBA once the peak rate is reached. A shallow recession as more hikes to come Inflation has consistently exceeded expectations due to rapid wage growth throughout 2022. While goods inflation will likely moderate as supply chain pressures and commodity prices ease, services inflation due to wage growth is turning out to be a lot stickier. While the last available wage data were for the third quarter of 2022, higher frequency wage settlements show wages are still going at full strength. This makes the case for further rate hikes in the first half of 2023, likely taking the terminal rate to 5.50% from the current 4.25%. The magnitude of hikes has also jumped from 50 bps through much of the year to 75 bps at the November 2022 meeting. While the sharp hikes so far will dampen growth including construction activity, business sentiment and consumption patterns, a shallow recession is our base case for 2023. We believe the probability for a deeper slowdown will be dependent on how quickly unemployment rates worsen but given that labor demand remains strong especially in re-opening related sectors like tourism, we think a sharp rise in unemployment levels is unlikely in 2023. Early pivot in sight What started with the chip downturn cycle has turned into a more broad-based slowdown in South Korea. The manufacturing Purchasing Managers’ Index (PMI) has remained in contractionary territory since July 2022, the housing market has slumped, and financial conditions have deteriorated due to the rapid interest-rate hikes since late 2021. Default risks are looming for the country’s non-bank financial companies because they have a higher degree of exposure to the property market and rely on volatile short-term funds. The good news is that inflation is moderating gradually, although it remains at an elevated 5%. This prompts us to believe that the central bank will soon need to prioritize growth over inflation with one final rate hike in the first quarter of 2023 (to 3.50%). We expect inflation to sustainably cool throughout 2022, which will make a strong case for the BoK to pivot, especially as recessionary risks will gather steam. While we do not expect a recession just yet, monetary policy action will be key to determine the balance of this tradeoff. We, therefore, do not rule out an early pivot. Zero-Covid exit to eventually unclog monetary policy transmission channel The PBoC has kept monetary policy accommodative throughout 2022—with a combination of liquidity injections and rate cuts. However, monetary policy transmission channels have remained impaired as  tight COVID-19 control measures and the property sector have weighed on the economy. However, statements from the recently held Central Economic Work Conference (CEWC) show that zero-Covid will  play a substantially less important role in 2023’s economic agenda. Infections have already been on the rise as more than half of China’s zero-Covid measures have been eliminated over the past month. The  real litmus test will be the government’s tolerance for a possible surge around the Lunar New Year  holidays in late January. While we expect economic activity to worsen before it becomes better as China transitions to “living with COVID-19,” the PBoC’s accommodative stance should finally start to yield  more positive results as mobility and the labor market benefit from the economic reopening. As for rates, with major lenders cutting deposit rates across the board earlier in the year, we expect to see a further reduction in Loan Prime Rates (LPR), especially the five-year LPR, to boost demand for mortgage loans. Source: cbw-0123-u.pdf (widen.net)

Despite an anaemic start to 2023, we expect conditions to improve in the second half of the year as global demand begins to pick up and the deleveraging cycle comes to an end In this article South Korea: At a glance 3 calls for 2023 Deleveraging will be painful Exports to lead a recovery in the second half of the year The Bank of Korea to turn dovish as inflation subsides     Korea's housing market is cooling as mortgage rates rise South Korea: At a glance South Korea's economy has deteriorated considerably since the start of the fourth quarter of 2022, with exports, manufacturing and service activity tumbling sharply. Consequently, we believe that fourth-quarter GDP will contract. With such an anaemic start to 2023, we expect the annual growth rate for Korea to decelerate to only 0.6% year-on-year in 2023 from 2.6% in 2022. Both external and domestic demand is likely to weaken further, especially in the first half of 2023, and painful deleveraging is expected to hurt short-term growth given high levels of private sector debt.  Inflation has clearly peaked and inflation expectations have fallen to around 3% and are expected to decelerate further. The accumulated pressure to raise utility and public service fees will add upward inflationary pressures, but most of these are expected to be offset by falling housing prices, global oil prices, and a stronger Korean won. Due to asset price adjustment and the higher debt service burden, the Bank of Korea (BoK) is likely to respond with a rate cut in the second half of 2023. GDP and inflation outlooks CEIC, ING estimates 3 calls for 2023 1Deleveraging will be painful House prices have already declined significantly in 2022, but we expect prices to fall by another 10% in 2023 and remain stagnant throughout the year. Given the sharp rise in unsold units in major cities, it may take a while for the recovery to take hold in the residential housing market. The government will continue to soften real estate measures and lending conditions, but higher interest rates will not enable home buyers to return to the housing market quickly. Historically it usually takes two to three years to complete a downcycle. Deleveraging for corporates is also likely, and construction and real estate developers will suffer the most. The financial crunch in the corporate debt market has now subsided due to the government's response, but it is expected to come back to the surface as corporate bond issuance increases at the beginning of the year and high interest rates continue.       2Exports to lead a recovery in the second half of the year Despite the poor export performance in the fourth quarter of 2022, annual exports grew 6.1% year-on-year in 2022. However, in 2023 we expect exports to decline by about -7.0%, given the weakness of global demand and unfavourable price effects. We believe the downcycle for semiconductors will continue until the third quarter of 2023 and China's reopening could add a negative impact on Korea's exports in the first half of 2023, with a surge of Covid-19 patients, the risk of new variants, and supply chain disruptions. However, we expect exports to rebound quite meaningfully in the latter part of the year with the US and EU's economy bottoming out and China's situation normalising, which should lead the overall GDP growth in the second half of 2023. 3The Bank of Korea to turn dovish as inflation subsides   We expect the terminal interest rate to peak at 3.50% and the Bank of Korea to enter an easing cycle in the third quarter of 2023. Given that the current policy rate is at 3.25%, our call for an additional 25bp hike in February will be the final destination for the current tightening cycle. Despite a reduction in gasoline tax subsidies and higher public service charges, base effects will anchor headline CPI to around 4% in the first quarter of 2023. We expect the Bank of Korea to maintain its hawkish stance throughout the first half of 2023 as inflation is still likely to far exceed its 2% target, and uncertainties over utility bill hikes and the resulting secondary effects from these are still high. But, as the real economic activity contracts and deleveraging continues, the BoK's policy priority is expected to shift toward supporting growth.   South Korea forecast summary table CEIC, ING estimates TagsSouth Korea KRW Korea GDP Korea CPI Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Real GDP dropped sharply as expected, recording a -0.4% decline in the fourth quarter vs 0.3% in the third. Sluggish exports and private consumption were the main reasons for the contraction We don't expect domestic and external growth conditions to improve meaningfully this quarter, thus the Bank of Korea should hold policy steady over the coming months Source: Shutterstock -0.4% Real GDP % QoQ seasonally-adjusted As expected Korea's weak growth is likely to continue into this quarter Korea's fourth quarter GDP contracted for the first time since the second quarter of 2020. We think that the impact of the cumulative interest rate hikes along with fading reopening effects have begun to slow down private consumption while weak global demand conditions are hurting Korea's exports.  Private consumption fell 0.4% with declines in both goods and service consumption. The debt service burden on households will not be relieved any time soon since Korea's households are highly leveraged and more than 70% of the outstanding household loans are based on floating rates. As such, the rate hike by the Bank of Korea in January will weigh on consumption this quarter. Also, we expect the unemployment rate to rise quite meaningfully in the first half of the year, thus household incomes are likely to worsen.  Meanwhile, construction and facility investment rose 0.7% and 2.3%, respectively, mainly due to the completion of pre-ordered projects. Forward-looking construction orders and machinery orders data have declined over the last few months, and we expect investment to decline this quarter. The credit crunch has eased a bit since late December, but many investment plans have already been cancelled or trimmed down due to the high level of funding costs and uncertain global conditions.  For external components, exports and imports both fell significantly by 5.8% and 4.6% each. Weak global and Chinese demand drove not only the decline of semiconductor and petrochemical exports but also the sluggish imports, as more than 40% of imports are for re-exports. We do not expect these weak global demand conditions to turn around sharply during the first half of the year. China’s reopening is key for Korea’s exports, but the positive impact will likely materialise in the second half of the year. Korea GDP contracted in 4Q22 Source: CEIC GDP forecast With a fairly sharp contraction last quarter, we revised up the first quarter GDP forecast slightly, mainly on the back of a technical rebound. But we still think that GDP for this quarter will contract or at best stagnate. The contribution to net exports is expected to improve mainly due to a sharper decline in imports, but domestic demand is expected to worsen. Private consumption is likely to shrink, while investment is also expected to decline. Thus, we maintain our annual GDP growth forecast of 0.6% year-on-year in 2023.  BoK watch The Bank of Korea will likely stand still on monetary policy from now on due to the weak growth but may also keep its hawkish stance for a while. Inflation still remains around the 5% level and upside risks are high. But we think that if GDP continues to contract this quarter then the BoK could consider a rate cut later this year. Read this article on THINK TagsSouth Korea GDP Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Tokyo inflation data give the JPY an early boost.  Korean business sentiment dips.  Source: shutterstock Macro Outlook Global Markets: China is still out on holiday until next week, so no stock action to report there, though Hong Kong is back and the Hang Seng put in a solid performance yesterday, opening up and making further gains over the session. US stocks also did well, buoyed by stronger than expected GDP data, though as James Knightley’s note on this reveals, there are worrying signs of a slowdown ahead buried under the headline number. US Treasury yields also got a lift from the GDP figure, with 2Y and 10Y bond yields rising 5.8 and 5.3 bp respectively. The 10Y now sits at 3.495%. The EURUSD has pulled back below 1.09, but could just be a temporary departure, as it looks to be back on a rising trend again. Other G-10 currencies are looking reasonably firm. And the JPY has opened stronger this morning after stronger-than-expected Tokyo CPI data. Other Asian FX had a solid day yesterday, led by the Offshore Renminbi, which is at 6.733 today ahead of China’s return to markets next week.    G-7 Macro: As mentioned above, the main news yesterday was the 2.9% annualised GDP QoQ growth from the US in 4Q22. Personal consumption slowed to 2.1% from 2.3%. Gross private investment rose only 1.4%, within which was a 3.7% decline in business equipment investment and a 26.7% fall in residential investment. Durable goods orders for December were also stronger than expected,  though here too, there were some more negative signals beneath a strong headline figure. Today, we get PCE deflator figures for December, though as we have already got the full 4Q deflator figures from the GDP data, there shouldn’t be any real news here. The pre-GDP consensus was for a drop in the core deflator to 4.4%YoY, with a slight pick up in the MoM rate from 0.2% to 0.3%. The University of Michigan consumer sentiment and inflation expectations figures are also due later. Japan: Tokyo CPI for January came out with an upside surprise. Headline inflation accelerated more than expected to 4.4% YoY (4.0% in December and consensus), and core inflation - excluding fresh-food also rose to 4.3% (vs 4.0% in December, 4.2% consensus).  Looking at the details, the surprise mainly came from fresh food prices, which rose 6.4% (vs 4.4% in December) while utilities rose the most by 22.8%. We think that consumer prices are expected to come down slowly from February as the government’s energy subsidy program will start to work. The JPY looks like responding to the growing market expectations for the Bank of Japan’s policy shift due to a higher-than-expected inflation outcome. Based on the minutes of the BoJ meeting in January, the majority of the board was still in favour of keeping the current level of easing policy and monitoring the policy adjustment in December, but at the same time, there is also a growing view that the current policy should be revisited sometime in the future. We still think the policy change is a long way off. The Spring salary negotiations are key to watch as wage growth is a prerequisite for sustainable inflation. South Korea:  The Bank of Korea’s business survey results show that both manufacturing and non-manufacturing have a dim outlook for their businesses. The January outlook index fell to 65 from 68 for manufacturing and 70 from 72 for non-manufacturing. We believe that from now on, manufacturing sentiment will rebound due to China’s reopening, but non-manufacturing sentiment is expected to stagnate for a while as domestic demand conditions continue to deteriorate.  What to look out for: US University of Michigan sentiment Japan Tokyo CPI inflation (27 January) Australia PPI inflation (27 January) US personal spending and University of Michigan sentiment (27 January) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Forward-looking data suggest the economy will contract in the current quarter. The Bank of Korea will pause its tightening policy from February.  Source: Shutterstock -2.9% Industrial Production % MoM, sa Lower than expected Production activity declined while retail sales rebounded temporarily in December Industrial production dropped more than expected -2.9% MoM sa (vs 0.6% November, -0.2% market consensus) in December. Semiconductor (4.9%) and basic material (3.1%) products rose, but motor vehicles (-9.5%), and electronic components (-13.1%) fell even more. The inventory/shipment ratio edged down to 126 in December from 127.4 in November, but it remained at an elevated level, which is not favourable to the inventory cycle this quarter.  Also, we believe there is a supply mismatch in some industries. For example, in the case of automobiles, inventories for engines and auto parts continued to grow, while those for auto bodies declined significantly. Supply mismatch in auto sector Source: CEIC   Meanwhile, retail sales rebounded 1.4% in December, boosted by several one-off factors. Firstly, weather-related product sales rose as severe weather conditions continued. Secondly, there were larger-than-usual year-end sales promotions. And lastly, there was a technical payback from the early November crowd-crush accident. We believe that household purchasing power continues to weaken thanks to higher utility fees and a rising debt service burden. As a result, we expect retail sales to decline again in January. Retail sales rebounded temporarily in December Source: CEIC Forward-looking data point to weak growth in the current quarter Forward-looking data is more important to gauge this quarter’s growth. The cyclical leading index fell 0.5 points, recording six consecutive monthly declines. Both machinery and construction orders fell by –23.0% and -3.0%, respectively. Both are highly volatile in monthly comparisons, but in 3-month sequential terms, data show both intensifying their contractions in December.  Today’s data support our view that 1Q23 GDP will also contract (-0.2%QoQ sa), following the contraction in the fourth quarter of last year (-0.4%). China's reopening is unlikely to have much positive impact on Korea's economy in the first half of the year Forward-looking data suggest that Korea's growth momentum will soften further in the current quarter. At face value, China's reopening should be good news. But careful consideration of how this might affect Korea’s exports and services suggests caution is warranted. Both Japan and the Netherlands have decided not to provide chip-manufacturing equipment to China. Korean semiconductor companies have production lines in China, which cannot install top-notch equipment from the second half of the year, and this should adversely affect exports. As for services, it may take a bit longer for Korea to benefit from increased numbers of Chinese tourists entering the country as Korea now requires additional COVID-19 tests for Chinese tourists. These measures will eventually be lifted. But the initial reopening boost will be less than expected. BoK watch We maintain our view that the Bank of Korea will pause its rate hikes from February. We believe that the current quarter of growth is unlikely to improve, while inflation will slowly fall further over the next few months. We see no clear signs of improvement in exports while domestic economic activity continues to slow. Consumer price inflation in January will remain around the current level of 5.0% YoY (Market consensus 5.1%, ING forecast 4.9%) mainly due to hikes in gasoline and power prices, but the trend has clearly passed its peak. The Bank of Korea will monitor the cumulative impact of the earlier rate hikes from now on. If we are right about weak growth this quarter, coupled with weakening labour markets, tightening financial conditions, and slowing inflation, the Bank of Korea will probably consider a rate cut in the second half. Read this article on THINK TagsRetail sales Industrial Production Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Weak Korean exports and possible PBoC tweaks to CNY currency management. Market noise about Fed May "pause" isn't causing much reaction with markets already there Source: shutterstock Macro Outlook Global Markets: Tuesday was almost a complete reversal of Monday for US stocks, which rallied, possibly taking comfort ahead of the FOMC from some reports that the Fed may pause their hiking after the next couple of meetings. So much for the so-called blackout period! Chinese stocks declined for a second consecutive day. The Fed pause story only seems to have confirmed what markets were already suspecting, and 2Y US Treasury yields only dropped 3.3bp, with 10Y yields down a similar amount to 3.507%. Currency markets don’t seem to be affected much either. EURUSD remains in the upper half of the 1.08s, the AUD in the mid-0.70s, Cable has retreated slightly to 1.2312. And the JPY remains close to 130.  Other Asian FX was on the weaker side yesterday. The INR, THB and MYR all lost more than half a per cent to the USD. The CNY remained firm at 6.7553 after some solid PMI data (see also below) G-7 Macro: The Eurozone just managed to eke out a positive 4Q22 GDP figure, though 0.1%QoQ is not particularly impressive either. Today will be all about the FOMC decision and subsequent press conference. The decision is at 3 am Singapore time, so will be ready for your cornflakes tomorrow. A 25bp hike looks all but assured, and the real question is whether the pause story currently doing the rounds will get any further endorsement, or if Powell will push back and try to engineer some tighter financial conditions. Inflation is now below where the Fed was forecasting it to be back at their December meeting, so they would be within their rights to acknowledge the progress made. Recent talk about service sector inflation ex-housing is all very well and good, and you can keep stripping away the bits of inflation that are falling to keep pretending that you still have a problem, but it gets less and less credible with each passing month. Wages will, without doubt,  follow the headline rate of inflation lower – slowly, and with a lag, but they are already turning down, and that is giving you a fairly helpful forward-leaning clue. It’s the ECB and BoE tomorrow to add to the excitement. Both are expected to raise rates 50bp. China: There has been some market speculation that the People's Bank of China may lift previous counter-cyclical measures in light of the recent strengthening of the RMB. This could include the removal of the 20% risk reserve on foreign exchange forward buying or maybe feature an increase in the foreign exchange deposit reserve ratio. This "speculation" comes from Premier Li's urging for a stable exchange rate and financial sector. The current USDCNY level at around 6.7 is around the middle of the range for the past five years. It may be a bit early to remove the risk reserve on FX forward purchases or any similar actions. 6.5 seems to be a more reasonable level. However, we cannot rule it out as the Chinese government wants the economy to recover smoothly during the reopening period. If there is anything that could hurt the economy at the moment, the government is likely to try to minimise the risk. Assuming the PBOC does remove the 20% risk reserve, we do not think that this will have a long-term impact on the RMB but there could be some short-term volatility in the FX market similar to the opposite operational impact we have seen during previous CNY depreciations. South Korea: Korea’s exports fell 16.6% YoY in January (vs -9.6% in December, -11.1% market consensus) mainly due to sluggish chip exports (-44.5%). Imports dropped modestly (2.6% YoY), resulting in a trade deficit of 12.7 billion USD, which is the largest on record. We think that January’s weaker-than-expected export result adds more downside risk to first-quarter growth. As the downcycle of semiconductors is only expected to bottom out by the end of the 2nd quarter, we think poor exports will likely continue for the time being. Indonesia: Indonesia reports January inflation today.  Headline inflation will likely moderate further to 5.4%YoY (from 5.5% previously) although core inflation could inch higher to 3.5%.  Bank Indonesia (BI) Governor Warjiyo warned that price pressures would remain in 2023 which was the main consideration for BI's rate hike in January.  We expect BI to take their queue from core inflation and we could see BI reversing their stance should core inflation head back towards the central bank target of 3%.   What to look out for: Regional PMI readings, US ADP report and the FOMC decision New Zealand unemployment (1 February) South Korea trade balance (1 February) Japan Jibun PMI (1 February) Regional PMI manufacturing (1 February) China Caixin PMI manufacturing (1 February) Taiwan industrial production (1 February) Hong Kong GDP (1 February) Indonesia CPI inflation (1 February) US ADP employment change (1 February) ISM manufacturing (1 February) FOMC meeting (2 February) South Korea CPI inflation (2 February) ECB policy meeting (2 February) US initial jobless claims, durable goods orders and factory orders (2 February) Japan Jibun PMI services (3 February) China Caixin PMI services (3 February) Singapore retail sales (3 February) US non-farm payrolls and ISM services (3 February) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Exports fell for a fourth straight month in January due to weak global demand for semiconductors and petrochemicals, with little hope for a meaningful improvement in Korea's trade performance in the first half of this year. Today's data supports our view that 1Q23 GDP will contract for a second consecutive quarter  Conditions for international trade remain very tough -16.6% Exports % YoY Lower than expected Exports fell 16.6% YoY in January Looking at the details of the export data just released, weak performances were even more broadly based and semiconductor exports deteriorated even further compared with the previous month. Among major export items, displays (-36%), steel (-25.9%), and petrochemicals (-25.0%) all declined while semiconductor exports fell the most (-44.5% vs -27.8% in December). On the other hand, vessels (86.3%), automobiles (21.9%) and batteries (9.9%) all rose in January. We believe that automobiles and E-vehicle-related exports continue to outperform, but the momentum will slow in the coming months as the US and Europe's demand will soften. By export destination, exports to China dropped the most, falling 31.4%YoY, while exports to the ASEAN region (-19.8%) and the US (-6.1%) also slid.  Trade deficit hit record high in January Source: CEIC The semiconductor downcycle will last at least another six months According to various industry reports, several major memory chipmakers including Hynix have cut their capex spending compared to last year and will focus on inventory management. But market leader, Samsung Electronics, announced that it will maintain its capital expenditure at the same pace as last year. This means that the large imbalance between supply and demand is unlikely to be corrected anytime soon and sector-wide inventory levels will continue to rise, resulting in further declines in unit memory chip prices. Memory prices have fallen more than 50% since their 2022 peak, and further unfavourable price effects look likely to weigh on Korean exports for a while longer. The market will eventually improve on the back of China's reopening and a recovery in mobile phone demand, but Korean chipmakers will face another geopolitical challenge from tightening US sanctions against tech exports to China. Thus, we expect the positive spill-over from the reopening of China to the Korean economy to be limited.  Growth outlook and BoK Watch Sluggish exports were one of the main reasons for the GDP contraction last quarter and we expect this to continue for several more months. Yesterday's industrial production data also suggest that domestic demand growth will remain sluggish in the current quarter. The manufacturing PMI edged up to 48.5 in January from 48.2 in December, but still remained below the neutral level. Thus we maintain our view that 1Q23 GDP will contract by 0.2% QoQ (seasonally adjusted rate). As external and domestic growth conditions worsen and utility prices rise, the main opposition party has urged the government to draw up a supplementary budget. However, we believe that the likelihood of this is still low at the moment. The government will expand energy subsidy programs for low-income households and ask local governments to refrain from raising public utility charges as much as possible. Meanwhile, the Bank of Korea will pause its tightening policy from February although it will maintain its hawkish stance for the time being.  Read this article on THINK TagsSouth Korea Korea trade Korea GDP Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Due to a cold snap, utility bills and fresh food prices rose more than expected in January. This could strengthen the Bank of Korea's tightening stance. But we still think that the BoK will stay put at its February meeting and monitor price changes in the coming months Source: Shutterstock 5.2% Consumer price inflation % YoY Higher than expected Headline inflation rose more than expected in January Upside surprises came mainly from utility prices (electricity, gas, water), which rose the most (28.3% in January vs 23.2% in December). Basic electricity and gas rates have risen over the past few months, and the continuing cold weather has resulted in additional rate increases as the progressive fee system is applied. Fresh food prices, especially vegetables, also increased quite sharply due to the bad weather. Meanwhile, gasoline prices (-4.3%) continued to drop as oil prices fell significantly, more than offsetting negative tax effects from the fuel tax cut reduction. January CPI reaccelerated for the first time in six months Source: CEIC Public service-led inflation is a concern In the coming months, several public service prices are set to rise or are planned. For example, taxi fares in Seoul have already risen in early February, and some other public transportation fares are expected to rise soon. This is also likely to trigger other fare hikes in the Metropolitan Seoul area, like Gyeonggi Province. Public service-led inflation is a major concern for the government and the Bank of Korea because it could push up private service prices as a second-round effect. The government has urged local governments to refrain from raising public service charges. At the same time, the government plans to expand energy subsidy programmes not only for low-income- households but also for middle-income households. As weather conditions improve and government support is dispensed, price pressures on utilities should gradually diminish.  The higher-than-expected January CPI results will keep the Bank of Korea in a hawkish frame of mind, but at this point, the data is unlikely to trigger a February rate hike. Aside from utility prices, products and service prices grew at a more moderate pace in January. Also, we see that domestic economic activity has slowed pretty sharply in recent months and external conditions have also worsened. Last night, the Federal Reserve slowed its tightening pace with a 25bp hike, thus the BoK will take time to monitor the price trend and examine the impact of earlier rate hikes. Read this article on THINK TagsKorea inflation CPI inflation Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Next week’s data calendar features inflation readings from India, labour data from Australia, Japan’s latest GDP report and rate decisions from China, Indonesia, and the Philippines In this article India’s inflation number to set the tone for RBI rate decision Unemployment rate key for future RBA policy GDP data from Japan Weak jobs data expected from Korea China to gauge economic reopening before adjusting policy stance Indonesia to see rise in trade surplus Regional central banks look to tighten policy further   Shutterstock India’s inflation number to set the tone for RBI rate decision India's January inflation will probably move higher (6.2%) after the 5.7% year-on-year reading in December. But what will be watched more closely after the latest hawkish central bank statement from the governor, will be the core CPI inflation measure. Any indication that this has moved below 6% could be significant for the Reserve Bank of India's policy, though we think despite a small decline, the ex-food and beverages inflation rate will remain just above 6% YoY. Unemployment rate key for future RBA policy January employment data for Australia will add to the balance of knowledge surrounding future Reserve Bank policy. However, it will have to show a further marked deterioration, following last month’s part-time driven decline in employment and rise in unemployment rate, to offset the RBA’s new-found hawkishness.   After last month’s decline in part-time work, we will probably see that part of the survey moderate, combined with perhaps a smaller increase in full time jobs of about 10K to deliver a total employment change of 15-20,000. If that is broadly right, we may see the unemployment rate edge up to 3.6% - still very low by historical standards. GDP data from Japan Japan’s fourth quarter GDP data will be the highlight of next week. We expect the economy to recover from the previous quarter’s contraction, led mostly by private consumption and investment. The reopening and government travel subsidy programmes should lead to a great improvement in hospitality-related activities. However, due to high inflation, the rebound will likely be limited to 0.6% (quarter-on-quarter, seasonally adjusted).   Meanwhile, core machinery orders are likely to shrink again in December amidst weak global demand conditions. Japan’s export growth is also expected to drop in January as the early trade data has suggested. We believe that Japan’s decision to join the US’s tech export ban to China will probably have a negative impact on Japan’s exports. Weak jobs data expected from Korea Korea’s unemployment rate is expected to continue to rise to 3.6% in January (3.3% previously) on the back of a slowing economy. There have been several news reports on job losses, mostly from the IT and finance sectors. This could also be due to severe weather in January, where agricultural and construction-related employment has been negatively impacted. China to gauge economic reopening before adjusting policy stance The People's Bank of China will announce the 1Y Medium Term Lending Facility (MLF) interest rate next Wednesday. We expect no change to policy as the economy has started to recover. The central bank should take time to observe the pace of recovery and determine if there is a genuine need for further cuts to the policy rate and Required Reserve Ratio. Meanwhile, new home sales should show a stable month-on-month change as we have seen a slight price pick up in the tier one cities like Beijing, Shanghai, Guangzhou, and Shenzhen while home prices of lower tier cities were still sluggish. Indonesia to see rise in trade surplus Recent trends within Indonesia’s trade sector should extend into another month. Exports will likely remain in expansion while imports are expected to contract. This will result in the trade balance remaining in surplus of roughly $4.2Bn. The projected trade surplus however will be lower than the highs recorded in 2022 with the current account possibly slipping back into deficit territory.  Regional central banks look to tighten policy further Bank Indonesia (BI) is scheduled to hold its second policy meeting for the year. BI Governor Perry Warjiyo has hinted that this current rate hike cycle could come to an end if inflation were to slow and the Federal Reserve were to turn more dovish. BI could still opt to hike by 25bp next week given renewed hawkish signals from the Fed while also ensuring core inflation heads much lower before pausing.  The Bangko Sentral ng Pilipinas (BSP) will also meet next week to discuss policy. After the blowout January inflation report, we believe that the central bank has no choice but to hike policy rates to combat above-target inflation. Governor Felipe Medalla has previously hinted at a potential shift in tone, but surging price pressures will likely mean that he doubles down on the hawkish rhetoric by hiking rates 50bp. Key events in Asia next week Refinitiv, ING TagsEmerging Markets Asia week ahead Asia Pacific Asia Markets Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

After all the hype - the US inflation miss doesn't cause too much upset in markets. Korean Jan unemployment rate down and PBoC later. Retail sales out from the US too   Source: shutterstock Macro and markets Global Markets: The disappointingly high January CPI numbers did less damage to markets than you might have expected. Yes, 2Y US Treasury yields did push up to 4.615%, rising 9.8bp on the day. But the yield on 10Y US Treasuries only rose 4.2bp to 3.743%, which was muted (all things considered). James Knightley dissects the numbers  in this note.  Equity markets were also fairly relaxed about the inflation figures, maybe taking the view that this really is just a blip on the road to lower inflation and eventually lower rates – despite the usual “higher for longer” rumblings from various Fed speakers yesterday. The S&P500 ended virtually unchanged on the day, and the NASDAQ actually rose 0.57%.  There was quite a lot of volatility in currency markets. EURUSD traded up to 1.0803 at one stage, and as low as 1.0713, but ended just slightly higher at 1.0737. Other G-10 currencies, (AUD and GBP) were also both whippy, but on balance, slightly stronger vs the USD over the last 24 hours.  The JPY continues to steer its own path and has drifted higher to reach almost 133 currently.  Other Asian FX has been mixed, with the KRW registering a small (0.63%) gain at one end of the pack, and the PHP, dropping 0.15% at the other. Cautious optimism in markets, if it persists, may suggest a slightly positive day for Asian fx today. G-7 Macro: The details of the US CPI release were, in some senses, not that surprising. The MoM 0.5% gain in the headline and 0.4% gain in the core were all consensus views, though the year-on-year inflation rates were higher for both measures, something we touched on in our note yesterday in terms of the inconsistency with the consensus numbers. So it may have been that we were not alone in giving little weight to the YoY consensus view, which may be why markets seemed so ambivalent about it.  One figure that may not get as much attention as it perhaps deserves, is the real hourly earnings numbers, which are a synthesis of these CPI figures and the hourly earnings data released with the labour report. This now shows real earnings growth falling at a 1.8% YoY pace, a bit lower than the 1.6% rate of decline for December. Related to earnings strength, retail sales due out today in the US are slated to bounce after the horrible December figures. Auto sales are likely to help lift the figure. A small bounce in January industrial production is also on the cards. China: The PBoC will announce its 1Y MLF rate decision today. We expect them to keep the rate at 2.75% as the economy is recovering and the central bank will want to wait and see how the strong loan growth in January will transmit to business and investment activity. From recent open market operations, it seems that the central bank is stabilising interest rates via active liquidity management. This is another sign that the central bank will stay put this month. South Korea: The jobless rate in January fell unexpectedly to 2.9% (vs revised 3.1% in December, 3.3% consensus). This could have occurred for two reasons - severe weather possibly prevented workers from accessing the job market and also, the Lunar New Year holidays overlapped during the survey period. Consequently, due to these idiosyncratic factors, we don’t actually think labour conditions improved in January after all. The details of the data also were pretty weak. Manufacturing employment fell sharply (-67K) for the fifth straight month, with a total of -149K hiring cuts since September 2022. Another major industry, construction (-5K), has shed jobs for three months in a row. The service sector modestly added jobs (36k) so it seems that this sector continues to hold up relatively well.  Korean import prices fell for the third straight month in January (-2.3% MoM, nsa). Global commodity prices rose but currency effects dominated the decline in import prices. The recent cooling of import prices is expected to help ease consumer price inflation in the coming months. On the other hand, consumer prices are expected to slow down only gradually in the first quarter, as the fallout from last year’s high import prices will come early this year after a time lag. Singapore: Finance Minister Wong announced that he expects a “slight deficit” of 0.1% of GDP for the 2023 budget (from 0.3% in 2022).  Wong also indicated that the fiscal authorities would be extending a support package for lower-income households to cope with the high cost of living as inflation should remain high.  Wong also noted that growth could be challenged as trade slows amidst a global downturn and as tensions between global superpowers rise.  Elevated inflation coupled with slowing growth mean that the Monetary Authority of Singapore (MAS) will have to strike a balance between remaining hawkish but at the same time mindful of Singapore’s export competitiveness.  Indonesia: Indonesia is planning to ask exporters to keep a portion of export proceeds onshore for a period of 3 months to a year in order to bolster the domestic supply of dollars.  Details on this regulation have yet to be released.  The move is being deployed to provide support for the IDR but the implementation of such a measure may still lead to increased volatility as this could be viewed as a form of capital control.  What to look out for: US retail sales South Korea unemployment (15 February) India trade balance (15 February) Indonesia trade balance (15 February) US industrial production and retail sales (15 February) Japan trade balance (16 February) Australia unemployment (16 February) Bank Indonesia policy (16 February) Bangko Sentral ng Pilipinas policy (16 February) US initial jobless claims and housing starts (16 February) Fed’s Mester speaks (16 February) Fed’s Bullard and Cook speak (17 February) Singapore NODX (17 February) Thailand GDP (17 February) US import prices (17 February) Fed’s Mester, Barkin and Bowman speak (17 February) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Some of the highlights in Asia next week include Australia’s wage data, the BoK meeting, Taiwan's export orders and Singapore’s CPI  Source: Shutterstock Australia's wage price index will provide direction for policymakers Australia is set to release fourth-quarter wage price index data on 22 February. This was a keenly watched data point in 2021 when the Reserve Bank of Australia (RBA) tied its cash rate target to wage growth rising to a level consistent with target inflation of 3.5-4%. In the last quarter, the wage price index grew by 3.1%, which means that there is still room to inch higher, while inflation is currently running at 8.4% YoY. If the wage price index grew by 1.0% in the fourth quarter from the third – as it did in the third quarter from the second, the index would finally reach 3.5%. Although this very lagging data point is mainly of academic interest, a rising number would still encourage hawkish rhetoric from the RBA. BoK to pause on Thursday? The Bank of Korea will meet on Thursday. We believe that the BoK’s rate hike cycle ended with the 25bp hike in January. But given that January's consumer price index picked up again, we are expecting the BoK to maintain its hawkish stance. China's loan prime rates to remain unchanged Chinese banks will announce possible changes to loan prime rates (LPR) next week. Given that the economy is recovering and that the People's Bank of China left the 1Y Medium Lending Facility rate (MLF) unchanged, we predict that the chance for a change in the LPR is small. Moreover, banks have been told by the government to offer lower interest rates on mortgages to provide support to the economy. This would result in banks not having enough room to squeeze net interest margins. Weak semiconductor demand could hurt Taiwan's economy Export orders and industrial production will likely give clues about how bad semiconductor demand was in January. We expect declines of around 10-20% year-on-year for both. Final GDP data should show a slight yearly contraction; the advance estimate was -0.86% YoY. We expect Taiwan to enter a mild recession in the first half of this year given weak demand for semiconductors, the main pillar of the economy. Read next: Tesla Will Make Supercharger Network, Visa Will Allow The Use Of Cryptocurrencies To Settle Transactions| FXMAG.COM Singapore CPI Inflation report We could see headline inflation tick lower, but core inflation will likely remain elevated at 5.2% YoY as the latest increase in the goods and services tax kicks in. Finance Minister Lawrence Wong announced a fresh round of subsidies to help households deal with the rising cost of living. Wong believes inflation will remain elevated for at least the first half of the year.  Persistent price pressures should keep the Monetary Authority of Singapore (MAS) in hawkish mode although it needs to strike a delicate balance as slowing global trade threatens to negatively impact the export sector.  Key events in Asia next week Source: Refinitiv, ING Read this article on THINK TagsAsia week ahead Asia Pacific Asia Markets  

Some of the highlights in Asia next week include Australia’s wage data, the BoK meeting, Taiwan's export orders and Singapore’s CPI  In this article Australia’s wage price index will provide direction for policymakers BoK to pause on Thursday? China's loan prime rates to remain unchanged Weak semiconductor demand could hurt Taiwan’s economy Singapore CPI Inflation report   Shutterstock Australia’s wage price index will provide direction for policymakers Australia is set to release fourth-quarter wage price index data on 22 February. This was a keenly watched data point in 2021 when the Reserve Bank of Australia (RBA) tied its cash rate target to wage growth rising to a level consistent with target inflation of 3.5-4%. In the last quarter, the wage price index grew by 3.1%, which means that there is still room to inch higher, while inflation is currently running at 8.4% YoY. If the wage price index grew by 1.0% in the fourth quarter from the third – as it did in the third quarter from the second, the index would finally reach 3.5%. Although this very lagging data point is mainly of academic interest, a rising number would still encourage hawkish rhetoric from the RBA. BoK to pause on Thursday? The Bank of Korea will meet on Thursday. We believe that the BoK’s rate hike cycle ended with the 25bp hike in January. But given that January's consumer price index picked up again, we are expecting the BoK to maintain its hawkish stance. China's loan prime rates to remain unchanged Chinese banks will announce possible changes to loan prime rates (LPR) next week. Given that the economy is recovering and that the People's Bank of China left the 1Y Medium Lending Facility rate (MLF) unchanged, we predict that the chance for a change in the LPR is small. Moreover, banks have been told by the government to offer lower interest rates on mortgages to provide support to the economy. This would result in banks not having enough room to squeeze net interest margins. Weak semiconductor demand could hurt Taiwan’s economy Export orders and industrial production will likely give clues about how bad semiconductor demand was in January. We expect declines of around 10-20% year-on-year for both. Final GDP data should show a slight yearly contraction; the advance estimate was -0.86% YoY. We expect Taiwan to enter a mild recession in the first half of this year given weak demand for semiconductors, the main pillar of the economy. Singapore CPI Inflation report We could see headline inflation tick lower, but core inflation will likely remain elevated at 5.2% YoY as the latest increase in the goods and services tax kicks in. Finance Minister Lawrence Wong announced a fresh round of subsidies to help households deal with the rising cost of living. Wong believes inflation will remain elevated for at least the first half of the year.  Persistent price pressures should keep the Monetary Authority of Singapore (MAS) in hawkish mode although it needs to strike a delicate balance as slowing global trade threatens to negatively impact the export sector.  Key events in Asia next week Refinitiv, ING TagsAsia week ahead Asia Pacific Asia Markets   Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

An official at the South Korean Finance Ministry said on Wednesday, he “plans to meet FX dealers later on Wednesday and listen to the opinion on the current market situation.” “Won's recent pace of weakening faster than other currencies,” the official added. On Tuesday, Bank of Korea (BOK) Governor Rhee Chang-yong noted that they “will respond in a timely manner in case of uneasiness in financial and forex markets.” Market reaction USD/KRW is defending the $1,300 mark on the above comments, trading 0.24% lower on the day at $1,303, as of writing. The pair jumped to the highest level in two months at $1,314.53 on a broad-based US Dollar strength.

Bank of Korea (BOK) Governor Rhee Chang-yong said at the press conference following the monetary policy meeting said that “Thursday's decision should not be taken as indicating the tightening cycle is over.” Earlier on, the South Korean central bank left its policy rate unchanged at 3.50%, as expected. The BOK lowered its inflation forecast from 3.6% to 3.5% for this year. Additional quotes Board member Cho Yoon-je dissented to Thursday's rate decision. Sees recent Won weakening as having little to do with domestic issues. Five board members wanted to keep chances for terminal rate reaching 3.75%. Downgrade of inflation forecast mostly due to oil prices. Short-term money market has mostly returned to stability. Thursday's decision was based on expectation that inflation will head down from March. It is time to stop and watch if inflation trend goes along expected path. No comment on whether herd behaviour is behind Won's recent movement. Market reaction USD/KRW is consolidating the latest downswing, triggered by the BOK policy announcement. The pair is trading 0.55% lower at 1,295.78, having tumbled sharply from near the 1,302.50 region.

The BoK’s “hold” decision was widely expected. But one dissenting vote, Governor Rhee Chang-yong's hawkish comments, and growing uncertainty over inflation have hinted that the BoK will leave the door open for further rate hikes for now. We believe that the BoK may enter an easing cycle in the fourth quarter as inflation is expected to fall to the 2% range 3.50% Policy rates   As expected The Bank of Korea stays put for the first time since April 2022 It was not surprising that the BoK left its key interest rate unchanged at 3.5%, ending a streak of rate increases at each policy meeting since April 2022. But the BoK stressed that the rate hike cycle may not be over yet. Board members were divided over terminal rates, with five members open to 3.75% while one remains at 3.50%. In our view, the BoK is taking a breather until the next decision in April to see how the accumulated interest rate hikes will affect inflation in the coming months and how the Fed’s rate action will change the dynamics of domestic inflation.   The BoK expects headline CPI to slow to the 4% level from March and fall to the 3% level by the end of the year. Governor Rhee emphasised that if future inflation trends match the BoK’s current forecast path, the BoK doesn’t need to tighten its policy rate further, but uncertainties surrounding global commodity prices remain high, so it needs to be flexible in future policymaking.   BoK trimmed its GDP and CPI forecasts for 2023 In our view, the BoK’s relatively optimistic growth outlook was more surprising than the decision to hold the policy rate itself. The BoK did revise down its 2023 GDP forecast from 1.7% year-on-year (November forecast) to 1.6% but this is because the lower-than-expected fourth-quarter GDP dragged down annual growth in 2023. Looking at the updated GDP forecast, the BoK hasn’t significantly changed its sequential trend of GDP growth from the November outlook. This is quite different to the market consensus which has already revised down its GDP forecast meaningfully from the mid-1% to low-1% level. Also, the newly updated GDP forecast is substantially higher than ING’s growth forecast of 0.6%. We think the BoK’s optimistic view on growth is due to better expectations on improved external conditions, which will boost Korea’s exports, in the second half of the year. It is true that the US economy is showing robustness despite increasing borrowing costs, the mild weather has supported the EU economy over the winter, and China is recovering from Covid faster than expected. However, the near-term outlook for exports is gloomy in our view. Based on the monthly exports data, including early February data, we expect the export contraction to deepen in the first quarter. The main export item, semiconductors, recorded an almost 50% drop in early February and inventory adjustment will likely progress slower than expected, which means that the semiconductor cycle will not provide much support to Korea’s exports and investments. Also, the product cycle is not heavily driven by China’s own economy, but more by global demand. With uncertainty regarding the Federal Reserve's rate hikes and dissipating pent-up demand on global IT investment, we believe that the negative impact on exports should be larger and longer than expected. Given growing tensions regarding tech trade between the US and China, Korean chip makers will probably face a difficult situation.   GDP outlook: ING vs BoK Source: BoK, ING estimates   In the case of inflation, the BoK cut its 2023 CPI forecast from 3.6% to 3.5% but noted high uncertainty surrounding the outlook. We agree with the BoK’s concerns about the upside risk that global commodity prices could rise sharply depending on the geopolitical situation and the reopening of China. But we expect the slowing inflation trend to continue at least in the near term, as the pressure on pipeline prices has cooled over the past six months. In addition, utility bills and public service prices, which were the main cause of the recent inflation pick-up, are also expected to subside for the time being due to the efforts of the central government. Thus, we expect the headline CPI to slow to the 2% level in the third quarter. Read next: Tesla Opens Its Global Engineering Headquarters In Palo Alto, California| FXMAG.COM BoK watch The BoK today dismissed expectations of a rate cut, reiterating its hawkish monetary policy stance, and highlighting uncertainties in future price paths, but we still expect the BoK to carry out a rate cut within the year. We initially thought the BoK would start a rate cut cycle in the third quarter but considering the Fed’s terminal rate could go beyond 5.0% in the second quarter, we are revising our BoK policy outlook accordingly, postponing the first rate cut to the fourth quarter of 2023. We expect another sluggish GDP growth rate (-0.2% quarter-on-quarter, seasonally adjusted) in the current quarter based on weak exports and forward-looking investment data. We maintain our view that the weak start to the year will weigh down annual growth to the sub-1% level.  Also, the government will continue to make efforts to stabilise near-term inflation, by providing energy vouchers to low-income households and by delaying further utility fee hikes to the second half of the year. If necessary, the government can extend its tax benefit programmes for energy and consumption. Thus, we expect inflation to slow down to the 2% level in the second half of the year. If we are right about the GDP and CPI forecast, then we think the BoK may begin its rate cut cycle in the fourth quarter of the year. Read this article on THINK TagsSouth Korea Inflation GDP Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Consumer inflation is expected to decelerate at a faster pace than the previous quarter in the coming months. The impact of the drop in jeonse prices (rental) has finally begun to appear in the index and base effects should also contribute to the slowdown  4.8% Consumer price inflation Year-on-year Lower than expected Both headline and core inflation moderated in February Headline inflation rose 4.8% year-on-year in February (vs 5.2% in January and 5.0% market consensus). The increase was mainly driven by utility prices (28.4%) and manufactured food prices (10.4%), yet some other major prices, such as oil (-1.1%) and rental prices (1.1%) stabilised. In terms of the monthly change, oil prices dropped -1.3% (month-on-month, not seasonally-adjuted) while rental prices also declined (-0.05%) for the first time since August 2019.  As we have previously noted, the drop in market-observed housing and jeonse (rental) prices has begun to appear in the index and the monthly decline is expected to continue for the time being. We expect inflation in March to stabilise even more sharply on the back of a high base last year. In addition, a one-time mobile data provision programme is expected to lower mobile service prices and oil prices will continue to fall. The government has been asking local governments not to raise some public service charges at least during the first half of the year, thus inflation is expected to reach 3% at the end of the second quarter.  Rental prices will likely drag down CPI from now on Source: CEIC BoK Watch The Bank of Korea is expected to continue to monitor how the inflation path evolves according to changes in internal and external conditions. If inflation slows to around 3% by the end of the second quarter, the BoK will begin adjusting its policy stance toward easing and eventually deliver a rate cut in the fourth quarter. We revised our BoK outlook last week, delaying the 25bp rate cut to the fourth quarter, as the Federal Reserve's terminal rate is set to rise to 5.5%. But, as uncertainty surrounding commodity prices is particularly high due to the geopolitical situation and the reopening of China, the Bank of Korea will likely keep its hawkish stance throughout the first half of the year. Read this article on THINK TagsKorea inflation CPI inflation Bank of Korea Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more