Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080501i.jpg" width="353">
According to the Challenger, Grey &amp; Christmas survey, job cut announcements in April surged to 90,015 from 53,579 in March. The three month average of announcements drifted to its highest level since November 2006.
The three month average of job cut announcements in services, consumer goods, and government sectors led the upward drift.
During the last ten years there has been a 76% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans rose sharply m/m but that the three month average was little changed.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
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</thead>
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<td class="firstcol">Announced Job Cuts</td>
<td>90,015</td>
<td>53,579</td>
<td>27.4%</td>
<td>768,264</td>
<td>839,822</td>
<td>1,072,054</td>
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According to the Challenger, Grey & Christmas survey, job cut announcements in April surged to 90,015 from 53,579 in March. The three month average of announcements drifted to its highest level since November 2006. The three month [...]

Challenger Layoffs Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080501c.jpg" width="353">
Initial claims for unemployment insurance claims reversed the prior period&#39;s decline and rose 35,000 last week to 380,000. Consensus expectations had been for claims to total 360,000 last week.
The four week moving average of initial claims, however, fell to 363,750 (13.1% y/y), its lowest level in over a month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080501d.jpg" width="353">
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 76% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance rose 74,000 and also reversed the prior week&#39;s decline. The latest level was its highest since early 2004 and it provides some indication of workers&#39; ability to find employment.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment rose to 2.3% after four weeks at 2.2%. The latest also was the highest since 2004.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">04/25/08</th>
<th scope="col">04/18/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
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</thead>
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<td class="firstcol">Initial Claims</td>
<td>&nbsp;380</td>
<td>345</td>
<td>23.0%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,019</td>
<td>20.9%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
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Initial claims for unemployment insurance claims reversed the prior period's decline and rose 35,000 last week to 380,000. Consensus expectations had been for claims to total 360,000 last week. The four week moving average of initial [...]

U.S. Initial Claims for Unemployment Insurance Back Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080501e.jpg" width="353">
For April, the Institute of Supply Management (ISM) reported its Composite Index of Manufacturing Sector Activity remained unchanged from March at 48.6. That was slightly better than Consensus expectations for a decline to 48.0 but the index remained below the break even level for activity of 50 for the fourth month in the last five.
The index&#39;s average level of 49.0 so far this year was its lowest since early 2003.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by being constructed using all of the absolute positive changes in activity added to one half of the no change in activity measures.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080501f.jpg" width="353">
The new orders index also was unchanged m/m and remained below the break even level. It was near the lowest level since the recession year of 2001. Production rose very slightly but remained low at 49.1. The inventory component rose sharply to its highest level since January.
The new export orders sub-series rose slightly to a better-than-break even 57.5 and so far this year it is up slightly from the last two years.
The employment index fell sharply m/m to 45.4 which was its lowest level since mid 2003. During the last twenty years there has been a 67% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
The prices paid index surged to its highest level since early 2004. During the last twenty years there has been a 77% correlation between the price index and the three month change in the PPI for intermediate goods.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
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<td class="firstcol">Composite Index</td>
<td>48.6</td>
<td>48.6</td>
<td>52.8</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>46.5</td>
<td>46.5</td>
<td>58.1</td>
<td>54.3</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>45.4</td>
<td>49.2</td>
<td>52.3</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>84.5</td>
<td>83.5</td>
<td>73.0</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
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For April, the Institute of Supply Management (ISM) reported its Composite Index of Manufacturing Sector Activity remained unchanged from March at 48.6. That was slightly better than Consensus expectations for a decline to 48.0 but [...]

ISM Factory Sector Index Unchanged, Prices Surged

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080501a.jpg" width="353">
Disposable personal income grew 0.3% in March, but adjusted for a 0.3% increase in prices, income was flat. During February, however, real income rose 0.3%. As a result, the 1.9% three month growth rate in real DPI was up slightly from the negative growth during the end of last year, but still that was down from the 3.1% rise during all of 2006 and 2007.
Nominal personal income grew 0.3% during March which was slightly lower than the 0.4% Consensus expectation. The gain left the three-month growth in income at 4.4% which was down from the 6.2% rise during all of last year.
Wage &amp; salary income rose 0.5% (3.3% y/y) after a 0.3% February increase. Three month growth in wages amounted to 5.5% which has been stable of late but well reduced from the 10% rates of growth early in 2007 and late in 2006. Factory sector wages rose 0.3% (-0.2% y/y), the same as in February, and wages &amp; salaries in the private service-providing industries rose 0.5% (3.6% y/y). These two annual rates of growth are well off the growth rates posted during the middle of 2007. Wages in the government sector rose 0.3% (5.0% y/y) and three month growth rose to 7.4%. That was up from the 4.6% rise during 2007.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080501b.jpg" width="353">
Lower interest rates caused the sixth straight monthly decline in interest income (+2.4% y/y) after a 5.0% gain last year and 8.0% growth during 2006. Dividend income rose another firm 0.6% (10.9% y/y), though that annual rate of growth is down from 13.8% last year and from 16.3% in 2006.
Personal consumption expenditures grew 0.4% during March though, when adjusted for price inflation, real spending rose just 0.1% and it grew at a 1.0% annual rate over the last three months. That&#39;s after 2.9% growth in 2007 and less than the 3.0% growth in each of the prior two years.
Real spending on discretionary items continued weak. Motor vehicle &amp; parts purchases fell 0.5% last month and three month growth cratered to -10.3%. Real spending on household furniture &amp; appliances fell 0.4% in March and three month growth was 0.2% after a 7.8% rise last year. Real spending on apparel increased 0.8% and three month growth actually picked up to 10.3% after an abysmal December last year. These and other detailed spending figures are available in Haver&#39;s USNA database.
The PCE chain price index rose 0.3% after the 0.1% uptick in February. The 0.2% rise in the core PCE price index beat expectations for a 0.1%. The three month growth in prices rose to 2.9% but that was up slightly from 2.5% in 2007 and 2.8% in 2006. The core price index rose 0.2% but the three month rate of growth fell slightly to 2.0% from 2.1% last year and 2.2% in 2006.
The personal savings rate remained barely positive at 0.2%, down just a bit from prior years.</div>

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a> (%)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.3</td>
<td>0.5</td>
<td>4.0</td>
<td>6.2</td>
<td>6.6</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Disposable Personal Income</td>
<td>0.3</td>
<td>0.5</td>
<td>4.1</td>
<td>5.7</td>
<td>5.9</td>
<td>4.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption</td>
<td>0.4</td>
<td>0.1</td>
<td>5.3%</td>
<td>5.5</td>
<td>5.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>0.2</td>
<td>0.4</td>
<td>1.5 (Mar. 07)</td>
<td>0.4</td>
<td>0.4</td>
<td>0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.3</td>
<td>0.1</td>
<td>3.2</td>
<td>2.5</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2</td>
<td>0.1</td>
<td>2.1</td>
<td>2.1</td>
<td>2.2</td>
<td>2.2</td>
</tr>
</tbody>
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Disposable personal income grew 0.3% in March, but adjusted for a 0.3% increase in prices, income was flat. During February, however, real income rose 0.3%. As a result, the 1.9% three month growth rate in real DPI was up slightly [...]

U.S. Real DPI Flat in March, Trend Growth Reduced

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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Mortgage applications fell 1.9% w/w (+73.6% y/y) in the week ending October 31 following a 7.1% gain in the week ending October 24, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the fifth w/w fall in six weeks to the index level of 332.3. Applications for loans to purchase a house declined 0.6% (+24.8% y/y) in the October 31 week, down for the fifth week in six, after a 4.5% increase in the previous week. Applications for loan refinancing dropped 2.8% (+151.4% y/y) in the October 31 week, down for the first week in three, following a 9.3% advance in the October 24 week.

The effective interest rate on a 30-year fixed-rate loan edged up to 6.48% in the week ending October 31 after declining to 6.47% in the week ending October 24; it was up from a low of 6.29% in the week of September 20, 2024 but down from a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages slipped to 5.81% in the October 31 week, the lowest since the September 12 week, after decreasing to 5.82% in the previous week; it was up from a low of 5.60% in the week of September 20, 2024 but down from a high of 7.44% in the week of October 27, 2023. The rate on 30-year jumbo loans rose 4bps to a three-week-high 6.52% in the October 31 week after declining to 6.48% in the prior week; however, it was slightly down from a low of 6.57% in the week of September 13, 2024 and below a high of 7.99% in the week of October 27, 2023. The rate on a 5-year ARM rose 4bps to 5.88% in the October 31 week, the highest since September 26 week, after rising to 5.84% in the previous week; it was above a low of 5.84% in the week of September 13, 2024 but below a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan edged down to 57.0% of total applications in the week ending October 31 after rising to a five-week-high 57.1% in the week ending October 24; those numbers remained below a peak of 60.2% in the week of September 19. The adjustable-rate mortgage (ARM) share of activity fell to 8.7% in the October 31 week, the lowest reading since the September 26 week, after falling to 8.9% in the prior week; it was below its recent peak of 12.9% in the September 12 week and a high of 9.6% in the April 11 week but up from a low of 4.7% in the January 3 week.

The average size of a mortgage loan, up for the third week in four, increased 0.6% w/w (7.3% y/y) to $414,900 in the October 31 week, the highest level since the September 19 week, reversing a 0.6% drop to $412,300 in the October 24 week. The average size of a purchase loan fell 0.4% (-2.3% y/y) to $435,100 in the October 31 week on top of a 0.5% decline to $436,800 in the prior week, marking the fourth weekly fall in five weeks and the lowest level since the October 10 week. The average size of a loan to refinance a mortgage rose 1.5% (34.0% y/y) to $399,700 in the October 31 week after a 0.4% decline to $393,900 in the previous week, registering the third weekly rise in four weeks and the highest level since the September 19 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase applications -0.6% w/w; refinancing loan applications -2.8% w/w.
- Effective interest rate on 30-year fixed loans ticks up to 6.48% despite ongoing downward trend.
- Average loan size rebounds to the highest level since the September 19 week.

U.S. Mortgage Applications Drop 1.9% in the October 31 Week After Previous Gain

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Retail gasoline prices for all grades slipped to $3.15 per gallon (-1.3% y/y), on average, in the week ended November 3 after rising to $3.16 in the previous week. The recent high was $3.79 in the week ending April 22, 2024. Their all-time high of $5.11 occurred in the week ending June 13, 2022. Haver Analytics seasonally adjusts the retail prices of regular grade gasoline. That price held at $3.05 last week versus $3.05 in the previous week.

The price of West Texas Intermediate crude oil rose to $60.70 per barrel (-11.2% y/y) in the week ended October 31 after improving to $59.43 per barrel in the prior week. It was the highest price in three weeks but prices remained below a recent high of $74.17 during the third week of June. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $61.05 per barrel. The price of European Brent crude increased to $65.02 per barrel (-10.5% y/y) in the week of October 31 after rising to $63.22 in the prior week. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in June 2022. Yesterday, the price was $65.79 per barrel.

Natural gas prices rose to an average $3.43/mmbtu (88.5% y/y) in the week ended October 31 after rising to $3.25/mmbtu in the prior week. The rise left prices at the highest level since the second week of April and well above the low of $1.40/mmbtu in the week of March 15, 2024. Yesterday, the price was $3.37 per mmbtu.

Gasoline demand declined 4.2% y/y in the four weeks ending October 24, following a 3.6% y/y decline in the prior four weeks. Demand for all petroleum products weakened 0.9% y/y in the four weeks ending October 24, after slipping 0.1% y/y in the previous four-week period. Crude oil input to refineries declined 1.7% y/y in the four weeks ending October 24, after a 0.3% y/y gain in the prior four weeks.

Gasoline inventories ease 0.1% y/y in the week ending October 24 following a 1.5% y/y gain in the prior week. Residual fuel oil inventories fell 10.0% y/y in the October 24 week after falling 13.0% y/y in the prior week. Working higher, crude oil inventories rose 1.7% y/y in the week of October 24 after rising 2.6% y/y in the previous week.

Measured in days’ supply, gasoline inventories fell to 24.3 days in the week of October 24. The recent low was 22.9 days in the week of November 8, 2024. The supply of crude oil held steady at 26.7 days in the week of October 24. The supply remained below a recent high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** and **USENERGY** databases.

- Gasoline prices are minimally changed.
- Crude oil costs rise further.
- Natural gas prices strengthen.

U.S. Energy Prices Are Mixed in Latest Week

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U.S. light vehicle sales dove 6.9% (-4.5% y/y) in October to 15.48 million units (SAAR) after holding steady at 16.62 million units in September. Sales fell broadly. 

Light truck sales slid 6.9% (-1.4% y/y) in October to 12.90 million units, after rising 0.9% in September. Purchases of domestically-made light trucks fell 7.9% (+1.4% y/y) to 10.10 million units, the lowest level since February, after rising 3.4% in September. Sales of imported light trucks fell 2.8% (-10.3% y/y) to 2.80 million units, following a 7.4% September decline.

Trucks’ 83.3% share of the light vehicle market last month was steady with September and compared to 82.6% in August, and to 80.7% in October of last year. The share has averaged 82.4% so far this year versus 56.5% ten years earlier.

Passenger car sales declined 6.9% (-17.6% y/y) last month to 2.58 million, after falling 4.8% in September. Purchases of domestically-produced cars fell 7.2% (-16.5% y/y) last month to 1.93 million units, after weakening 7.1% in September. Imported auto sales declined 4.5% (-22.0% y/y) to 0.64 million units after holding steady in September.

Imports' 22.2% share of the U.S. light vehicle market rose from 21.4% in September. These compared to a high of 26.3% in November of 2023. Imports' share of the passenger car market edged up to 24.8% last month from 24.2% in September. It reached a high of 38.1% in September 2021. Imports' share of the light truck market increased to 21.7% last month from 20.8% in September.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the **INDUSTRY** database.

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- Light truck sales and auto purchases decline m/m.
- Total sales decline sharply y/y.
- Imports' market share declines.

U.S. Light Vehicle Sales Fall Sharply in October

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Factory sector activity remains under pressure. The ISM U.S. manufacturing PMI declined to 48.7 in October after rising to 49.1 during September from 48.7 in August, according to the Institute for Supply Management. These figures are below the 50 expansion-contraction dividing line. As a result, they continue to indicate that the U.S. manufacturing sector weakened for the eighth consecutive month. The reading remained remain above, however, a low of 46.9 in October of last year. A November index of 49.4 had been expected in the Action Economics Forecast Survey.

The production component declined to 48.2 last month after rising to 51.0 in September. It remained increased from an April low of 44.0. A lessened 27.3% (NSA) of respondents reported higher production while an increased 22.0% reported lower output levels. The inventory reading fell to a 12-month low of 45.8 from 47.7 in September. A lessened 13.2% (NSA) of respondents raised inventories while a higher 21.7% shed them.

Working higher, the new orders index rose to 49.4 during October from 48.9 in September. An increased 20.4% (NSA) of respondents reported new orders improvement while 26.0% reported a decline. The employment index increased to a five-month high of 46.0 last month after rising to 45.3 in September. An increased 13.1% (NSA) of respondents more hiring while 22.3% reported less. The supplier delivery index rose to 54.2 in October from 52.6 in September. Twelve percent (NSA) of respondents reported slower product delivery speeds while 3.2% reported a quickening.

The prices index weakened to 58.0 (NSA) during October from 61.9 in September. It was below a high of 69.8 in April, and well above its low of 39.4 in December 2022. A lessened 27.3% of respondents reported higher prices, a nine month low, while an increased 8.7% reported lower.

In other series, the export orders index rose to a seasonally adjusted 44.5 in October after falling sharply to 43.0 in September. It remained up from 40.1 May low. The imports index edged up to 45.2 last month from 44.7 in September. The index is below a high of 52.6 in February.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- Decline reverses all of September increase.					
- Lower production offsets new orders rise.
- Price index falls to nine-month low.

U.S. ISM Manufacturing PMI Eases in October; Price Index Declines Sharply

Tian Yong Woon

This week, we review a wave of key developments across Asia following US President Trump’s tour of the region last week. A central theme concerned countries courting closer ties with the US to avoid harsher actions, while also boosting regional cooperation amid trade barriers and scrutiny of China. This push for closer ties has manifested through new and updated trade agreements—ironically driven by ongoing uncertainty in global trade and supply chains, with US–China relations at the core. A major outcome of Trump’s trip was the new US–China trade agreement, which included the US halving tariffs on Chinese fentanyl-related products to 10%, while China suspended rare earth export controls and resumed soybean purchases vital to the US (chart 1). Perhaps more importantly, the deal signalled a small conciliatory shift and avoided a potentially worse outcome. Beyond the US–China agreement at the APEC Summit in South Korea, the US–South Korea trade deal also gained more clarity. Under the deal, US auto tariffs on South Korea has fallen to 15%, matching the rate applied to Japan and likely providing relief for South Korean automakers (chart 2).

Trump’s visit to Japan was another highlight. Relations with new Prime Minister Takaichi got off to a strong start, and further details emerged on Japan’s previously cited $550 billion investment commitment in the US—substantial even relative to Japan’s existing direct investment there (chart 3). However, specifics on the timing and implementation of the investment remain limited. Meanwhile, at the ASEAN Summit earlier in the week, aside from Trump’s engagements, the bloc officially welcomed its 11th member—Timor-Leste—the first new member in decades—granting it access to the bloc’s mechanisms and potentially supporting a catch-up in economic development (chart 5). Looking ahead, the focus on China and Japan is likely to continue, with China set to release its October trade (chart 6) and CPI data, and Japan scheduled to report employee wages and household spending.

**The APEC summit**
The US and China made a modest but meaningful step forward on trade following the Trump–Xi meeting at the APEC Summit in South Korea. The US lowered tariffs on Chinese fentanyl-related products to 10% from 20% and suspended enforcement of rules targeting subsidiaries of blacklisted firms—previous points of contention for Beijing. In return, China pledged stronger efforts to curb fentanyl flows, paused rare earth export controls for a year, and resumed purchases of US soybeans—significant given its historically large share of US export demand (chart 1). While not a comprehensive reset, these moves eased immediate tensions and helped avert more severe outcomes, including Trump’s previously threatened 100% tariff hike. The tone of the meeting also suggests a more conciliatory shift, though relations remain fragile and the risk of renewed escalation is still material.

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Beyond the headline-grabbing US–China trade deal, the APEC Summit in South Korea also saw the US reach a trade agreement with South Korea. Under the deal, US tariffs on South Korean autos and auto parts have fallen to 15% from 25%, matching the US tariff rate on Japanese autos and providing relief to South Korea’s sizable automotive export sector (chart 2). The agreement also clarified South Korea’s supposed $350 billion investment in the US: $200 billion in cash, capped at $20 billion per year to avoid currency market distortions, with the remaining $150 billion directed toward shipbuilding cooperation. While also not a major breakthrough, the deal represents incremental progress, addressing prior uncertainties and signalling steps toward a more favourable trade framework.

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**US President Trump’s Japan Visit**
Turning to US President Trump’s visit to Japan last week, new Prime Minister Takaichi appears to have gotten off to a strong start, with Trump hailing US–Japan relations as entering a “NEW GOLDEN AGE.” The two countries signed several agreements, including a Technology Prosperity Deal, and deepened cooperation on critical minerals and rare earths. Japan’s previously vague $550 billion investment commitment in the US is now somewhat clearer: up to $332 billion will support critical US infrastructure, $30 billion will target AI, and $15 billion will go toward electronics and supply chains, among other areas. While the headline figure is substantial—even relative to Japan’s already significant direct investment assets in the US (chart 3)—the open-ended nature of the commitment and the lack of a clear timeline leave its actual impact uncertain.

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**The ASEAN summits**
Whilst US President Trump’s attendance at the ASEAN–US Summit in Malaysia dominated headlines, there were also several other notable developments at last week’s ASEAN meetings in Kuala Lumpur. Most prominently, Timor-Leste was officially admitted as ASEAN’s eleventh member, following a two-decade accession process during which the country actively aligned its political and economic frameworks with ASEAN standards. Membership grants Timor-Leste access to the bloc’s broader security and economic mechanisms and could open further avenues for trade, investment, and development cooperation. Nonetheless, the country still has considerable ground to make up relative to its new ASEAN peers, particularly in terms of both GDP and GDP per capita (chart 4).

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The accession of Timor-Leste into ASEAN aside, last week’s summits also brought a number of economic developments for the bloc. More concretely, ASEAN and China signed an upgrade to their free trade agreement last week, bringing the deal to so-called version 3.0. The upgraded deal (ACFTA 3.0) introduces commitments in new areas such as Digital Economy, Green Economy, and Supply Chain Connectivity, among other themes. And notably, just as the US and ASEAN have found common ground to collaborate in fields such as those relating to rare earths, given how the US has seen vulnerabilities arising from this space given China’s dominance in the field, China has taken the year’s US-China frictions to foster closer ties with its neighbours in the region, including the collectively sizable ASEAN bloc. Just by the trade dimension alone, China-ASEAN-11 trade has growth significantly this year (chart 2), although the economies’ total trade with the US also rose, and at a more significant pace, despite tariff measures.

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Looking ahead, investors will focus on a series of China-related releases this week, notably the Caixin PMI readings, as well as October trade and CPI inflation data. These indicators will help gauge the economy’s performance under ongoing US tariffs and assess domestic demand and supply conditions, all in the broader context of recent US–China interactions during Trump’s Asia tour. In Japan, attention will turn to updated data on employee wages and household spending, which—together with developments in the external environment—will shape expectations for the Bank of Japan’s future policy stance. Elsewhere in the region, investors will watch interest rate decisions from Australia and Malaysia, where rates are expected to remain unchanged, as well as GDP readings from Indonesia and the Philippines.

Economy in Brief: May 2008

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