Apart from the fact that current data figures are relatively insignificant, doubts on decision makers that has failed to repair the broken links on the economy also hurts market confidence.

Reports on China GDP and Japan trade balance this week failed to move market sentiment. Apart from the fact that the figures are relatively insignificant, doubts on decision makers that has failed to repair the broken links on the economy also hurts market confidence.

China

Unreliable Unemployment Report

China GDP in the third quarter of 2014 is reportedly up 7.3%, a tad higher than the expected 7.2%, but slipped lower than the 7.5% growth recorded in the previous period. It helped loosen concern on China economic slowdown, because the figures means that China probably will reach its 2014 growth target.

Quoted by CNBC, Dariusz Kowalczyk of Credit Agricole said that exports and services covered housing market weakness in the region. As well, industrial production recovery from 6.9% to 8% yoy in September is marked as a positive momentum. He further stated, We think the fourth quarter will be at least as good as third quarter or a bit better, helped by same drivers.

However, slowing growth is expected to go on till the end of the decade. Currently, there are three main problems in China: risk of piled up debt, housing market decline, and uncertainty over job market condition.

Early this week, CNN quoted Standard and Poor's latest report that mentioned how China private sector debt market is the biggest in the world at 14.2 trillion USD. Earlier this year, some companies was reported to have been defaulted, and since then there are many more is expected to experience the same. This is because with the slowdown, investment return is most likely will go down while high debt level will burden companies with balooning interest. Such circumstances will makes it much more difficult for them to pay their debt whilst keeping the current productivity intact or increase it.

On the other hand, projection of slowdown is deemed as inevitable because domestic consumer demand has been falling along with lower external demands due to global deflationary pressures. The falling domestic demand is worrying particularly because employment condition in China is unclear. On paper, China has low unemployment and continually growing wages; but it is known that Chinese government engineered it. Chinese unemployment data is infamously known as ureliable; one reason why fundamental analyses of China relies on only three main data: GDP, trade balance, and Manufacturing PMI. The unreliable unemployment report is why people meet the proverbial wall when forecasting how far China economic slowdown will go.

In relation with it, spokesperson of China National Bureau of Statistics is reported to have said that the government has improved the quality of unemployment report, and will soon release a more comprehensive unemployment report. If its is true, then the data might be really important for investors. Meanwhile, anaysts are estimating that unemployment is significantly higher than what the government claimed, and wages growth is very doubtful.

 

Hit On Abenomics Political And Monetary Front

In the neighboring country, Japan, Abenomics reform is being hit on political and monetary front.

In the beginning of this week, two ministers in PM Shinzo Abe's cabinet, minister of trade Yuko Obuchi and minister of justice Midori Matsushima, resigned on separate election scandal. It is an indirect hit on PM Abe's political power as well as Abenomics's structural reform. The ministers are two of the five women ministers introduced by PM Abe as part of his effort to improve women participation in the workforce. Beside of that, Obuchi was tasked to persuade people in reoperating 48 nuclear reactors that was halted following 2011 Fukushima nuclear crisis. The reactivation of the 48 reactors are particularly important for Japan economically, but experiencing resistance due to Fukushima trauma.

At the same time, doubts over Bank of Japan stimulus program increases. Japan stimulus plus low rate combi has failed to speed up inflation rate, even while the number constantly add up. It raises question as to how the BoJ will get out of stimulus later without hurting Japan economy or trigger a selloff in the bonds market.

But there is a ray of light in the horizon. Exports and imports in Japan September trade balance report yesterday (22/10) skyrocketed, although overall it noted deficit of 958.3 billion Yen (higher than the expected 777 billion Yen deficit). Exports grew 6.9% after fell below minus at -1.3% in August. It signals that the effort to depreciate Yen in order to boost export might not have been in vain. Imports too, grew 6.2% from -1.5% in August. Ordinarily, the rise in Imports might seem bad, but in the case of Japan now, imports revival means that domestic consumption has recovered from April consumption tax hike.

As a whole, market sentiment toward Asia is in precarious condition. If we combined it with US accelerated growth projection for the next few years, then it made for a significant threat on regional economy, including growth and exchange rate. Nothing new, of course, but the latest development underlines how important it is for Asia to undergo structural reform in all sectors.