Given how bad the Chinese export numbers were on Monday, today’s market was the one we probably should have expected then, as Tokyo suffered an across-the-board mini-rout. The Nikkei’s attraction as a liquid easy-to-short futures hedge meant that the headline decline marginally over-stated the sell-off, but Topix was down 2% which is even worse than the HS Chinese Enterprise market had performed through to 3pm Tokyo time. The broad and consistent nature of the sell-off was under-scored by the fact that the best performing sector, airlines, was down 1.6%, whilst the worst, shipping, was only down 3.5%.
The impact a slowdown in China could have on Japan was underscored by the release of January industrial machinery orders. These are the industry numbers rather than the EPA’s so are unadjusted and not smoothed out, so need to be treated with some caution. Still whilst domestic orders were up an impressive 83% YoY (evidence of companies buying ahead of the consumption tax hike, perhaps?) foreign orders were down 55%. Given the importance of China in this regard, the impact is evident.
If eyes today weren’t on China, they were on Japan’s wage negotiations, which saw Toyota (7203) pay an average of ¥2,700/month more, Honda (7267) ¥2,200 more and Panasonic (6752) ¥2,000 more.
Toyota’s union was going for ¥4,000 so in the current anti-Abe climate, this is likely to be viewed as a disappointment. However, factoring in the hike to bonuses, we are looking at more like a 5% increase, not as good as the 7% unions are going for, but better than generally portrayed? An interesting point is that Nissan (7201) met its union’s request for a ¥3,500 hike and 5.6 months bonus, so you have to wonder how Toyota’s unions will respond to this news.
Son duly gave his “price war” speech in Washington last night but the response doesn’t appear to have been that great. Given how telegraphed the story was, it would be wrong to read too much into today’s fall in Softbank (9984) stock, but most media commentators in the US still seem to think that the FCC is still going to view the TMobus bid as a competition reducer rather than creator. Our concerns are that Son is awakening AT&T and Verizon to the Softbank threat and (1) we don’t think that AT&T / Verizon will be as slow off the mark as their Japanese counterparts were and (2) they are probably going to go for the jugular now that Son has laid out his cards.
Shares in Toshiba (6502) were down ¥5 to ¥460, but in light of the market’s decline today and the shares recent strong performance, that has to be viewed as something of a positive result, fuelled quite probably by the news that Westinghouse had won orders for two reactors in Finland. Psychologically, positive news like this for Westinghouse is a double win for Toshiba shareholders since not only does it enable long-term earnings models to be tweaked upwards, but it also reduces the risk that the company will feel obliged to write down some of its Westinghouse purchase price, a move that would probably necessitate the issue of new stock. Meanwhile, on the domestic nuclear front, power companies have made applications to restart 18 of the 48 operable reactors, although only one, Hamaoka #3, is requested to be started in FY14.
After the market closed Nitto Denko (6988) reported February sales up 6% YoY, which is a marked slowdown from January’s 18% and December’s 21%. Given how well Nitto Denko’s stock has done recently, this is probably likely to be viewed as disappointing, but it should be noted that the three-month moving average YoY increase is now at its highest since May 2013.