Bad news from China and Japan

China Manufacturing Contraction Continues Second Month; Japanese Manufacturing Sentiment Turns Negative; Asia Pacific Equities Sink

Mish’s Global Economic Analysis,

15 December, 2011

All Asia-Pacific Equity indices are in the red tonight following more bad news from China and Japan.

Asia Pacific Equities

Japanese Manufacturing Sentiment Sinks

Bloomberg reports Japan Manufacturing Slides on Europe Crisis

Japan’s largest manufacturers became more pessimistic than economists expected and China reported the first decline in foreign direct investment since 2009 as Europe’s crisis drags down the global economy.

The Tankan large manufacturer index of sentiment fell to minus 4 in December, the Bank of Japan (8301) said today in Tokyo, worse than the median estimate for a reading of minus 2 by 24 economists surveyed by Bloomberg News. Investment in China slid 9.8 percent from a year earlier to $8.76 billion, the Ministry of Commerce said.

In Japan, manufacturers from Toyota Motor Corp. (7203) to TDK Corp. (6762) are also under threat from a yen that rose to a postwar record against the dollar on Oct. 31 as investors seek a haven from turmoil in Europe.

TDK, the world’s biggest maker of magnetic heads for disk drives, is among Japanese companies cutting jobs, while Panasonic Corp. (6752) has picked Malaysia as the site for a solar-cell plant, to hedge against currency risks. At Toyota, poised to lose its crown as the world’s largest automaker, currency gains have forced price increases, threatening to further erode global market share after production disruptions from the temblor and floods in Thailand.

“We raised prices of some our models on the high yen, and this is very difficult for us to admit, but we expect a drop in sales from this,” Satoshi Ozawa, chief financial officer at Toyota, said this month. “Still, the yen is too strong, and we had to sacrifice some unit sales.”

China Manufacturing Contraction Continues Second Month

MarketWatch reports China manufacturing cools further

Chinese manufacturing activity extended its decline in December, as production at factories and the volume of new orders generated eased from the previous month, according to the preliminary reading of an HSBC survey, released Thursday.

HSBC’s so-called “flash” Purchasing Managers’ Index for the month printed at 49, staying below the threshold of 50 that separates expansion and contraction. 

The flash PMI number is based on the responses of 85% to 90% of the total respondents in a survey.

In response to the weakening fundamentals of China, the Shanghai Stock index is down again this evening, having fallen back to March 2009 lows.

$SSEC Weekly Chart

That snapshot is as of yesterday's close. The Shanghai Index is down another 2% this evening to 2,182, approximately where the dashed blue line is in the above chart.

That snapshot is as of yesterday's close. The Shanghai Index is down another 2% this evening to 2,182, approximately where the dashed blue line is in the above chart.