Wednesday, April 9, 2014

China and Japan news and data -- April 9 - 10 , 2014 Asian Data Double Whammy Sparks FOMC-Exuberance Unwind ..... The Japanese Sales Tax Hike Verdict Is In: It's A Disaster As Sales Plunge 25% ..... Another Chinese High Yield Bond Issuer Declares Bankruptcy



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Asia in one picture.......



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Futures Fail To Levitate Green Despite Atrocious Chinese And Japanese Econ Data

The main overnight event, which we commented on previously, was China's trade data which was a disaster. March numbers turned out to be well below market consensus with exports falling 6.6% YoY (vs +4.8% expected) and imports falling 11.3% YoY (vs +3.9% expected). The underperformance of imports caused the trade balance to spike to $7.7bn (vs -$23bn in Feb). Pricing on the Greek 5-year syndicated bond is due later today, with the final size of the bond boosted to EUR 3bln from EUR 2.5bln as order books exceed EUR 20bln (equating to a rough bid/cover ratio of over 6) as the final yield is set at 4.75%(well below the 5.3% finance ministry target and well above our "the world is a bunch of idiots managing other people's money" 3% target). Ireland sold EUR 1bln in 10y bonds, marking the third successful return to the bond market since the bailout. Also of note, this morning saw the release of lower than expected French CPI data, underpinning fears of potential deflation in the Eurozone.






Asian Data Double Whammy Sparks FOMC-Exuberance Unwind

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All the gains that Japan's Nikkei 225 futures had achieved in the post-FOMC-Minutes exuberance have been lost as firstJapan (huge miss in machine orders) and then China (huge miss in imports and exports) hit the market with a disappointing data doubel whammy. US futures are relatively untouched for now (even as USDJPY tumble sback below 102). Asian equity markets are mixed (China/India down notably and Japan fading fast) as another Chinese bank has "delayed payment" on a bond. Copper prices have also reverted and given up post-FOMC gains (despite rumors of PBOC bailout buying).

First, Japan machine orders (a primary macro data item) missed by a mile...

Then Beijing SAFE Bank "delayed payment on a bond...
China Beijing Safe Bank Investment Funds has delayed a payment to investors on a Shandong province expressway project, 21st Century Business Herald reports, citing a notice hung on the door of the co.

A person answering the phone at the co. who wouldn’t give her name declined to comment

The co.’s president has left his position, the report says

Co. is seeking to sell new products through a private equity platform to make the payment, the report cites an unidentified person from the co. as saying
BJ Unsafe
And then Chinese trade data hit and was total fucking shitshow - no exaggeration...
  • *CHINA'S MARCH IMPORTS FALL 11.3% FROM YEAR EARLIER
  • *CHINA'S MARCH EXPORTS FALL 6.6% FROM YEAR EARLIER

But don't worry because the customs chaps think...
  • CHINA IMPORTS, EXPORTS TO RESUME Y/Y GROWTH FROM MAY: CUSTOMS
But it seems to us that there is a long way for "exports" to adjust to real non-fake trade invoice data...

Which left the Nikkei having entirely roundtripped its post FOMC gains and reverted to USDJPY...

And copper prices given up all their post FOMC gains...

Charts: Bloomberg




The Japanese Sales Tax Hike Verdict Is In: It's A Disaster As Sales Plunge 25%

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On April 1, as was widely known, Japan raised its sales tax from 5% to 8% - a move many dread could unleash a recession as happened the last time Japan hiked a consumption tax in 1997. A week later the verdict on just how much consumption was frontloaded ahead of the hike is in, as we get the first sales data on the ground. The result is, in short, a disaster:overnight the Nikkei reported that Japanese department store Takashimaya’s revenue in April 1-7 period crashed 25%!
 We for one can't wait to see what Japan's Q2 GDP will be now that consumption has literally fallen off a cliff.
Retailers watched Japanese shoppers rush to stock up on all sorts of consumer goods ahead of the April 1 sales tax rise, and are now bracing for a corresponding dip in demand. But Takashimaya says it carefully assessed the tax hike's likely impact and is moving to slash costs by around 10 billion yen to ensure profit growth for the year through February 2015.

[T]he company is tempering its outlook for the near future."Insofar as big-ticket products were in high demand before the tax rise, it's possible their sales will fall more than presumed,"President Shigeru Kimoto said at a news conference Tuesday. 

Indeed, demand has recoiled since the start of this month, with department store sales tumbling 25% on the year during the first week of April.

Takashimaya estimates that the combined impact of the drop-off in demand and the tax increase itself will lower fiscal 2014 operating revenue -- equivalent to sales -- by about 20 billion yen and operating profit by about 5 billion yen. As the steady performance of such segments as the Singapore unit and a subsidiary that operates shopping centers will be insufficient to offset this,operating revenue is expected to decline slightly to 900 billion yen.
Luckily, Takashimaya has a plan to deal with this plunge in revenues:
Takashimaya aims to weather these headwinds with sizeable cost cuts, targeting rents as one area for savings. Since the start of the year, the company has spent nearly 120 billion yen to acquire properties that house a number of its department stores. The move is expected to save just over 3 billion yen in rent annually.

The corporation will cut back on other costs, including personnel expenditures and advertising fees as well, aiming to save about 7.3 billion yen at its department stores and around 2 billion yen for its group companies.
In other words, the company is about to unleash a "rationalization" campaign, better known as wholesale firings. But, but, what happened to those wage hikes that Abe swore up and down were coming and are so critical for the absent third arrow of Abenomics to finally emerge. Or maybe instead of wages surging, they meant unemployment? Happens - it was lost in translation.
Finally, according to Nikkei, other retailers were also impacted with Parco April 1-7 same-store sales dropped 7%, Daiei sales fell 8-9%, FamilyMart -5%.
That's ok - they too have "cost-cutting" programs in place.
As for what happens to the Japanese economy, and stock market, next, here is a reminder from our article from last week: "What Happened The Last Time Japan Raised Its Consumption Tax?"

Another Chinese High Yield Bond Issuer Declares Bankruptcy

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Another week, another Chinese default.
A month after Chaori Solar's default turned on its head a long-held assumption that even high-yielding debt carried an implicit state guarantee, another Chinese firm has succumbed to the inevitable outcome resulting from a lack of cash flows. As a reminder, a technical default late last month by a small construction materials firm, Xuzhou Zhongsen Tonghao New Board Co Ltd, was the first in China's high-yield bond market. However, in that case the guarantor of that bond eventually agreed to fund the required interest payment, resulting in the first bailout of the first high yield default. Still if Xuzhou didn't want the distinction of the first Chinese HY default, many are lining up for that particular prize - such as a small manufacturer of polyester yarn based in China's wealthy Zhejiang province has declared bankruptcy, threatening its ability to meet an interest payment on a high-yield bond due in July.
According to Reuters, the firm sold 60 million yuan ($9.7 million) in bonds in a private placement in January 2013 at an interest rate of 11 percent. The next interest payment is due on July 23, while the bond matures in January next year.
Reflecting the government's new attitude towards default, the China Securities Regulatory Commission (CSRC) described the Xuzhou Zhongsen default as a commonplace event.

"(The Xuzhou Zhongsen bond) was issued to investors according to regulations, and the default is an isolated risk event. The commission will abide by market-based principles and handle the case according to law," CSRC spokesman Deng Ge said at the agency's weekly press conference on Friday.
And it is no secret that as the weeks keep rolling in, so will many more defaults:
Analysts widely expect more defaults on loans, bonds, and shadow bank products this year. Semiconductor, software, and commodities firms are among the most at risk for default, a Reuters analysis of more than 2,600 Chinese companies showed.
The Xuzhou Zhongsen default marked the first ever in China's high-yield bond market, which the securities regulator launched in June 2012 in a bid to offer a new financing channel for small, private firms. Such firms often struggle to access credit in China's state-dominated financial system. Zhejiang Huatesi's bond was also issued in that market.
Pengyuan Credit Rating Co Ltd gave Zhejiang Huatesi Polymer's bond an A+ rating when it was issued. That is among the lowest ratings at which bonds are commonly sold in China's market.
Naturally, there is the possibility that this too bankruptcy will be delayed by a post-last minute payment by the guarantor, another polyester firm.
An executive at Dongguan Securities Co Ltd, which served as underwriter on the bond, told Reuters on Tuesday that the guarantor on the bond is likely to meet its obligation to make interest and principal payments if the issuer is unable to do so.
The bond carries an unconditional guarantee by Tianlong Holding Group Co Ltd, another polyester firm in Zhejiang. It is also secured by land rights owned by the company and personal assets owned by the controlling shareholder, the underwriter said.
"There are various different reasons (for Zhejiang Huatesi's problems). Factors affecting that sector, the influence of industrial restructuring, etc," the executive said.
Still, even with a bailout, the scariest thing is that the value of the assets backing the bond at the originator level is a resounding zero: "The phone number on Zhejiang Huatesi's website has been disconnected, according to an automated message."
Expect many more phone disconnections in China as the biggest ever Minsky moment begins to unwind.