China weakness spreads far and wide

Starbucks is opening a new store every 15 hours in China, in a sign that retail remains a bright spot in the country. Caterpillar posted its biggest quarterly profit shortfall in a decade. Intel cited softness in China among the reasons for its lower
INDUSTRIALS: Caterpillar posted its biggest quarterly profit shortfall in a decade. PHOTOS: REUTERS
Starbucks is opening a new store every 15 hours in China, in a sign that retail remains a bright spot in the country. Caterpillar posted its biggest quarterly profit shortfall in a decade. Intel cited softness in China among the reasons for its lower
TECHNOLOGY: Intel cited softness in China among the reasons for its lower-than-expected annual forecast last week. PHOTOS: REUTERS
Starbucks is opening a new store every 15 hours in China, in a sign that retail remains a bright spot in the country. Caterpillar posted its biggest quarterly profit shortfall in a decade. Intel cited softness in China among the reasons for its lower
CARS: Ford Motor posted a fourth-quarter loss of US$534 million (S$722 million) in China last quarter.PHOTOS: REUTERS
Starbucks is opening a new store every 15 hours in China, in a sign that retail remains a bright spot in the country. Caterpillar posted its biggest quarterly profit shortfall in a decade. Intel cited softness in China among the reasons for its lower
RETAIL: Starbucks is opening a new store every 15 hours in China, in a sign that retail remains a bright spot in the country. PHOTOS: REUTERS

Forecasts for tech, industrials and car sectors muted, but retail remains bright

WILMINGTON • Caterpillar manufactures huge yellow bulldozers. Nvidia makes minuscule computer chips. Their products have little in common, but their earnings on Monday pointed to the same direction: demand in China is slowing down for a widening array of goods.

Since Apple shook investors early this month with a warning, a picture is starting to emerge of where the cooling in the world's second-largest economy will hurt in the coming year. It includes Stanley Black & Decker's tools, PPG Industries' automotive coatings, Intel's processors and Trinseo's synthetic rubber tyres.

Here's a rundown of the recent developments of United States and European businesses so far.

INDUSTRIALS

Caterpillar, an industrial bellwether, sent a gloomy signal on Monday when it posted its biggest quarterly profit shortfall in a decade, and provided a 2019 forecast that trailed some of Wall Street's estimates. Sales of excavators will be flat year over year in China, the company said.

Shares of Japanese rivals Komatsu and Hitachi Construction Machinery each lost more than 4 per cent in Tokyo. In China, Sany Heavy Industry and other heavy equipment makers fell at the open.

Stanley Black & Decker chief executive Jim Loree was not shy about raising the alarm bells on China last week, saying the firm was facing slowing economic growth there, along with most of the rest of the world.

The previous week, paint maker PPG talked about "sluggish industrial activity in China" among pressures that it will face in the first half of this year.

TECHNOLOGY

Intel, whose processors are the main component in most of the world's personal computers and servers, cited softness in China among the reasons for its lower-than-expected annual forecast last week.

Nvidia, the biggest maker of chips for computer graphics cards, echoed those comments on Monday, saying "deteriorating macroeconomic conditions, particularly in China, impacted consumer demand" for its products.

In Japan, chip-equipment manufacturer Tokyo Electron dropped as much as 2.9 per cent, while Advantest slid 6 per cent. Samsung Electronics fell 1.1 per cent in Seoul, while Taiwan Semiconductor Manufacturing declined 2 per cent.

CARS

Car sales in China fell last year for the first time in more than 20 years.

"China is under threat, for sure," Volkswagen chief executive Herbert Diess said in a Bloomberg TV interview in Davos last week. "This year will be challenging."

Ford Motor posted a fourth-quarter loss of US$534 million (S$722 million) in China last quarter.

Wholesales by the carmaker's China joint ventures - a measure of how many vehicles are shipped to dealers - plunged 57 per cent during the period. By the end of last year, only about a third of the company's dealers were profitable, Mr Jim Farley, Ford's president of global markets, said on Jan 23.

US auto-parts supplier Lear offered more colour on China last Friday. Lear, whose biggest customer is Ford, said it expected orders for parts, like seating systems, to fall more than 10 per cent this year.

"They confirmed auto weakness in China," Mr Douglas Rothacker, an analyst for Bloomberg Intelligence, said. "Lear offers a good read across the industry for expectations in 2019."

Continental, Europe's second-largest car-parts maker, warned earlier this month that Chinese auto production might stagnate at best this year, leading to a muted earnings forecast for 2019.

BRIGHT SPOT: RETAIL

So far, luxury and consumer goods have been spared. Jeweller Tiffany & Co enjoyed strong growth in China in the final two months of the year.

"The holiday period has actually been very positive - China is a big area of focus," Tiffany chief executive Alessandro Bogliolo said on Jan 18. He added that a boost in marketing spending there about a year ago has started to pay off. "We have seen an acceleration in mainland China."

Starbucks is opening a new store every 15 hours in the country.

Executives at consumer giant Procter & Gamble said last week that they have not seen any sign of a slowdown in the country, although "things in China can change quickly".

Investors will scrutinise the financial results of luxury giant LVMH Moet Hennessy Louis Vuitton, due yesterday, for any hint of the outlook for luxury in the country.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 30, 2019, with the headline 'China weakness spreads far and wide'. Print Edition | Subscribe