AFP

Japanese car giant Nissan said on Thursday that net profit sank nearly 60 percent in the three months to June as pressures including a lockdown in Shanghai and chip shortages weighed on business.

The firm, which in May reported a positive full-year net profit for the first time in three years, said it logged a net profit of 47.1 billion yen ($347 million), down 58.9 percent on-year. 

The slump was also the result of a one-time boost in the first quarter of last financial year when Nissan unloaded Daimler sales.

But the firm said it was facing a range of headwinds.

“During the first quarter, the extremely challenging business environment put pressure on earnings,” Nissan said in a statement.

“Production was constrained by the Shanghai lockdown caused by spread of the new coronavirus, and semiconductor supply shortages, while external factors such as soaring raw material prices and logistics costs also intensified their impact.”

“The pandemic understandably remains a priority challenge,” chief operating officer Ashwani Gupta told reporters.

“At the same time, we experienced tailwinds with favourable foreign exchange rates,” he added, referring to the yen’s recent slump against the dollar, which helps inflate overseas profits for Japanese firms.

The firm left its full-year forecast unchanged, projecting a net profit of 150 billion yen.

That would be a 30.4 percent slump, however, from the previous year’s 215.5 billion yen.

Operating profit was down 14.2 percent to 64.9 billion yen, but that beat analyst estimates, according to Bloomberg.

– Ghosn saga –

The firm was on a rollercoaster even before the disruption caused by the pandemic and the conflict in Ukraine.

It had been struggling with increasing sales costs, and is currently implementing a plan involving slashing models, cutting costs and restructuring operations.

“Nissan is making progress after an excessive expansion policy in North America in the past that was a factor causing it to lose money,” said Satoru Takada, auto analyst at TIW, a Tokyo-based research and consulting firm.

“Profits declined year-on-year relative to the robust rebound in last year’s April-June quarter, when there was a recovery from the pandemic’s impact and cost-cutting efforts,” Takada told AFP ahead of the earnings report.

“Nissan’s challenge is how to minimise the impact of the chip shortage and sell attractive new cars, including those recently released,” he said.

Gupta said the firm was looking to “invest in building greater resilience” as it battles the effects of obstacles such as China’s lockdowns.

He said its suppliers and dealerships had reopened, and “showroom traffic is recovering”.

On chips, he said Nissan was looking to develop alternatives as well as to replace custom-made semiconductors with general-purpose versions.

And he added that the automaker was attempting to cut its use of precious metals in response to the rising cost of raw materials.

“As always, we move forward with cautious optimism while challenging ourselves to maintain (the) four million sales outlook for the fiscal year,” he said.

Nissan has also been buffeted by the saga surrounding its former chief Carlos Ghosn.

The one-time auto tycoon was detained in Japan in 2018, accused of financial misconduct charges that he denies, but jumped bail and fled to Lebanon the following year.

A Tokyo court in March handed a six-month suspended sentence to former Nissan executive Greg Kelly over allegations that he helped his boss attempt to conceal income.  

The company had pleaded guilty in a separate case, and was ordered to pay a fine of 200 million yen.

In April, French authorities issued an international arrest warrant for Ghosn, who has lived in Lebanon since his daring getaway from Japan, on allegations including corruption, misuse of company assets and money laundering. 

The US Senate passed a bill on Wednesday to boost domestic production of semiconductors, the in-demand microchips that power everything from smartphones to cars to weapons.

Global semiconductor supplies were disrupted by fallout from Covid-19 shutdowns, sparking widespread shortages of the chips — many of which are made in Asia.

The legislation, which now goes back to the House of Representatives for final passage, provides $52 billion to increase domestic semiconductor production and more than $100 billion over five years for research and development.

The CHIPS Act was passed in the Senate by a rare bipartisan vote of 64 to 33, with 17 Republicans joining hands with Democrats.

President Joe Biden welcomed Senate passage of the legislation that he said will “accelerate the manufacturing of semiconductors in America, lowering prices on everything from cars to dishwashers.”

Global chip shortages notably slowed production of new automobiles last year, causing prices to increase.

“It will mean more resilient American supply chains, so we are never so reliant on foreign countries for the critical technologies that we need for American consumers and national security,” Biden said in a statement.

But Beijing hit out at the details, with foreign ministry spokesman Zhao Lijian saying that while the act “claims to be aimed at improving the competitiveness of US technology and chips, (it) contains provisions that restrict normal scientific and technological cooperation between China and the United States.”

“China is firmly opposed to this,” Zhao told reporters at a regular briefing on Thursday.

The version of the CHIPS Act passed Wednesday provides $39 billion to finance semiconductor manufacturing plants in the United States and another $13 billion for research.

Senate passage of the bill came a day after the South Korean group SK announced a huge investment in US semiconductors and other cutting edge industries.

The conglomerate said in a statement it plans to “increase its new investment in the United States by $22 billion in areas including semiconductors, green energy, and bioscience, creating tens of thousands of new high-tech, high-paying American jobs.”

Asian and European markets rose Thursday following a surge on Wall Street fuelled by hopes that the Federal Reserve could slow its pace of inflation-fighting interest rate hikes.

The dollar also struggled to bounce back from a sell-off — sitting at a three-week low against the yen — that came in response to comments by Fed chief Jerome Powell suggesting its next super-sized increase could be its last.

However, analysts cautioned that the initial joy, which sent New York’s three main indexes soaring, could be short-lived as the global economy continued to face several headwinds and inflation would likely not come down quickly.

As expected, the Fed lifted borrowing costs 75 basis points to a range of 2.25 to 2.5 percent, close to the neutral level it considers neither stimulating nor slowing economic growth.

Forecasts have rates going as high as 3.8 percent in 2023, as the bank tries to control runaway inflation.

There is a growing concern that the sharp rise in rates is bearing down on the world’s top economy and could send it into recession.

In his post-meeting comments, however, Powell said he did not consider that was the case, because “there are too many areas of the economy that are performing too well”. 

He did note that growth was slowing.

Powell added that officials would not give any guidance on their next move, instead taking each decision on a meeting-to-meeting basis. 

While he said another “unusually large increase could be appropriate” in September and officials “wouldn’t hesitate” to lift by one percentage point, markets took heart from the suggestion that the bank was ready to take its foot off the gas towards the end of the year.

On Wall Street, the Dow and S&P rallied and the Nasdaq soared more than four percent — its best one-day rise since late 2020 — as tech firms caught a wave of optimism. The sector is more susceptible to higher rates.

And Asia followed suit, though with more muted gains.

Shanghai, Tokyo, Sydney, Seoul, Singapore, Mumbai, Manila, Jakarta and Wellington were also well in the green.

But Hong Kong dipped as the city’s de facto central bank followed the Fed in lifting rates owing to its currency peg.

London, Paris and Frankfurt were up in the morning.

The prospect of a slower pace of rate hikes weighed on the dollar against most other currencies, and on Thursday it hit its lowest level against the yen since July 6.

There was a warning that the positive mood likely will not last, however.

“This market move is the victory of hope over experience,” Jeffrey Rosenberg, at BlackRock Inc, told Bloomberg Television. “I’d be a little bit cautious here.”

And Citigroup’s Andrew Hollenhorst and Veronica Clark added that traders appeared to be misjudging Powell’s remarks.

“We read Chair Powell’s press conference as more hawkish than the market’s interpretation,” they said, adding that inflation readings excluding food and energy will “push the Fed to hike more aggressively than they or markets anticipate”.

All eyes are now on the release of second-quarter growth data later Thursday. After a 1.6 percent contraction in the previous three months, another negative reading would put the economy into a technical recession.

An expected phone call between US President Joe Biden and his Chinese counterpart Xi Jinping will also be high on the agenda for investors as the world’s superpowers try to navigate a period of rising tensions. Updates on US tariffs and Taiwan will be among the main areas of focus.

Oil prices rose after data showed a big drop in US stockpiles, while Powell’s comments on the economy eased recession concerns and the weaker dollar made the commodity cheaper for buyers with other currencies.

– Key figures at around 0810 GMT –

Tokyo – Nikkei 225: UP 0.4 percent at 27,815.48 (close)

Hong Kong – Hang Seng Index: DOWN 0.2 percent at 20,622.68 (close)

Shanghai – Composite: UP 0.2 percent at 3,282.58 (close)

London – FTSE 100: UP 0.1 percent at 7,353.01

Euro/dollar: DOWN at $1.0200 from $1.0201 late Wednesday

Pound/dollar: UP at $1.2185 from $1.2151 

Euro/pound: DOWN at 83.71 pence from 83.85 pence

Dollar/yen: DOWN at 135.60 yen from 136.51 yen

West Texas Intermediate: UP 1.3 percent at $98.48 per barrel

Brent North Sea crude: UP 0.9 percent at $107.57 per barrel

New York – Dow: UP 1.4 percent at 32,197.59 (close)

The United States is set to release key data on economic growth Thursday and global investors are watching closely as the world’s largest economy flirts with recession — while President Joe Biden walks a political tightrope.

Though Biden says he is confident the US economy is not suffering a downturn, a report showing a second consecutive quarter of negative growth — meeting one of the common definitions of a recession — would increase fears of a wider downturn.

Biden’s critics would seize on such a report as proof of the veteran Democrat’s mismanagement of the economy.

With crucial midterm elections just over three months away, the stakes could not be higher, and the Biden administration has spent the past week talking up the positive signs in the US economy, including job growth and solid consumer spending.

It would be highly unusual for an economy still adding jobs at a rapid pace, and with near record-low unemployment, to fall into recession.

The consensus forecast among analysts is for an annualized 0.5 percent increase in the gross domestic product in the second quarter, after a 1.6 percent decline in the first three months of the year.

But many economists say recent figures suggest GDP may have contracted in the April-June period.

With the labor market showing some signs of cooling and supersized interest rate hikes by the Federal Reserve slowing the economy — the latest coming on Wednesday — many economists say the recession discussion is more a matter of when, not if.

And that poses a major political headache for the president, who has seen his approval ratings plummet in recent months as American families struggle to make ends meet due to surging inflation.

– Way out? –

In recent days, Biden has led his administration in a chorus of denial.

“We’re not going to be in a recession, in my view,” he insisted Monday.

Treasury Secretary Janet Yellen argued that while growth is slowing, the data does not necessarily point to an extended downturn.

“I’m not saying that we will definitely avoid a recession, but I think there is a path that keeps the labor market strong and brings inflation down,” she said.

Fed Chair Jerome Powell agreed, saying even with ongoing interest rate hikes to slow the economy, it is possible to cool price price pressures without causing a downturn or a big jump in joblessness.

The central bank announced another big interest rate hike of 75 basis points on Wednesday, the fourth increase this year, and stressed it would not hesitate to go for “another unusually large increase” if needed — or an even bigger one.

Powell said the overriding aim was to get sky-high inflation moving back down toward two percent, but the Fed wants to strike a balance.

“We’re trying to do just the right amount. We’re not trying to have a recession and we don’t think we have to,” he told reporters.

Nevertheless, the International Monetary Fund downgraded its growth forecast for the United States earlier this week — and said a recession may already have begun.

IMF chief economist Pierre-Olivier Gourinchas said the path to avoiding a downturn was “very narrow” and warned that even a “small shock” could tip the economy into the abyss.