China new home prices fall at fastest rate in nearly 10 years; French political uncertainty weighs on markets – business live | Business

Last week’s turmoil in the French stock market has resulted in Paris losing its crown as Europe’s biggest equity market to the UK (who it snatched it from two years ago).

Bloomberg reports that stocks in France are now collectively worth about $3.13trn, narrowly losing out to the UK at $3.18trn.

This reversal came after around $258bn was wiped off the French market last week, when shares in French banks fell sharply.

Britain’s stock market lost its position as Europe’s most-valued to France in late 2022, a decline that was blamed on the weak pound, UK recession fears, and a surge in the value of French luxury goods maker LVMH.

Bloomberg’s data, though, only covers actively traded, primary securities on the two country’s exchanges.

If you include other securities, such as ETFs and ADRs, London was already bigger….

The UK housing market remained flat this month, new data from Rightmove shows.

Average asking prices were unchanged month-on-month in June, with prices strengthening in less expensive regions while lagging behind in the pricier East of England and in London.

Rightmove reports a “slight drop” in new sellers, particularly at the high-end of the market, which may be a sign of caution ahead of the UK general election next month.

Over the last four weeks, the number of sales being agreed has stayed steady at 6% higher than a year ago.

Ian Preston, group CEO at estate agent Preston Baker in Leeds, reports that the general election hasn’t made an appreciable difference to market conditions, adding:

Whichever government is chosen, the priority must be increasing the supply of new homes. Investment in the local authority planning system, to speed up applications, is the priority.

The last two or three weeks have been seismic in terms of election results, points out Jim Reid of Deutsche Bank, telling clients:

South Africa, Mexico, India and Europe have seen varying degrees of fallout as a result. However, as we know by now it’s the French market currently in the eye of the storm with the rest of Europe being sucked into the vortex.

Reid warns that the uncertainty in France will be with us until at least the second round of the election on July 7th and likely beyond.

The polls haven’t narrowed in Macron’s favour in the first week of the campaign with the far right and left outpacing the President’s centrist party.

He warns that the spread between German and French borrowing costs (measured by the interest rates on their respective 10-year bonds) could widen further:

The reason this is important is that last week the Franco-German 10yr spread rose +28.6bps over the week (and +6.9bps on Friday). This brings it to its highest level since November 2012, and its largest weekly increase since late 2011 during the Euro crisis, and during German reunification in August 1990. The spread is now +76.7bps with our rates strategists targeting +90bps. They think +90-100bps would be the equivalent to the 2017 Presidential election peak of +80bps when adjusting for today’s French fundamentals.

In equity risk, the CAC 40 fell -6.23% last week (-2.66% on Friday), its largest weekly move down since March 2022 and apart from another big differential in the early Covid period you’d have to go back to the aftermath of 9/11 in 2001 to see such extremes.

Last week was a tough one for French financial assets, with stocks sliding and the spread between French and German 10-year government bonds widening.

Political uncertainty abounds again today, following President Emmanuel Macron’s surprise decision to call a snap vote. Marine Le Pen’s far-right National Rally is leading in opinion polls, while France’s left-wing parties have formed a new alliance to fight the election.

The euro is slightly weaker this morning, dipping below $1.07 in early trading, towards the six-week low hit on Friday.

Chris Weston, analyst at Pepperstone, says there is a real prospect of further downside in French and EU markets before the elections to the national assembly are completed early next month.

The worry, Weston explains, is that France could move away from its planned €20bn of spending cuts, which would push up its budget deficit, adding:

The evolving theme in French politics continues to see market players attempting to price risk and uncertainty around the future French fiscal position and what this could mean for France’s credit rating, and the cost to fund a wider deficit.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Lukewarm Chinese economic data, and political instability in France, has dampened market sentiment at the start of the new week.

In China, new home prices fell at the fastest pace in almost 10 years in May, new data shows, despite Beijing’s efforts to prop up its property sector.

In annual terms, new home prices were down 3.9% from a year earlier, worse than the 3.1% slide in April.

During May alone, prices dipped by 0.7%.

National Bureau of Statistics (NBS) spokesperson Liu Aihua told a media briefing on Monday that the property market is undergoing adjustment and it will take some time for policy measures to kick in.

The declines were broad-based: prices fell in 68 of the 70 cities surveyed by the government, up from 64 in April.

Policymakers have been attempting to rein in the oversupply of housing, and support debt-laden developers since the market went into freefall in 2020, hit by the pandemic and a sudden regulatory crackdown on indebted lenders.

Last month, the People’s Bank of China cut mortgage rates and allowed local authorities to turn unsold homes from developers into affordable housing,

But this has not, yet, revived a sector in which a glut of unoccupied property is weighing on the market.

As my colleague Amy Hawkins reported this month:

All across China, from Beijing in the north, to Shenzhen in the south, millions of newly built homes stand empty and unwanted. There were nearly 391m sq metres of unsold residential property in China as of April, according to the National Bureau of Statistics. That is the equivalent of Manchester and Birmingham combined – and then some – sitting as vacant, unwanted property.

The crux of the problem is that, with shaky faith in the economy and big property developers failing to deliver on paid-for apartments, potential homebuyers are keeping their money out of the market.

However, China’s property sector isn’t the only area struggling; factories grew slower than expected last month.

Industrial output grew 5.6% in May, year-on-year, from a year earlier, NBS data showed, compared with 6.7% in April. Economists had expected growth of around 6%.

China’s retail sales were more positive: they beat expectations in May by climbing 3.7% year-on-year, ahead of forecasts of a 3% rise.

Overall, investors seem unimpressed, wth China’s SSE Composite index dipping by 0.6% today.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, reports that sentiment is gloomy:

The latest data showed that home prices there slid at a faster pace in May despite all the efforts that the Chinese government puts in to stop the bleeding and industrial production slowed significantly more than expected, as well, during the same month.

The People’s Bank of China (PBoC) is expected to maintain its rates unchanged this week, but some economists at Bloomberg believe that the week could bring a 10bp cut in China to prop things up.

The agenda

• 9am BST: European Central Bank chief economist Philip Lane speaks at Reuters Newsmakers event in London

• 1.30pm BST: New York Empire State Manufacturing Index for June