Signs of U.S. disinflation resuming and the wider economy cooling all stoked hopes that Federal Reserve interest rate cuts are indeed coming – with annual corporate profit growth and year-to-date stock index gains revving up into double digits.
As both a reflection of and spur to the new bullishness, the VIX ‘fear index’ of equity volatility subsided to its lowest level of the year on Friday. And futures held steady overnight after a modest tick back in the cash market on Thursday.
But as the Sino-U.S. geopolitical rivalry intensified this week with new trade tariffs from Washington and the Russia-China summit in Beijing, market attention switched to the health of the world’s second biggest economy and data showing accelerating home price deflation there.
Chinese stocks jumped on Friday as the government announced a series of measures to cut across a housing slump that’s seen new home prices fall in April for tenth consecutive month and at the fastest pace in almost 10 years – with property investment so far in 2024 falling almost 10% from last year.
The latest rescue plans allows local governments to buy “some” unsold apartments, relaxes mortgage rules and pledges to deliver unfinished homes.
With 4.25 billion square feet of new housing for sale in January-March, up 24% year-on-year, analysts at Tianfeng Securities estimate it will cost around $1 trillion to buy the entire stock.
Separately, the People’s Bank of China said it would set up a $41.53 billion relending facility for affordable housing and lower mortgage rates and downpayment requirements further.
China’s CSI 300 Real Estate index jumped nearly 9% on the announcements, with broader CSI300 and Hong Kong’s Hang Seng both up about 1%. The offshore yuan weakened slightly.
The extent to which the property sector problems are sapping the economy were revealed in a further slowing of retail sales growth there last month to just 2.3%, the slowest increase since December 2022 and far short of forecasts.
The renewed Chinese export push that unnerves western governments and is prompting renewed trade tensions saw industrial production growth beat expectations, however, and accelerate to an annual 6.7% last month.
