Oil prices have slipped 0.2% this morning but are on track for a near-4% gain this week.
The Paris-based think tank, the International Energy Agency, yesterday raised its forecasts for global oil demand higher and predicted a small oil deficit this year, as the Opec cartel and allies are expected to extend their output cuts. US stockpiles of crude fell unexpectedly.
Brent crude is trading 16 cents lower at $85.26 a barrel while US crude is at $81.1 a barrel.
House prices in China’s major cities continued to fall in February, as the country’s property slump deepened.
Average prices for new homes in the most affluent cities fell 1% from a year earlier, while those for second-hand homes dropped 6.5%, according to the National Bureau of Statistics.
The NBS published its 70-city housing prices data, which showed primary and secondary market prices declining for the 9th and 10th consecutive months respectively.
New home prices have dropped 4.9% and secondary market values are down 10.1% since their respective peaks in 2021.
In the southern cities of Guangzhou and Shenzhen, new home prices fell by 4.6%and 4.8%, respectively. This week, the credit rating agency Moody’s downgraded the debt of Vanke, a large state-backed developer based in Shenzhen.
Analysts at ING said in a note:
Within the NBS’s 70-city sample, the secondary market prices of 46 cities have now seen double-digit declines from their peak, with three of those 46 cities seeing declines of over 20%. The primary market has fared relatively better, with two cities still at all-time highs, and only 11 of 70 cities seeing a double-digit decline from their peaks.
They said that stabilising the property market remains key to the Chinese economy.
Given the heavy weighting of property in household portfolios, it is of the utmost importance for China to stabilise the property market if it is to restore confidence. Declining property prices will create a negative wealth effect, acting as a headwind to consumption. Measures including scrapping purchase restrictions, property project whitelists, and the February cut to the five-year loan prime rate to help lower mortgage rates are steps in the right direction, but further supportive policies may still be needed. Establishing a trough for house prices would go a long way towards stabilising sentiment.
We anticipate that real estate will remain the main drag on growth in 2024, and this drag is likely to persist over the medium term, as it will take time to work through excess housing inventories. Real estate investment is likely to remain in negative growth for the year, and the property sector and connected industries will likely continue to see pressure for consolidation.
The CMA’s probe of the Barratt-Redrow deal comes as the watchdog is investigating eight big housebuilders – including Barratt and Redrow – after it found evidence they may be sharing commercially sensitive information that could affect the price of homes.
It launched the investigation in late February into some of the sector’s biggest operators after it found evidence that suggested some were sharing non-public information, including sales prices and details of incentives for buyers.
It said this behaviour “prevented and distorted” competition, and could influence decisions around pricing levels, as well as the rates at which the companies built new homes.
It released a report after a year-long investigation into the housebuilding sector, in which it expressed “fundamental concerns” over the housebuilding market, pointing to the complex planning system and the limitations of speculative private development as the key reasons for the too few homes being built.
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The UK’s competition watchdog has said it will investigate the country’s biggest housebuilder Barratt’s proposed acquisition of its rival Redrow for £2.5bn. It said:
The Competition and Markets Authority (CMA) is considering whether it may be the case that this transaction, if carried into effect, will result in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
The two companies last month reached an agreement over an all-share offer from Barratt, which will cement its position as the country’s largest housebuilder.
The merged group, to be called Barratt Redrow, is expected to build about 23,000 homes a year and have a turnover of more than £7bn. The combined market value is around £7.2bn.
Berkeley Group, an upmarket house builder, said today that sales between November and February were a third lower than a year earlier but added:
Enquiry levels are good, with customers looking for the prevailing political and economic uncertainty to recede and interest rates to begin to fall.
Pricing has been stable across our sites during the period and above business plan levels, while build cost inflation is negligible across most trades.
Berkeley reaffirmed that it aims to deliver at least £1.5bn of pre-tax profits in the three years to 30 April 2026, including a £550m profit this year – down from £604m last year and returning to 2022 levels.
Anthony Codling, housing analyst at RBC Capital Markets, said:
A short and snappy trading update from Berkeley Group this morning saying that everything is on track despite those pesky market headwinds and uncertainties. Berkeley seems to be able to deliver whatever the weather.
In other corporate news, Vodafone has sold its Italian business to Swisscom for €8bn, which will merge it with its Italian subsidiary Fastweb. The deal will create Italy’s second-biggest fixed-line broadband operator behind TIM.
Yesterday’s mixed bag of US economic data, which pointed at higher-than-expected inflation and lower-than-expected spending in the US, forced the market to reconsider the Federal Reserve expectations.
The probably of a June interest rate cut fell to 60%, bond yields jumped, the dollar index rose sharply and stocks declined.
The Agenda
2pm GMT: US Michigan consumer sentiment for March (forecast: 76.9)