Good morning from the Financial Times, today is Tuesday, June 3rd, and this is your FT News briefing.
Elon Musk is trying to build up his artificial intelligence business, and China's property market continues to struggle.
Plus, the US government took over two giant mortgage lenders after the 2008 financial crisis.
Now they might go private again.
I'm Mark Filippino, and here's the news you need to start your day.
Elon Musk's AI company XAI is launching a $300 million dollar share sale that's according to people close to the situation.
The goal is to affirm the company's current valuation of $113 billion.
XAI got that price tag, in part, because it acquired the social media company X in March. users can access XAI's product grok through x.
Sources tell the FT that XAI is also trying to borrow $5 billion through a package of loans and high yield bonds.
That deal is being led by Morgan Stanley.
This is all happening as Musk is stepping back from his role in the US government.
He said he's going to focus more on his businesses.
issues. China's property market continues to hurt.
The country showed weak sales data in April, and that highlights just how fragile the country's economic recovery is as it confronts the U .S. over trade.
The FT's Thomas Hale covers the Chinese property market.
He joins me now. Hey, Tom.
Hi there. Thank you for having me.
Now, what does the latest property data from China tell us?
Well, I think the data that we have seen for April is quite a lot more pessimistic.
On a kind of weighted average basis, new home prices fell 4 % year on year in April.
So that's quite a significant fall that compares with a 4 .5 % drop a month earlier in March. In terms of the broader macro data, property investment is down around 10 % over the course of the so far.
So based on that data, there's quite a substantial decline in investment in property in China.
Of course, previously such a huge growth driver for the economy.
And what's been holding back the economy?
Yes. Well, the big issue with property has been confidence, confidence that the developers, many of whom were very, very aggressively expanding and then defaulted on their debts in 2021, 2022, would deliver the houses that they were building.
Those confidence issues began to feed through into home prices in 2023, 2024.
And this year, there has of course been the deeper issue of how home buyers feel about the value of their investment in future.
We've also lastly seen signs that this lack of confidence in the housing market has been feeding over quite significantly into broader confidence in consumption in China in general.
And this contrasts with a huge degree of optimism over house prices in the build -up to the pandemic.
So really a very significant change in the kind of landscape here over recent years.
What have authorities done to try and stabilize the market?
Yes. So following a wave of defaults in 2021 and 2022, the government, contrary to what a lot of people had expected did not carry out any over bailouts of developers, but they did provide a series of support mechanisms in the biggest state banks in China outlined credit facilities for Chinese developers to support the market.
They've repeatedly cut mortgage rates.
A year ago, authorities, because of concerns over oversupply and excessive inventory of housing, unveiled a policy that said it would convert excess housing into social housing and perhaps most importantly of all, the government has run a long -standing campaign to encourage the completion of unfinished housing from Beijing to local governments.
Tom, what does all this tell us about the hopes for an economic revival in China?
Firstly, it tells us that insofar as property is still a very important part of the Chinese economy there is a real lack of competence there.
I think for the economy more broadly the Beijing really has tried to shift the focus towards other areas of the economy particularly developing its industrial sector to be as internationally competitive as possible.
In recent years when property has really struggled exports have emerged as a very important growth driver for China.
So this trade war really stands to hit China where it hurts and it's obviously added a lot of new and recent issues in terms of confidence.
In terms of uncertainty, it's likely to have all kinds of potential impacts on this industrial shift in China, but it might also, you know, encourage Beijing to double down on developing its own independent industrial sector, given its fears that it will be increasingly cut off from the international the global economy.
Thank you so much. Thomas Hale covers the Chinese property market for the FT. Thanks, Tom.
Thank you so much. The Polish election results from over the weekend are throwing a wrench in Prime Minister Donald Tusk's agenda.
The country's newly elected president, Karol Noworowski, will have veto power over Tusk's pro -EU reform agenda, so it will be tough to pass any substantial legislation.
Nowaritsky is a historian with zero political experience, and he represents the nationalist Law and Justice Party.
Meanwhile, Tusk, who once served as European Council president, aligns starkly with the European Union.
Poland is the EU's sixth -largest economy, and Tusk was supposed to turn it back towards the bloc.
Now, with Nowaritsky's win, his government is severely weakened.
Tsutskon -Munday said that he would need to call for a vote of confidence in Parliament.
We're tracking a trend on the briefing this week.
Both the U .K. and the U .S. governments are looking to reprivatize companies that they took ownership of during the 2008 financial crisis.
In the UK, the government has sold the last of its shares in NatWest. It used to be the world's biggest bank when it was called Royal Bank of Scotland or RBS.
We'll look at that one tomorrow.
But today, we're in the United States where President Donald Trump has said he is working on plans to privatize the home mortgage lenders Fannie Mae and Freddie Mac.
My colleague Amelia Pollard is here to explain why.
Hi Amelia. Hey Marc.
All right. So just do me a favor and give me a bit of history here.
What exactly do Fannie Mae and Freddie Mac do, and how has the U .S. government been involved?
Sure, so Fannie Mae and Freddie Mac are key cogs of the housing market in the U .S. And they essentially buy and repackage home loans or mortgages.
They were both created by the U .S. government, and then they were privatized and were owned by shareholders like any private company.
But just as the financial crisis kicked off in 2008, they both basically failed.
And so they were taken into government conservatorship, and since then they've been totally controlled by the US government.
And why did they fail?
So in the years leading up to 2008, they bought more and more riskier loans and mortgages, and it was really wrapped up with the broader housing market crisis, you know, subprime mortgages that led to the 2008 financial crisis.
And as private companies, they were motivated by profits and so were incentivized to take out riskier loans that yielded higher returns, but that ended up being a disaster in the end.
And this is why the government took them over.
What's Trump's plan to make them private again?
So the question of how and when to take Fannie Mae and Freddie Mac private has really plagued former US presidents.
like they were never intended to remain under government control forever.
But the problem is that there was this implicit guarantee before 2008 where investors and really everyone in the US assumed the government would step in if they failed or ran into trouble.
And that's exactly what happened in 2008.
But now Trump is determined to take them private.
Basically, the way that he has framed it in posts on True Social is that they would look like IPO -like structures, and he's insisted that they would still have the quote unquote implicit guarantees that the government would backstop them.
But exactly the way that this is structured, we're not yet sure.
Okay, so his plans aren't exactly all that clear, but what are the risks to even these broad strokes?
So, as it stands, the housing market is very stable, and there's not just an implicit guarantee from the government for Fannie Mae and Freddie Mac but there's an explicit one because they're in conservatorship.
And so the real fear that housing experts I spoke to raised is that if this is not done really cautiously, it runs the risk of creating a situation where Fannie Mae and Freddie Mac do not have a government guarantee or not, you know, backstalked by the government, which allows them to be treated as like the highest credit rating possible.
If it's done just by executive order or without those considerations, some people warned that mortgage rates could spike as a result.
Emilia, tomorrow we're talking with our retail banking and fintech reporter in London.
She's gonna tell us about how the UK government gave up control of NatWest. Are these stories connected at all?
I mean, do governments feel like the Great Recession is fully in the rearview mirror now?
So, I think that we've been on a crazy bull market run for the last several years.
The stock market and the economy has been really chugging along in a very healthy way, although you know there have been some blips.
And I think there's a real recalibration here happening of this is one of the last vestiges of the financial crisis in a way.
The fact that Fannie Mae and Freddie Mac are in government control, and I think there is mounting pressure, especially as we head into the two decade mark, to finally move on and moving into a new post -08 era.
Amelia Pollard is the FT's US Deals & Activism correspondent.
Thanks, Amelia. Thanks for having me.
You can read more on all these stories for free when you click the links in our show notes.
This has been your daily FT News Briefing.
Check back tomorrow for the latest business news.
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