Friday, 20 November 2015

Markets mixed, China lowers rates as debt rises

Markets were mixed on Thursday.

After jumping 1.6 percent on Wednesday for its biggest gain in four weeks, the S&P 500 slipped 0.1 percent on Thursday, weighed down by a 1.5 percent fall in the health-care sector.

Elsewhere, though, stocks rose. The STOXX Europe 600 rose 0.4 percent and the Shanghai Composite Index jumped 1.4 percent.

Chinese stocks could see further gains going forward after the People's Bank of China announced on Thursday that it would lower short-term borrowing costs for smaller banks.

However, Chinese borrowers may already be addicted to cheap loans. The amount of loans, bonds and shadow finance arranged to cover interest payments will probably rise 5 percent this year to a record 7.6 trillion yuan, according to Beijing-based Hua Chuang Securities.

“We will see more defaults and rising bad loans in the financial system,” said Zhou Hao, a senior economist at Commerzbank AG in Singapore.

That could spell trouble for the Chinese economy and, in turn, the world eonomy. According to Oxford Economics, world growth would "slow sharply" if China's economy experiences a hard landing.

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