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October 21: Five Things You Need to Know to Start Your Day

By Bloomberg 21 October 2019
A container ship approaches the Haicang Bridge in Xiamen, China, on Monday, Aug. 26, 2019. Photographer: Qilai Shen/Bloomberg

China’s lending practices come under fire, fiscal stimulus becomes a major topic of discussion for the IMF and World Bank, and the pound plummets — again. Here are some of the things people in markets are talking about today.

China Curb

China should put the brakes on its lending in the South Pacific to avoid lumping economically vulnerable nations with unsustainable debt, according to a report released by an Australian think tank. “China cannot remain a major lender in the Pacific at the same scale as in the past without fueling significant” dangers, the Lowy Institute said in the report. According to the institute, six South Pacific governments are debtors to China: Cook Islands, Fiji, Papua New Guinea, Samoa, Tonga, and Vanuatu, and between 2011 and 2018, China made official loan commitments to the region totalling about $6 billion, or about 21% of regional GDP.  As China spreads its influence beyond the South China Sea to the South Pacific — a region comprised of island nations traditionally under U.S. hegemony and on Australia’s doorstep — officials in Washington and Canberra are increasingly concerned Beijing may use debt through infrastructure loans as leverage to establish military bases in the region.

Fiscal Prospects

The words “fiscal stimulus” were floating around the corridors of the International Monetary Foundation and World Bank headquarters over the past week, as finance ministers and central bankers from around the globe met at annual meetings in Washington. They discussed the synchronized slowdown across almost 90% of the world economy, but with little agreement on how best to approach it. Among the speakers, Tharman Shanmugaratnam, senior minister in Singapore’s government, warned of “profound uncertainty” and of denial over the scale of problems facing policy makers, while billionaire hedge-fund founder Ray Dalio said the economy is in a “great sag.” With central bankers low on ammunition, the IMF said there is little room for policy error. Here’s a rundown of what was discussed.

Markets Hesitant

Stocks headed for a cautious start to the week ahead of a slew of earnings reports, with U.S. equities continuing to flirt with all-time highs as earnings season heads into full swing. Elsewhere, the pound dropped after Boris Johnson failed to win parliamentary support for his Brexit deal. Equity futures were little changed in Japan and Hong Kong, while contracts edged lower in Australia. The S&P 500 Index ended Friday down 0.4% despite a batch of mainly positive earnings results. The dollar ended last week near the lowest level since July. Meanwhile, crude dipped 0.3% to $53.78 on Friday, and gold was at $1,490.05 an ounce.

Pound Plummets

Those who thought the weekend would finally bring closure to the Brexit palaver were sorely disappointed. The pound fell after Prime Minister Boris Johnson failed to win parliamentary backing for his divorce deal, ending a four-day winning streak. But strategists say the drop may prove short-lived. Analysts remain bullish even as a verdict on Johnson’s new divorce deal was deferred. Instead, lawmakers supported an amendment put forward by former Conservative minister Oliver Letwin which requires the House of Commons to pass all necessary Brexit legislation before holding a formal vote on the Withdrawal Agreement. That meant the prime minister was legally bound to ask the EU for another extension to negotiations. Here are the latest developments.

Pension Play

The Netherlands and Denmark have the best pensions systems in the world, according to a global study that shines a light on how nations are preparing ageing populations for retirement. The countries took the top two slots in the Melbourne Mercer Global Pensions Index published Monday, both earning an A grade for the level of financial security provided in retirement. Australia came in third, with a B+ grade, while the top 10 was rounded out with Finland, Sweden, Norway, Singapore, New Zealand, Canada and Chile all on B. The survey of 37 nations, which covers almost two-thirds of the world’s population, uses 40 metrics to assess whether a system leads to improved financial outcomes for retirees, whether it is sustainable and whether it has the trust and confidence of the community.

What We’ve Been Reading

This is what’s caught our eye over the past 24 hours.


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