After the Fed’s aggressive shift, Chinese equities finish down; the Shanghai Composite ends flat

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July 5th 2021

By: Norvisi Mawunyegah

After the US Federal Reserve’s surprising hawkish move last week led investors to hesitate from putting large bets, China equities finished down on Monday, with losses in financials and consumer shares offsetting gains in new energy businesses. The CSI300 index fell 0.2% to 5,090.39, while the Shanghai Composite Index remained unchanged at 3,529.18. The CSI300 financials index fell 0.9 percent and the CSI300 consumer discretionary index fell 1.5 percent, respectively, while the CSI new energy index rose 1.7 percent.

The session’s uneven result followed a three-week losing skid for both indices following the US Fed’s unexpected reversal. President James Bullard of the Federal Reserve Bank of St. Louis said on Friday that the US central bank’s decision to a faster tightening of monetary policy was a “logical” response to faster-than-expected economic growth and inflation as the country recovers from the Covid-19 epidemic.

A hawkish Fed, according to analysts, may lead to a higher dollar and a lower yuan, putting pressure on the Australian stock market by encouraging foreign outflows. According to Yan Kaiwen, an analyst at China Fortune Securities, the A-share market will be under significant pressure due to the high dollar.

In the meantime, the dollar’s value versus other major currencies remained at multi-month highs on Monday. At its June fixing, China held its benchmark lending rate for business and family loans constant for the 14th month in a row, confirming market forecasts.

The Financial News, which is sponsored by the People’s Bank of China (PBOC), warned against speculating on liquidity tightening and policy direction on Sunday, claiming that doing so might mislead and roil markets. As swine futures fell to new lows, shares of China’s hog producers extended their losses. Around the region, the MSCI Asia ex-Japan stock index down 1.29 percent, while the Nikkei index in Japan fell 3.29 percent.