China Market rises on Powell's comments, COVID policy pivots

Mainland China share market finished session with modest gains on Thursday, 01 December 2022, as investors cheered Federal Reserve Chair Jerome Powell statement that the central bank will likely slow its pace of future interest rate hikes, while the easing of COVID-19 curbs in two major Chinese cities further spurred risk appetite.

However, market gains capped as weak domestic economic data prints tempered optimism over the Chinese economy. A private survey showed China's manufacturing sector- a bellwether for the economy- shrank for a third consecutive month in November, amid increasing pressure from anti-COVID measures.

At close of trade, the benchmark Shanghai Composite Index was up 0.45%, or 14.14 points, to 3,165.47. The Shenzhen Composite Index, which tracks stocks on China's second exchange, was up 1.26%, or 25.41 points, to 2,044.10. The blue-chip CSI300 index added 1.08%, or 41.73 points, to 3,894.77.

Investors cheered as the US Federal Reserve Chair Jerome Powell indicated a slowdown in interest rate increases as soon as December. Powell suggested that the US central bank is preparing to raise its benchmark rate by 0.5 percentage points when its monetary policy committee gathers in December, after a string of 0.75-point increases. Powell's remarks followed government data released earlier on Wednesday that showed a decline in job openings in October, indicating that this year's monetary tightening has slowed down the labour market.

Adding to the upbeat sentiment were the easing of restrictions in the Chinese cities of Guangzhou and Chongqing following a string of protests. Chongwing will now allow close contacts of people with COVID-19 to quarantine at home, while Guangzhou lifted lockdowns in some parts of the city. The policy path for now is towards looser Covid-19 restriction and a shift from the dynamic zero strategy that the government had held onto in the past.

ECONOMIC NEWS: Caixin China Purchasing Managers' Index (PMI) - a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy - rose from 49.2 in October to 49.4 in November, to signal a deterioration in the health of the manufacturing sector for the fourth month in a row. The rate of decline, however, was the slowest seen since August and only slight. Ongoing COVID -19 containment measures continued to weigh on the performance of China's manufacturing sector during November. Firms registered a further fall in output, with the rate of contraction picking up slightly from October, amid a sustained reduction in sales. That said, the latest drop in new work was the weakest recorded in four months.

Commenting on the China General Manufacturing PMI data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said: The Caixin China General Manufacturing PMI in November rose 0.2 points from the previous month to 49.4, remaining in contractionary territory for the fourth consecutive month, as Covid-19 outbreaks curtailed manufacturing activity in many parts of China. "Overall, the pandemic continued to take a toll on the economy. Output contracted, total demand was under pressure, overseas demand remained weak, employment deteriorated, logistics was sluggish, and manufacturers faced growing operating pressure.

CURRENCY NEWS: China's yuan rose against the dollar on Thursday, inine with stronger mid-point fixing and hopes of a broader lifting of COVID-19 restrictions in the country. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 7.1225 per U.S. dollar prior to market open, firmer than the previous fix of 7.1769. The spot yuan CNY=CFXS was changing hands at 7.0730 at midday, 199 pips stronger than the previous late session close and -0.69% away from the midpoint.

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