China Socks gain as Fed stays pat on monetary policy

The Mainland China share market finished session higher on Thursday, 18 March 2021, as investors welcomed the US Federal Reserve's pledge to continue its easy-money policies. However, the market gains were capped ahead of a looming meeting between senior officials from Beijing and Washington.

At closing bell, the benchmark Shanghai Composite Index added 0.51%, or 17.52 points, to 3,463.07. The Shenzhen Composite Index, which tracks stocks on China's second exchange, added 0.87%, or 19.24 points, to 2,237.50. The blue-chip CSI300 index grew 0.8%, or 40.91 points, to 5,141.77.

The US central bank showed an optimistic view about the outlook for the American economy, but Federal Reserve Chair Jerome Powell cautioned a full recovery remains far off. The US Federal Reserve continues to provide dovish guidance and is keeping its policy Fed fund rate close to 0% through 2023. It will maintain the pace of its pace of quantitative easing programme via its US$120bn monthly purchase of bonds, despite an economic growth outlook upgrade on its latest dot plot that projected US 2021 GDP growth to be at 6.5% (the strongest since 1983) from a prior projection of 4.2% in the December 2020 FOMC meeting. In addition, the US labour market is expected to improve, with the median estimate for unemployment to decline to 4.5% towards the end of 2021, dipping further to 3.5% in 2023. The Fed downplayed the risk of inflationary pressures, and only expect a bump in inflation to 2.4% in 2021 before slowing to 2% in 2022, excluding food and energy.

Chinese diplomats will meet U.S. officials in Alaska on March 18 and 19, marking the first high-level in-person contact since U.S. President Joe Biden took office, and the tone of any comments from the meeting could help market participants judge the likely path that Sino-U.S. relations could take under the new U.S. administration.

CURRENCY NEWS: China's yuan inched up against the dollar on Thursday after firmer mid-point fixing by the central bank and after the Federal Reserve signalled it was in no hurry to raise interest rates. Prior to the market's open, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at a near one-week high of 6.4859 per dollar, 119 pips or 0.18% firmer than the previous fix of 6.4978. In the spot market, the onshore yuan was changing hands at 6.4952, 100 pips firmer than the previous late session close.

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