• Chinese media assured investors that the stock correction witnessed over the week resulted from investor sentiment and not a weakness in the market. 
  • The CSI 300 Index was up 1.89% at 4,850.27 yuan, while the Shanghai Composite Index (SSE) jumped 1.49% to trade at 3,411.72 yuan. 
  • The US Senate resolved the deadlock on the $1.2 trillion infrastructure bill with a further $3.5 trillion spending package in the offing. 

The USDCNY pair inched 0.49% lower as of 6:09 am GMT on July 29, 2021, from the previous day’s close. It opened at 6.4905 and traded to a low of 6.4580 from a daily high of 6.4908. 

The yuan rose against the dollar after Chinese state media shored up investor confidence by asserting the allure of yuan-denominated assets. 

Government regulations

Investors had raised concerns over the government’s tightening of online education that discouraged foreign control over the school curriculum. 

According to the China Securities Journal, the sell-off witnessed in the week ending July 30, 2021, was a “structural adjustment.” This adjustment is considered temporal, with the market safe from systemic risks. 

Listed companies in China were on a positive trajectory as the economy maintained a positive trend. Markets had faced heavy selling in the property, education as well as technology sectors. The CSI 300 Index was up 1.89% at 4,850.27 yuan, while the Shanghai Composite Index (SSE) jumped 1.49% to trade at 3,411.72 yuan. 

Shanghai Composite Index

Shanghai Composite Index

According to the Chinese media, the stock correction was witnessed over the week due to investors’ sentiment. The capital market was cited as able to maintain a steady environment. Foreign investors were also assured that the capital would be open to them with the support of domestic entities. 

Small business support

Liu He, the Vice-Premier of China on July 27, 2021, assured SMEs in the country of government support, terming them as “the main source of jobs.” Despite concerns over the technological crackdown, the Vice Premier urged entrepreneurs to focus their businesses towards technological advancements.   

In the real estate sector, China raised regulations meant to strengthen property acquisition and cool down prices. The government made various announcements from July 22-24, 2021 that are summarized below. 

Property Regulations to curb China’s real estate sector

Property Regulations to curb China’s real estate sector

The government asked the state-owned lender to lower loan exposure to 40% at the beginning of 2021 to curb debt ratios. Home-buyers in Shenzhen also had their mortgages raised with caps to outstanding credit at 32.5%. 

China’s supposed over-investment in infrastructural development and the capital stock has attracted investors over the years. In contrast, the US is seen to underinvest (comparatively) due to political gridlock.  

Infrastructure bill

However, this gridlock situation could change after the US Senate, on July 28, 2021, agreed on outstanding issues that had caused a stalemate in Biden’s “$1.2 trillion infrastructure bill”. This investment is considered the most important public transit deal, focusing on the US rail network. 

According to the bill, $550 billion will be spent on highway improvements, bridges, water systems, and broadband. It set aside $110 billion for roadworks and $47 billion to upgrade environmental controls. The major hurdle facing the bill’s enacting is the mode of financing. 

Democrats are against raising petrol tax, while Republicans rejected the IRS’ push to seek funds from tax scofflaws. Further, the Senate Democrats are also preparing a $3.5 trillion spending package to be financed by corporate tax. 

Technical analysis

The USDCNY pair began forming a bearish reversal after the uptrend reached the second resistance at 6.5113. 

Before, the pair hit support at 6.3574 on June 2, 2021. We see that the price had declined from resistance one at 6.5799 and stayed in the downtrend until it reached the support zone. 

USDCNY chart

The decline may pull the price towards 6.4590, further triggering a price move to 6.4091. The 14-day RSI lowered to 52.36, showing a decrease in buying action. Positive US jobs data may push prices up again past the second resistance point.