China-Canada Weekly Report | Federal Reserve holds steady in March, market stagflation trading heats up

Key Information Commentary

1、According to data released by the National Bureau of Statistics, in January and February, fixed asset investment nationwide increased by 1.8% year over year. After excluding real estate development investment, it rose by 5.2%. Real estate development investment fell by 11.1%. Value added by industrial enterprises above a designated size increased by 6.3%, and the services sector production index grew by 5.2%. Total retail sales of consumer goods grew by 2.8%.

2、The Federal Reserve kept the target range for the federal funds rate unchanged at 3.50%-3.75%, marking a second consecutive “no action,” which matched market expectations. The statement shows that the rate decision was passed by the Committee with an 11-1 vote. Fed Governor Milan dissented from the rate decision, arguing for a 25 basis point rate cut. The statement said economic activity expanded at a solid pace; inflation remains elevated to some degree; and uncertainty about the economic outlook remains high. The Middle East situation creates uncertainty regarding its impact on the U.S. economy. The dot plot shows that in 2026-2027, there will be only one rate cut each year, indicating a more conservative rate-cut path and highlighting the Fed’s cautious wait-and-see stance amid multiple risks.

3、The central bank部署今年重点工作，要求继续实施好适度宽松的货币政策，综合运用存款准备金率、买卖国债、MLF、逆回购等长中短期货币政策工具，保持流动性充裕。引导和调控好利率水平，强化利率政策执行和监督。持续推进金融支持融资平台债务风险化解工作。坚定维护股票、债券、外汇等金融市场平稳运行。

4、The risk of attacks on energy infrastructure in the Middle East has escalated sharply. Iran’s largest natural gas field—the South Pars field—and some petrochemical facilities in Asaluyeh were targeted by attacks by the United States and Israel. This is the first time Iran’s upstream oil and gas facilities have become a target of attack. Iran then announced that it will fully strike relevant U.S. oil facilities, and designated energy facilities in Saudi Arabia, the UAE, and Qatar as lawful targets for attack. The Islamic Revolutionary Guard Corps of Iran issued an emergency statement, saying it has launched large-scale missile attacks against oil and energy facilities in the region related to the United States. Iraq said that the natural gas supplied by Iran has been completely cut off. U.S. President Trump said he does not want further attacks targeting Iran’s energy facilities. However, depending on Iran’s actions in the Strait of Hormuz in the future, Trump may still consider designating more Iranian energy facilities as targets for strikes.

5、Qatar authorities said that a ballistic missile launched by Iran hit Qatar’s Ras Laffan Industrial City, which is home to an important LNG hub. The attack caused a fire and resulted in “serious damage.” Meanwhile, Iran successfully struck the U.S.-designated exclusive area of the Riyadh Oil and Gas Integrated Refining Plant located in the suburbs of Riyadh, the Saudi capital. Explosions occurred one after another inside the refinery, triggering a large-scale fire. Reports said the refinery attack destroyed fighter jet fuel reserves, which would directly cause U.S. military aircraft fuel replenishment processes to be paralyzed or severely obstructed.

Market Review

I. Futures Market

Data source: Wind, China-Canada Fund; as of March 20, 2026. Futures price gains/losses are calculated using the settlement price as the reference standard.

Futures prices

Last week, futures prices for various commodities generally declined. Oil had the largest increase, while gold had the largest drop. ICE Brent crude settled at $104.41, up 5.25%; COMEX gold settled at $4,492, down 11.26%.

The U.S. Dollar Index fell by 99.40 BP last week. As strength in oil prices boosted hype around stagflation trades, monetary policy in Europe may shift toward tightening, causing the dollar to weaken somewhat. Against this backdrop, the Chinese yuan appreciated by 15 basis points last week, while the Japanese yen appreciated by 50.35 basis points.

II. Stock Market

Data source: Wind, China-Canada Fund; as of March 20, 2026.

A-share market

Last week, major sectors declined to varying degrees. Among them, CSI 500 fell by 5.82%, the largest drop. The ChiNext index rose by 1.26%, the largest gain. The intensification of the Middle East conflict drove a pullback in global risk appetite, and A-shares declined somewhat. The stock-betting fund index fell by 3.47%.

Data source: Wind, China-Canada Fund; as of March 20, 2026.

Hong Kong stock market

The Hang Seng Index fell 0.74%, and the Hang Seng Tech Index fell 2.12%. In the context of the intensifying Middle East conflict, Hong Kong stocks pulled back.

Data source: Wind, China-Canada Fund; as of March 20, 2026.

U.S. stock market

Last week, stocks fell. Among the three major indexes, the S&P 500 fell 1.90%, performing best; the Dow Jones fell 2.11%, performing worst. The situation in Iran continued to escalate, driving a decline in risk appetite, and in this context U.S. stocks also declined. The probability that the Middle East conflict will end in the short term is relatively low. Focus on how major European and U.S. economies balance economic growth and inflation in a high interest rate environment.

II. Bond Market

Data source: Wind, China-Canada Fund; as of March 20, 2026, with percentiles based on the past 5-year percentiles

Bond market

Last week, corporate credit bonds overall declined. Among them, 1YAA fell by 5 BP, the largest decline. Interest-rate bonds saw yields fall at the short end and rise at the long end. The 10Y Treasury yield rose by 2 BP, the largest increase. On one hand, stronger inflation expectations and economic data boosted long-end yields. On the other hand, falling market risk appetite pulled down short-end yields. Looking ahead, domestic anti-“involution” policies and the heating-up of the Middle East situation have clearly boosted inflation expectations recently. Next, watch how long and how strongly inflation rebounds.

Data source: Wind, China-Canada Fund; as of March 20, 2026.

U.S. Treasuries

Last week, yields moved higher. Among them, 3Y rose by 16 BP, the largest increase. The Middle East situation continued to heat up, pushing oil prices higher further; and increased inflation expectations led yields to rise as well. Next, watch whether the U.S. economy can land smoothly amid a high interest rate environment combined with international political disruptions.

Asset Allocation Viewpoints

Domestic economy stabilizes somewhat, and the Federal Reserve continues to stand pat

Last week, domestic releases of February economic data were announced. Among them, real estate investment showed a noticeable rebound, rising from -17.2% in Dec 2025 to -11.1%, with the decline narrowing significantly. Looking ahead, on the side of domestic demand, as real estate policies continue to be loosened and with further increases in birth subsidies, this can provide some support for economic growth. Against the backdrop of considerable overseas uncertainty, the fundamentals of the economy are expected to see a certain shakeout followed by a rebound. On the overseas front, the March FOMC meeting was held and the benchmark interest rate was kept unchanged, which matched market expectations. However, Fed officials differ somewhat in their guidance on subsequent monetary policy—especially given that the Middle East conflict is intensifying further, leaving strong uncertainty about the future policy direction. Regarding rate-cut expectations, because Iran and nearby regions’ energy facilities were hit by military attacks and pushed oil prices higher again, market expectations for rate cuts have weakened further. The expected probability of a rate cut at the April 2026 FOMC has fallen from 2% to a 12.41% probability of a rate hike.

Data source: Wind, China-Canada Fund; as of March 20, 2026.

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