Daily Report 010914 2014-09-10
Macro economy
Data released on last Friday shows the U.S. consumer spending in July dropped for the first time in the past six months. However, the U.S. consumer confidence index soared to a seven-year high, indicating the loss in consumer spending may be temporary. On Friday, the intraday trading faced pressure from overseas concerns, but the above positive economic data boosted the U.S. stocks. Specifically, the S & P 500 index rose above 2,000 basis points by 0.33%. On Sunday, President Putin urged talks on "status" of east Ukraine and warned the western countries not to get involved. The statement increases possibilities that the U.S. and the E.U. impose new sanctions on Russia. However, there are still different voices inside the E.U. towards the sanctions as the Europe’s economy has been weaker since the sanctions on Russia were set. Once the E.U. do impose new sanctions on Russia, combining news that the Euro Zone CPI in August drops, the ECB is expected to adopt New economic stimulus measures.
Domestically, the National People’s Congress of China passes the budget amendment act, loosening grip on local governments bond issuing. According to the new budget amendment act, provincial governments could raise funds for public capital expenditures within the quota permitted by the state council. However, issuing bonds for current investment is forbidden. This regulation makes it possible for the provincial governments to borrow new debts to return the old. Whether it will solve the local governments’ debt problems or not remains to be seen. The official PMI in August will be released today. Since the weak data in July has made investors cautious about the market, data in August needs to be focused.
The following data and events in this week should be concentrated on. The China official PMI will be released on September 1 with its expected value 51.2 and last month’s value 51.7. The Euro Zone PMI will be published on September 2 with its expected value 50.8 and last month’s value 50.8. The U.S. PMI will be released on September 2 as well with its expected value 58 and last month’s data 58. The Euro Zone GDP in Q2 will be announced on September 3 with its expected value 0.7% and last month’s value 0.7%. This figure closely influences the Euro Zone’s decision about the QE. On September 4, the European Central Bank meeting will discuss whether or not to adopt QE. Data on the U.S. labor market will be released on September 5 with the expected unemployment rate being 6.1% and last month’s data 6.2%. The expected non-farm payrolls are 220,000 while the last month’s data is 209,000. If the unemployment keeps dropping and the non-farm payrolls remain increasing, the U.S. dollars will appreciate while the gold will shrink.  

The domestic gold remained narrow range-bound last Friday. The following trend could be seen according to 5-day moving average around RMB 256.5. The rising tensions in Ukraine may increase demand for risk-aversion assets. Considered the uncertain situation and the short-term stimulus effect, the influence on gold is limited. As for data from the U.S., the consumer confidence index remains increasing and the U.S. dollar index rebounds. Important data should be focused this week, for instance, the ISM manufacturing, industrial orders and the non-farm payrolls. The gold ETF dropped positions for three times by 5.08 tons in the past seven days. Based on positions reports from the CFTC, the gold net commercial positions keeps increasing while the gold net non-commercial remains decreasing, indicating neither gold producers nor funds investors hold an optimistic view towards the gold future trend. In terms of operations, defensive moves should be made at RMB 257.5 for former short positions opened at RMB 260. The gold performance at RMB 256.5 should be concentrated on. The trend is expected to fluctuate and drop slightly.  

Last Friday domestic silver had a narrow adjustment, short line rally was hold back on 20-days moving average at RMB 4180. Since the beginning of August, domestic silver futures continue to have discount in comparison with its spot. It supports the silver price. In addition, the positions of silver ETF increased in total of 38.79 tons for six straight days. This means funds investors thinks in short term the silver price will be bearish.
In general, though the fundamental view suggests the silver price will be bearish; if the gold price is relatively weak then the silver price might be less likely to break out the sharply market quotations. In term of operation, at the early stage if the price lowers than RMB 4230 then the short positions can be set. And make defense at RMB 4180. Intraday investors are suggested to wait and see, pay attention to the performance at the interval of RMB 4150 to RMB 4180. The trend remains on bearish pattern but be aware of the rebound risk.

Last week the copper price had a callback, but it was supported during the weekend. Judging from the market leading factors, firstly China’s economic growth is slowing, secondly funds in money market is quite tight, thirdly since it closes to the end of the month the funds tension of spot market become more obvious. Backwardation was forced to retreat. Till the weekend, copper market is being supported. According to analysis, it might benefit from the ending of tight funds as closed to the end of the month. Considering in September, copper market will have a small peak, recently the growth of domestic copper import is slowing down. The inventory level keeps lowering; it seems that in short term the copper price may have a rebound.
From the middle term consideration, domestic copper market may not be optimistic. As consumption, the trend of China’s economic data recovery has ended in July, each index decline means that the date will not look pretty in September either. Domestic consumption may not be as busy as it supposed to be in peak season. As supply,  the processing of copper has soared to $120, and located in the high copper prices, Chinese smelters in the maintenance after the release of production capacity, global copper supply will increase, so the future copper market is likely to appear slack season.
Dong LV (Investment Certificate NO. TZ008452)