Daily Report 081014 2014-10-08


Macro economy
 
Domestically, the official China Manufacturing PMI remains unchanged at 51.1, which demonstrates the economy begins to grow steadily after the increasing downward pressure. The non-manufacturing index slipped to 54, which is still above the midpoint. However, small enterprises are still facing lots of pressure. The directional reform procedures which support the development of small enterprises should be further adopted. Moreover, the ‘Occupy Central’ movement in Hong Kong is moderating now. Some of the people who participate in the movement are agreed to remove, therefore the negative impact of to the market may be reduced.
 
Gold
 
During the Chinese National Day holiday, the LME gold fluctuated between $ 1222 and $ 1183. The trend of gold slipped in the beginning and then rose. The following short-term trend will be determined according to ten-day moving average at $1210. Influenced by the issues mentioned in the macro economy session, the U.S. dollar index kept rising for 12 weeks while the gold plunged to below $ 1200. The Fed released the U.S. Labor Market Condition Index (LMCI) in September on Monday. The figure is 2.5, which is higher than that in August but is not as good as expected. The U.S. dollar index has the callback risk and the gold maybe then up to $ 1200 again. In terms of funds, the gold ETF shrank by 4.78 tons to 767.47 tons during the Chinese National Day holiday. Besides, CFTC reports demonstrate the gold non-commercial net positions kept decreasing while the commercial net positions remain an upward trend, which indicates neither the funds investors nor producers are holding an optimistic view of the gold. On the whole, the ECB’s easing policy is continuous negative news on the Euro and the dollar-denominated gold. Moreover, a number of financial reports of the U.S. stocks will be released this week. If the stocks and the USD adjust in the short term, the gold may have the opportunity to rally. However, as the expectation of rate hike is increasing, it may be difficult for the gold to rally substantially. The domestic gold it believed to open lower and then rebound. The opening price will be around RMB 239. Some of the short positions opened before the holiday could be closed. Long-term short positions are recommended to hold. During the intraday trading, it is not suggested to open new positions following the rallying trend without cautious observations. 
 
Silver
 
During China’s national holiday, LME silver was traded on $17.65 to $16.67 for five straight trading days. The trend edged up then fell. Overall, silver price followed gold price, which may hardly come out of independent trend. Since the U.S. non-farm data is better than expected, silver price continues to fall but with limit compared with gold price falling. Moreover, when gold rallies on Monday, the speed of silver rally is also faster. Recently, investors should pay attention on 10-day moving average at $17.33 and check out if price could be steady at this quota. Since foreign market silver price has broke out the key supportive price $18, though in short term there will be a certain level of rally, the long term weak market is going to remain. In consideration of gold price is more likely to be weak as expectation, silver price short term rally might be the correction of long term slump.
In terms of funds, silver ETF holdings rose up then fall but overall it remains growing. Pay attention to if the underweight might continue. Silver non-commercial holdings is decreasing whereas the commercial holdings is increasing, reported by CFTC. This means either the fund manager or manufacturers is bullish on silver price in the future. Domestic silver opened Wednesday is expected to have flat open, before the national holiday short term short positions should close out incase intraday rally. Long term short positions could be held longer, intraday pay attention to the performance of 10-day moving average at RMB 3880.
 
Stock index
 
On September 30, the People’s Bank of China (PBoC) and the China Banking Regulatory Commission (CBRC) promulgated that:
1. The lower limit of loan interest rate is 70% of the benchmark loan interest rate. This item does not mean too much as the price of banks’ funds is too high. Besides, this requirement is not compulsory. Loan interest rate will still depend on the condition of each project.
2. Mortgage will depend on the times of mortgage of investors but not the number of houses that investors own. This requirement is believed to benefit those investors whose purpose is to improve rather than investing and may benefit mid-end and high-end real estate projects.
3. Issuing loans to non local residents.
4. Encouraging banking financial institutions to issue long-term special financial bonds through issuing mortgage backed securities (MBS). This requirement is considered to lower the price of banks’ funds. However, current asset securitization consists basically of small loan assets which have a relatively high yield. The MBS itself does not have a high rate of return. The MBS may shrink during the promotion process of liquidity premium. Banks selling MBS assets at a discount equals raising price of assets. On the whole, the stock index on October 8 is expected to open higher and remain increasing afterwards. The trend could be proved from the trend of Hong Kong stocks during the Chinese National Day holiday.
 
 
 
Copper
 
During China’s national holiday, LME copper appeared thin market. Copper price lowered to the supportive price at $6600 since 2011. After the dollar fell back then copper price edged up, but it was still lack of momentum. From macro perspective, China PMI was flat at 51.1, but considering the September is peak season, the data is still not optimistic. In terms of consumption, before the national holiday inventory level is rarely. Tranditional peak season doesn’t seem have sufficient consumption. Power cable and air conditioning industry do not have an optimistic consumption. Fundamentals are still not good for the copper price. Funds short position increased 4498 lots, net short positions is 23400 lots which has 32000 lots as record. Hence people are looking forward to find out if recent copper price would break out $6600. We suggest to set resistance at $6730 to $ 6780.
 
 
PP
 
Although the sharp drop of oil price during the holiday provided less support to the cost, the propylene price was about flat, which lacks guidance to the market. In terms of spots, after the national holiday, the market is short of information in all prospects. Wait-and-see atmosphere is relatively strong. Traders will remain price stable and wait for the guidance of petrochemical policy. Downstream industry bought in accordingly, as expected it might boost the spot market for a certain extent. On September 30th, PP1501 closed at RMB 10349 which is above 20-day moving average. We suggest considering with the shipment and petrochemical pricing policy and be cautious about operating.
 

 Dong LV (Investment Certificate NO. TZ008452)