Daily Report 131014 2014-10-13
Macro economy                                                                       

In domestic market, People’s Bank of China (PBOC) President Zhou Xichuan claims that ‘some countries have already added the RMB to their foreign exchange reserves without public announcement.’ The Vice President of the PBOC Yi Gang declares that ‘when the RMB is attractive to the market, it will be added to the Special Drawing Rights (SDR) basket of the International Monetary Fund (IMF).’ Besides, next week, the European Central Bank (ECB) will discuss whether or not the RMB will be added to its foreign exchange reserves. It is suggested the internationalization of RMB is accelerating. The State Council Premier Li Keqiang gave a speech in Germany on Friday and restated that ‘China is capable to fulfill the goal of GDP growth rate around 7.5% this year. However, more support is needed if China’s economy is about to grow steadily after series of negative economic data is released.’ The foreign trade data of China will be released by the Customs head office today. The export data of last term was up by 9.44% whiles the import data slipped by 2.3%. The trade surplus of last term was $ 49.836 billion. The export data of this term is expected to grow 13% while the import data is expected to drop by 3%. The trade surplus is expected to be $ 41.5 billion. Besides, attention should be paid to the China’s debt data in September which will be released in a few days.

Last Friday, domestic gold turned narrowly range-bound. For short-term investors, the following trend of gold will be determined according to 10-day moving average. In terms of operations, previous short positions open at high levels are recommended to close. The gold may continue to rally in the short term. Performance of gold within the region between RMB 239 and RMB 245 should be focused. Long positions could be open in the short term if the gold rebounds strongly during the intraday trading. The USD index and U.S. stocks fell due to the cooling down of expectation of rate hike by the Fed meeting minutes in September. After the gold in the foreign market drops near $1180, which is a crucial supportive price, it is likely to rally and revise part of the previous decrease. On the whole, the following monetary policy of the Fed depends on the performance of economic data. The retail sales, PPI, consumer confidence index and housing sales data will be released this week. As for the funds, positions of gold ETF continue dropping since September. Last Friday, the gold ETF positions decline by 2.64 tons, indicating the funds are not holding an optimistic view of the gold. On the whole, investors should be aware of rebound risk after the oversell of the gold.  

Last Friday, domestic silver turned narrowly range-bound and standing on the 5-day moving average at RMB 3820 for short term. In term of operations, defensive moves should be prepared at RMB 3850 for previous short position open at a high price. Long positions opened according to 5-day moving average at RMB 3820 could be held for short-term investors. Stop-loss should be set at RMB 3800 while stop-profit should be set at 3850 and 3900 respectively. The rebound momentum of the silver is slightly stronger than the gold in the foreign market. In domestic market, the silver has already fallen close to RMB 3710. The silver is likely to rally and revise part of previous decrease, which may then reverse the backwardation of silver spot and futures. 

Stock index
Last Friday, the stock index fluctuated during the intraday trading and then fell back. Market expectations are improved due to the policy to rescue the real estate market. The rising of real estate stocks is also one of the reasons to promote the stock index. However, the performance of other cyclical related to the real estate is relatively weak, resulting in the lack of momentum of the stock index. The macro-economic financial data of September and Q3 will be released since this week. It is believed these a series of data will both become important reference for macro-control policies and affect the short-term trend of the cyclical. Currently, the stock index is likely to keep the strong upward trend, but the pullback risk should be taken into account as well.

Last week LME copper price was waving around $6600-6750. On Friday the price test again at $6600 but end up by closing out short positions. It closed at $6705, but this Monday is opened in a low position which referred to the sharp fall of the U.S stock market after the copper market closed last week.
From the macro perspective, the global economy is weak especially appeared in Germany data; the France outlook was lowered; also the U.S. enterprise performance report showed that business prospects are lagged; the weak global recovery cool down the expectation of rising interest rate in the U.S.; currently the expectation of rising interest rate in the middle of the next year sharply dropped from previous 59% to 33%; the focus from concern about the United States to raise interest rates into the global economy is in weak situation. The China economy growth is slowing down, but it is less likely to have a hard landing and there would not appear large stimulus. Overall, the big picture is not helping the copper market.
Fundamentals, LME spot premium remain $57; inventory level edged down 259 tons but it is still around 150000 tons. In the end of last week, the inventory level of SHFE fell 3478 tons to 83000 tons; globally low inventory is the only support of the copper market. In the peak season the domestic consumption is not as heavy as it supposed to be, in winter the slack season is coming. In terms of supply, the rising processing fees fully released the smelting capacity. Market focus on if by the end of the year inventory level could increase. CFTC net short position has reached 25000 lots, which is approached to the historical high of 32000 lots. Recently if the copper price could break out $6600 rapidly would decide the confidence of short positions. The resistance is at $6750; trading is mainly in short, but investors should pay attention to stop-profit. The resistance is RMB 48300 for the domestic market.

Last Friday the States soybeans price fell back. Though the report suggests it is in neutral bullish, as the influence by commercial hedging soybeans future closed down. The annual forecast of soybean acreage is 84.2 million acres (expected to be 84.4 million acres) in 2014/2015, according to the supply and demand report in October. And previous month expectation is 84.8 million acres. Soybean yield forecast is 47.1 bushels per acre (expected to be 47.6 bushels per acre), the forecast for September is 46.6 bushels per acre.
At the end of the 2014/15 the U.S. soybean inventory forecast would be 450 million bushels of (4.78) forecast, forecast for September would be 475 million bushels. The U.S. soybean growing area edged down; the yield and production continued to increase but lower than expected; the final inventory declined due to last year's inventory levels is lower than expected; for other aspects, following data is flat with as last month. The data included the U.S. soybean exports and squeezing, South American production, and China imports data with flat last month.
Though previous data has a bullish influence, the increased production of the U.S. soybean makes the price under pressure. As forecast DCE soybean market would be impacted by the fall back of the U.S. soybean market, it would continue the callback trend of last Friday. The trend is still bearish, but the relatively low price of domestic imported soybean in October and the recovery demand after the national holiday would support soybean oil meal somehow.
The fresh soybean price is falling back in Heilongjiang area, and the market is in a certain level of bearish and it is hammering the market. Since the U.S. market is waving in the bottom, the domestic market investment should remain bearish. For DCE soybean market investors should pay attention to the supportive of RMB 4400, and suggested to have long positions.

Last Friday, the PP futures opened lower and remained a downward trend. Specifically, the PP futures opened at RMB 9950 and closed at 9660. The trading volume was 317 thousand lots while the positions are 208 thousand lots. The price of propylene slipped on Friday. The FOB Korea propylene dropped by $ 15 and the average price was $ 1,280.5 per ton. The devices operating changed little, but the pressure of coal based olefin to increase its capacity is relatively high. Most of domestic PP remains narrowly range-bound. General materials in the south China continue being sold at a discount. This is mainly due to the EXW price of Southern China Sinopec and Southern China Petroleum drops after the crude oil price rallied. Therefore, the cost of PP slipped and the merchants are forced to lower the quotation. The downstream factories tend to find products with lower price and the trading volume is a little bit weak. For instance, the quotation of polypropylene wiredrawing in the northern China is from RMB 10700/ ton to RMB 10900/ ton while that in the eastern China and southern China is from RMB 10800/ ton to RMB 11000/ ton and from RMB 10700/ ton to RMB 10950/ ton respectively. In terms of technical analysis, both the position of 5-day, 10-day and 20-day moving average and the MACD indicate the PP is likely to remain a downward trend. Short-selling is recommended to be adopted when the price is high. Attentions should be paid to the changing of international crude oil price.
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