Daily Report 151014 2014-10-15
Macro economy
In the domestic market yesterday, during the open market operation by the People’s Bank of China (PBOC), the positive repurchase rate fell again by 10 basis points after the decrease in last month. It is suggested that the PBOC is lowering the interest rate by means of the market to achieve the goal of decreasing the financing costs. A number of important data will be released today. The Consumer Price Index (CPI) and the Producer Price Index (PPI) are to be released on 9:30 a.m. by the National Bureau of Statistics. It is expected that the CPI will rise by 1.7% while the PPI will slip by 1.6%. Meanwhile, today is the deadline for the PBOC to release the data of debt and money stock. Attentions should be paid on the issues above.  
Domestic gold remained narrowly range-bound in the night market and stood on the 20-day moving average at RMB 244 for short-term. As for the operations, the momentum of gold seems slightly insufficient after the gold’s rebound. Investors with long positions should watch out for their profits and the performance of gold around RMB 244 should be focused on. Opening new positions are not recommended. The performances of the USD index and the U.S. stocks are the key influence factors for the gold. The U.S. stocks increase to a high level during the intraday trading due to the financial reports of some enterprises are better than expected. However, the gains were then offset by the plunge of crude oil. The USD index closed marginally higher, which resists the rallying of the gold. Currently, the gold will be back to a weak status if pullback of the USD index and the U.S. stocks is over. The retail sales data in September, the Fed budget data and the Fed's Beige Book will be released today.
Domestic silver remained narrowly range-bound as well in the night market. The performance of silver around the 5-day moving average will be tested for the short term. As for the operations, defensive moves should be taken at RMB 3850 for previous long positions opened according to the 5-day moving average. Opening new positions is not suggested during the intraday trading process. On the whole, the rallying momentum of silver is weaker than that of gold in this week. The fluctuation of assets which are related to the U.S. does not influence the silver too much. The silver has shown its weak metal character, but it is still closely following the trend of gold. Therefore, it is barely likely for the silver to get out of the trend independently.
Stock index
The stock index rose to a high price level and then fell back yesterday. As the effects of previous positive news are fading away gradually, the pullback of the real estate stocks and other cyclical stocks took place. However, the positive repurchase rate lowered by 10 basis points by the PBOC. Therefore, the price of funds was guided to decrease to make sure the economy grows steadily. More data is needed to prove the improvement of the real estate industry. In the short term, the stock index may keep strongly consolidating. Special attentions should be paid on the CPI, PPI and data of debt and money stock, all of which will be released today.
Yesterday LME copper had a dramatic rally, closed up $60.5. In Chinese market, the relatively good trade data and the central banks lowered the repurchase rate again, these both support the copper market. Recently the domestic real estate rescue policy came out; the states delayed to raise interest rate; which both helped to release the market pressure. From the middle to long term view, global economy recovery is still in a slow speed; the German economy ministry lowered its economic growth expectation level in 2014 from 1.8% to 1.2%, and also the GDP expectation of the next year has been lowered to 1.3%; besides Fitch puts the France long-term domestic and foreign currency issuer on rating watch negative of default equality. Therefore the macro picture is not helping the copper market.
Fundamentals, LME spot premium has dropped $15 to %59, the inventory level slightly increased 500 tons to 152000 tons. Yesterday domestic spot premium is around RMB 120 to no premium, which dropped RMB 120 compared with Monday. The import copper is good inventory level; the market supply is quite loose; though there are quite a lot downstream ask for the price, the trading is just thin.
In terms of supply, on Tuesday Grasberg has already restart production of strip mine. As estimate, if the copper production being suspended, the loss could be 13000 tons. Technically, copper market is urgent for an adjustment as the copper price has a constant fall for 3-month which dropped 8%. The CFTC fund net short positions almost approach a historical high; recently, the short closed out will boost the copper market rally. In the short-term, copper price may have a new rally, we suggest to increasing the resistance level to RMB 49500/50000; and LME resistance level increase to $6950/7000.
The U.S overnight soybean remains a upward trend. The market is inspired by the slow harvest and the technical opening of long positions. Reports demonstrate that, till the end of last week, the U.S. soybean harvest rate is 40% while the expected rate is 32%. The harvest rate in the previous week was 20% and the average rate in the past five years is 53%. The soybean planting area of Argentina in the year 2014/15 is expected to be 20.6 million hectares, which will be higher than that in last year by 1.2%. According to the weather forecast, the rainfall belt in the following week will leave the mid-west producing area gradually and the rain will abate. However, the mid-Brazil producing area is suffering from drought. The situation will hardly be improved in the next week, which will then delay the planting of soybean. As the report on supply and demand in October is released, the yield of the U.S. soybean is relatively clear. Investors are recommended to focus on the import demand of China, the export pace of the U.S. soybean and the soybean planting area and pace in the South America. The negative news of supply is fading away and most of the information provided by the demand part is positive. It is likely that the U.S. soybean has already fallen to the bottom of this term. Pressure is released from the upward transaction intensive area at 980 cents. The Dalian soybean remains a pattern of differentiation. The oil meal is dragged up by the increase of the overnight U.S. soybean. The No.1 soybeans in the near months are stronger than those in the far months. The soybean meal spot advances by RMB 20/ ton – RMB 30/ ton. The quotations of the most area remain between RMB 3400/ ton and RMB 3450/ ton. The supply in the Northern China insufficient and the price is higher than normal soybean meal price. This situation is believed to last to the end of the month or to the beginning of the next month. Recently the No.1 soybean fluctuates violently. The new soybean price in the Hei Longjiang producing area is around RMB 4.5/ kilogram. It is believed the market will remain a downward trend and a small trading volume. In terms of operations, the soybean meal is expected to rally strongly temporarily. As for the No.1 soybean, investors are not suggested to make further moves till the correction is over. 
Yesterday PP futures opened in high and followed with a high trend. It opened at RMB9780 and closed at RMB 9861. The trading volume declined 11772 lots to 190000 tons and the holdings declined 10916 lots to 184000. In terms of spots, among most pp markets in the worldwide its price edged down, which shrank around RMB 50-100 per ton; and in some markets it fluctuates a little bit. The upstream lowered factory prices progressively. This has less support to the market cost; pp futures waved up, which suggests investors have limited faith on bearish market expectation. Majority merchant remains low inventory level, and slightly promotes on sale. Early poor performance makes the market worries even more.
Downstream buy in according to the demand, which appears thin market overall. Like wire drawing, today's mainstream of North China bid in RMB 10550-10700 per ton, East China mainstream quotation in RMB 10650-10850 per ton, South China mainstream quotation in RMB 10750-10850 per ton. Fundamentals remain the weak situation. Overall, current price is above 5-day moving average; the moving average is on short trend; the MACD green column to spread again; however, the whole trend is to rally. In terms of operation, the change of demand and supply and price of petro should be focused. We recommend continuing shorting while time the market.
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