Daily Report 161014 2014-10-16
Macro economy
In the domestic market, the Consumer Price Index (CPI) and the Producer Price Index (PPI) released yesterday were both lower than expected. The carryover effect fades away gradually as Q4 kicks off. Meanwhile, the price of international commodities kept dropping. Besides, domestic demand remains weak and the pressure on economy barely changes. All these factors drag down the price data to keep a downward trend. Moreover, the central bank's social financing and new loans data, which should have been released yesterday, have not been published yet. The market expects the new loans data to be RMB 750 billion. Attentions should be paid to this data.   
Domestic gold rose to a high price level during the night session and then fell back, closing flat in the night market. The 5-day moving average crossed the 20-day moving average from below, which is a positive sign for the gold. In terms of operations, long positions opened when the gold broke through RMB 245 yesterday could be held. The stop-profit should be set at RMB 247.5 and RMB 249.5 respectively. The stop-loss should be set at RMB 244. Recently, the pullback of the USD index and the U.S. stocks provide opportunities for the gold and silver to rebound. Yesterday, the U.S. stocks and the USD plunged due to the U.S. retail sales and PPI in September and the New York Fed Manufacturing index are all substantially lower than expected. The gold in the foreign market rose to as high as $ 1250. However, according to the Fed’s beige book, the economy is still growing sound and steadily, which in a way inspires the market. As for the funds, the positions of overnight gold ETF do not increase persistently. The positions dropped by 2.09 tons, which offset the gain on Monday and indicates the funds are closing positions when the price is high. Investors should be cautious to open new long positions. On the whole, the price fluctuates violently as the sentiment of investments toward the U.S. stocks and USD slumps. Therefore, the gold is influenced to fluctuate increasingly as well. Attention should be paid on the risk assets and performance of funds especially to USA.
Domestic silver rose to a high price level during the night trading and then fell back as well. There is pressure based on the 20-day moving average at RMB 3890 for the short term. As for the operations, long positions opened when the silver broke through RMB 3830 yesterday could be held, but defensive moves should be prepared at RMB 3810. For short-term investors, performance of silver close to the RMB 3890 should be focused. On the whole, the rallying momentum of silver this week is weaker than that of gold. The impact of those U.S. assets on silver is relatively small, indicating the character of weak metal. The silver is still following the trend of gold closely and it is difficult for the silver to get out of the trend independently.
Stock index
The stock index decreased first during the intraday trading and then rallied. The CPI in September released yesterday rose 1.6% on year-on-year basis while the PPI slipped by 1.8%.  The pressure of inflation that China faces is not too much. There is still space for steady growth policy and directional easing policy. However, whether the expectation of real estate is improved or not requires further examination. Cyclical stocks are not strong enough to increase strongly. Currently, economic growth and monetary environment was relatively stable. The stock index may keep strongly consolidating in the short term. It is highly recommended to focus on the loan and monetary data in September which will be released today. 
Yesterday LME copper market has a sharp slump, closed at $6620 which dropped $177. The global economic data looks poor in general which worried the whole copper market. This completely buried the influence of the dollar slump. Besides China CPI and PPI figures continue to hit new low, the U.S. PPI also fell which is the first time since 2003; it makes people to concern about the U.S. economy. Mutually, the weak Euro zone CPI figure enhanced the concern of low inflation. The global economy decides the copper consumption, but there is greater concern on the global economy.
Fundamentals, LME spot premium dropped for 2 straight days, yesterday it dropped $26 to $35. The inventory level increased 2925 tons to 154600 tons. LME inventory in the 3 continents has all increased at the same time. The Euro zone has set the next year trade premium to $112 as the same of this year, which refers China may have a slump of the next year trading volume. Recently, China and Japan's latest trade premium fell 6.5% to $115 for the next year. Yesterday is the last trading day of the CU1410; the spot has a full premium RMB 200-100, the market is still oversupply.
Overall, the recent attention should be on LME inventory, if it continues to increase, which can prove that excess copper fundamentals are on surplus. The copper market plunge on Wednesday broke the chance of its price rebounded, we suggest the price will continue to test $6600, if it is below the price, copper prices will be open to the downside from $6000. Resistance at $6800. Domestic CU1501 will test the effectiveness of RMB 46600, the resistance is RMB 48200.
On Wednesday, LME 3-month aluminum fell, closed at $1918 per ton, which has a 1.65% drop. The U.S. economic data is poor; the Europe and U.S. stock market fell sharply; the Korea central bank has cut its interests rate; overall the global market is not in a perfect situation. As the impact of the black industry and oil price fell, the index fallback according to the CPI and PPI data on September. This enhanced the expectation of monetary directional adjustment. From the industry perspective, at ALUMINIUM there are 90% of businesses expects that aluminum consumption would increase steadily. Indonesia is going to limit its tin export quota. Investors who hold SHFE aluminum should wait and see, and buy in with low price if they want to.
Yesterday PP futures opened in a low price but followed up with a high trend. It opened at RMB 9698 and closed at 9877. The trading volume increased 130000 lots to 320000 lots; the holding volume decreased 10824 lots to 173000 lots. From the upstream perspective, FOB Korea propylene price decreased $19, which has an average price of $1241.5.
From the spot perspective, yesterday the majority markets of PP are on dramatic downward trend, which dropped around RMB 50-100 per ton. The international oil price also tumbled $4 per barrel; add up to PP opened in low prices which hammered all investors’ mentality in one way or another. CPC northeast, southwest and other main parts lowered their factory price. It has even less support on the market cost. Overall the market appears bearish; the merchant is less active to jump into the market, mostly just followed the trend; the downstream manufacturers buy in according to the demand.
For instance of the wire drawing price, today's mainstream of North China bid in RMB 10500-10800 per ton, East China mainstream quotation in RMB 10700-10900 per ton, South China mainstream quotation in RMB 10650-10850 per ton. Fundamentals appear bearish. Overall, the price increasing of Wednesday is caused by short positions closed out. The closing price was above 5-day moving average; the moving average is on short trend; the MACD green column to spread again, which appears as rebound trend. Short position holders should pay attention to its profit, and also pay attention to the main contract switching.
                                                                                                                    Dong LV (Investment Certificate NO. TZ008452)