Daily Report 221014 2014-10-22

Macro Economy

In domestic market, a number of important data is released yesterday. Specifically, the value of industrial output rises by 8% on year-on-year basis. The figure is higher than that of last term, but it is still the second lowest in the past five years. Investments in both fixed assets and real estate remain the previous downward trend. Private fixed assets investment increases 18.3% on year-on-year basis, which is the record-low growth rate. Nominal total retail sales of consumer goods continue dropping due to the decline of CPI. The real growth rates for the last two months are extremely low when eliminating the impact of price. The consumption is at a relatively low level as well. The accumulated GDP growth rate from January to September is 7.4% while the rate for Q3 is 7.3%. The GDP remains growing for the first 3 quarters this year, with its growth rate close to the target 7.5%. It can be seen that the economy tends to be positive resulting from the impact of reform and directional easing policy. However, domestic demand will not be improved before the problems of industrial restructuring and financing for middle and small sized enterprises are solved. On the whole, there is still rather heavy pressure for the economy.



Gold

Domestic gold continues rallying in the night session. It is believed the gold is likely to rise for the short term as 10-day moving average crosses above the 20-day moving average. As for the operations, previous long positions opened against the 5-day moving average at RMB 245 could be held. Stop-profit should be set at RMB 247.5 and RMB 249.5 respectively. Stop-loss should be set at RMB 244.5. The U.S. stocks rebounds due to the improvement of the U.S. existing home sales and the rally of financial reports of U.S. enterprises. Besides, it is expected that the ECB will purchase the corporate debt from the secondary market in December. As a result, the Euro rallies slightly. Both of the USD index and the gold grow. However, it would be negative for the gold if the U.S. stocks and USD index increase after pullback. In terms of the funds, the gold ETF funds are not holding an optimistic view toward the gold. The U.S. CPI in September will be released today. Low crude oil price will keep the inflation at a relatively low level and provide opportunities for the Fed to remain interest rate low. There might be space for gold the rebound. On the whole, the gold may merely offset part of the previous decrease for the short term. The weak trend of gold is barely likely to reverse for middle term.



Silver

Domestic silver rebounds following the gold in the night session. The silver stands on the 20-day moving average in the short term, but it is still been trapped in the correction region from RMB 3880 to RMB 3780. As for the operations, previous long positions opened at RMB 3830 could be held and defensive moves should be prepared at RMB 3810. The performance of silver at RMB 3850 during the intraday trading should be focused. Recently, the rallying momentum of silver 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

Stock index fluctuated and dropped due to the selling of positions yesterday. The data released yesterday are basically in accordance with expectation. Therefore, there is no obvious impact toward the market. China’s economy is rather weak, but the hard-landing is not likely to take place. Micro stimulating policy and directional easing policy will continue to adopt. However, the subscription for 12 new stocks will kick off from tomorrow to next Monday. The funds are under pressure in the short term, which is regarded as the major factor to drag down the stock index. The fluctuation of stock index may remain. Investors should watch out for the pullback risk.



Copper

Yesterday LME copper has the support at $6600 again, closed at $6663 with an increasing of $73. European Central Bank may consider buying company debt to stimulate the economy. Also the U.S. housing sales hit a new high of this year, which inspired the market. Recently in general the macro fundamental factors have even greater support, except the good news from foreign market; China’s stimulus policies for the real estate market and the central bank’s loosen policy make the market is less concern over China’s growth in Q4.
Fundamentals, LME spot premium dropped $4 to $45; inventory level edged down 100 tons to 157600 tons. The domestic premium nearly remains the same with yesterday’s level, which is around RMB 60-140. The upstream sells as usual, at the same time the downstream buys in only at low price. Current market supply and demand is at a battleground state, it becomes more active. From the supply side, the negotiation towards copper concentrate processing fee in 2015 has been launched. China’s processing fee will be higher than $92 in this year. Technically, in short term copper price is more likely to rally. We suggest setting the resistance level at $6800. Investors should be prepared in hedging, wait for the rebound opportunity after the short selling.



Soybean

The trend of No.1 soybean in Dalian Commodity Exchange is independent. The DCE A1501 remains an upward trend. As this contract is being delivered in two months, the selling pressure is concentrated on the DCE A1505 and DCE A 1509. Currently, the soybean spot keeps flat. Soybean-4.0 (soybeans which have been sized by 4.0mm sieve) remains fluctuating around RMB 4500/ ton. The market trading volume is relatively weak. Soybean meal spot price is stable in many areas. The mainstream quotation is from RMB 3400/ton to RMB 3460/ton. The market trading volume shrinks and investors tend not to trade. In terms of the operations, small amount of soybean meal long positions could be held. As for the No.1 soybean, investors are not suggested to make further moves till the correction is over.



PP

Yesterday PP futures opened in a low position with waving, opened in RMB 9401 and closed at RMB 9413 with a cross on K line chart. Volume decreased 568 lots to 373000 lots; the holdings dropped 8238 lots to 202000 lots. Among the upstream, FOB Korea propylene decreased $19 overnight.
From the spots perspective, domestic pp market continues the downward trend, dropped around RMB 100 per ton. Sinopec among the majority area in China has lowered their ex-factory price; the support for sourcing cost continues to weaken; merchants have to sell out as the price falling; further market is more likely to be bearish. Downstream still buy long but not short; the actual market is weak in purchasing. The supply is just fit with the demand; market is thin in both trading and investment.
For instance of the wire drawing price, today's mainstream of North China bid in RMB 10300-10650 per ton, East China mainstream quotation in RMB 10350-10600 per ton, South China mainstream quotation in RMB 10550-10700 per ton. Fundamentals appear bearish. Overall, current price is under 5-day moving average; the moving average is on short trend; the MACD gap spread even further, which appears bearish trend. In terms of operation, considering the changes of supply and demand according; short when the price is high; for short investors who hold on contract 1501 be aware of the risk of the main contract switching.
                                                                                   Dong LV (Investment Certificate NO. TZ008452)