Daily Report 241014 2014-10-24
Macro Economy

In the domestic market, communique of the Fourth Plenary Session of the eighteenth Communist Party of China (CPC) Central Committee meeting is released yesterday. It is decided that the legitimacy review mechanism of administrative departments’ internal crucial decisions will be adopted. To explore the establishment of cross administrative division of the People's Court and People's Procuratorate. Circuit courts should be set for the Supreme Court. Therefore, the supervision of local justice will be strengthened. All these measures will support the economic reform afterwards. The housing sales price in 70 large and medium-sized cities in September is announced today. Specifically, the housing prices of 69 out of the 70 cities drop compared with those last month. The highest and lowest decrease is 0.4% and 1.9% respectively. Only one city’s housing price remains flat. The price of real estate has been dropping since the macro-control this term. However, the data is likely to remain stable in the short term after the adoption of new policy of real estate market released at the end of September


Domestic gold opened lower and remained a downward trend in the night session. The bolster effect of the 20-day moving average at RMB 244 is tested in the short term. As for the operations, defensive moves should be prepared for previous long positions at RMB 244.5. Investors are not recommended to open or close positions during the intraday trading. The U.S. stocks rallied slightly this week after a one-month pullback. The funds flow into the stocks market from the gold market. The positions of gold ETF dropped 11.06 tons in the past five days, which indicates the funds are not holding an optimistic view toward the gold. The financial reports of the U.S. enterprises are better than expected. Besides, the four-week average of U.S. initial claims for employment benefits shows the U.S. employment market is improving. The housing price index advanced while the manufacturing data slipped. On the whole, the U.S. economy is recovering moderately. The weak gold price is not likely to be changed in a short term due to moderate inflation. Attention should be paid to the Fed’s meeting on interest rate next week. The U.S. new housing sales data will be released tonight.


Domestic silver remained range-bound at a low level in the night session. The three moving average keep flat in the short term. The performance of silver at RMB 3830 should be in focus. As for the operations, previous short-term short positions opened at RMB 3820 and RMB 3800 could be held. Defensive moves should be prepared at RMB 3830 and part of the stop-profit should be set at 3780. Recently, the rallying of silver is not as strong as that of gold. Moreover, the short-term pullback of silver is weaker than that of gold as well. On the whole, the price of the U.S. assets is the key factor which affects the gold and silver. The spread between domestic silver and Hua Tong silver remains at RMB 40 discount. It is believed the silver ETF funds are not holding an optimistic view of silver in the short term.

Stock Index

The stock index fluctuated in the early market yesterday and slumped in the afternoon session. The impact from the subscription of new stocks to funds continues. The reverse repurchase rate of the exchange bond continues increasing yesterday. The initial value of HSBC China Manufacturing PMI in October is 50.4, which is slightly higher than expected value (50.2) and hit a 3-month high. China’s economy is temporarily stable during a weak trend. However, the demand is not strong enough and there is still much pressure on policies. For the short term, the stock index is influenced by the funds and likely to fluctuate. However, investors do not need to worry too much as the risk of pullback is limited.


Yesterday LME copper edged up, close up $36.75. The U.S. first time jobless claims four-week average dropped to 281000 people, which is the lowest since May 2000. This suggests the U.S. employment situation is quite good. The August U.S. house prices rose 0.5% month-on-month better than market expectations. European PMI surprisedly increased to 50.7 in October, which is a two-month high. Germany PMI has climbed up over 50, but the French PMI declined.
Fundamentals, LME copper backwardation flat at $57; inventory level edged down 25 tons to 157500. Among domestic market, backwardation edged down RMB 20 to premium RMB 30-120. 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, Anglo American plc raised its full-year forecast of copper output; copper production for the whole year target from 725000-740000 tons increased 5000 tons to 730000-745000 tons. The group's copper output in the third quarter is 177000 tons, down 15% year-on-year. One reason is demotion in spot quality, and also caused by the base of the same period last year is quite high. We focus on the larger two miners Freeport and glencore copper concentrate production situation in the third quarter. Technically, copper price may wave in the low price recently. Domestic copper price lines in RMB 46300-48300; LME copper price is around $6530-6830.


Yesterday LME 3-month aluminum fallback, closed at $1982.25 per ton, down 1.1%. The fourth plenary session closed on Thursday; the legislation combined with reform; the reform of both fiscal and taxation and state-owned assets will be accelerated. European PMI in October 50.7, HSBC China manufacturing PMI initial value is 50.4, Asian infrastructure bank is established. From industry perspective, the Hong Kong stock exchange in December is going to launch a RMB-denominated LME copper, aluminum, zinc metal contracts. SHFE aluminum rising expectations have increased.


The No.1 soybean in Dalian Commodity Exchange fluctuated strongly yesterday. The performance of soybean is relatively flat in the past two days. Currently, the soybean spot market is filled with strong bearish sentiment. It is believed the soybean may continue dropping afterwards, which will make the trading volume weaker. The soybean meal spot in major area is stable. The stronger one between soybean meal and soybean oil is changing repeatedly. Besides, the U.S. soybean rallies strongly, which promotes the soybean in domestic market. In terms of operations, considering the U.S. soybean is likely to continue increasing, the soybean meal is believed to fluctuate and rise slightly. As for the No.1 soybean, investors are not suggested to make further moves till the correction is over.


On Thursday, PP futures opened in a low price and followed with low trend, opened at RMB 9367 and closed at RMB 9595. The trading volume increased 146000 lots to 344000 lots; the holdings decreased 9888 lots to 189000 lots. From the upstream, overnight propylene dropped by $10 and the average price is $1170.5 per ton. In terms of spots, yesterday domestic pp market has a narrow adjustment; the price volatility is around RMB 50 per ton. The majority petrochemical prices are stable, which means the sourcing cost is being supported steadily. All people in the market are trading and investing on processing.
For instance of the wire drawing price, today's mainstream of North China bid in RMB 10100-10500 per ton, East China mainstream quotation in RMB 10500-10650 per ton, South China mainstream quotation in RMB 10400-10600 per ton. Fundamentals appear bearish. Overall, current price is in between of 5-day moving average and 10-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. For short investors who hold on contract 1505 could remain bearish at high price. Both investors hold on contract 1501 and contract 1505 could set the resistance level based on 10-day moving average.
                                                                                    Dong LV (Investment Certificate NO. TZ008452)