Daily Report 271014 2014-10-27
Macro Economy

In the domestic market, Premier Li Keqiang hosted the Executive meeting of the State Council on October 24. The meeting decides to open fields which have been totally controlled and operated by the state-owned capital, including the hydropower, nuclear power, basic telecom, satellite navigation, railways, shipping and etc. Expanding the scope of private capital industry access will help the market to get rid of unreasonable monopoly and break down the market barrier. These latest reform measures and other decentralization measures will form a cooperative mechanism to boost China's economic transition and growth afterwards.


Domestic gold remained narrowly range-bound last Friday. For short term, pressure from the 20-day moving average at RMB 244 is rather strong. As for the operations, previous short positions opened against 20-day moving average at RMB 244 could be held for short term. Stop-loss should be set at RMB 244.8 and stop-profit should be set at RMB 242.5. Performance of gold around RMB 243 should be in focus. The U.S. GDP in Q3 will be released this week. Besides, the Fed meeting on interest rate will be held in this week as well. In terms of economic data in Q3, both consumer confidence and the employment market are improving. The inflation remains at a low level. It is expected the GDP in Q3 will be over 3%. Moreover, the Fed will end the bond purchasing project in October. Investors are focusing on the statement from the Fed toward current economy status and expectation of rate hike. In terms of assets price, all three major U.S. stocks closed higher last week after the financial reports boosting the U.S. stocks for a month. The funds are flowing into the stocks market again. As for the funds, the performance of gold market is mixed. Specifically, positions of gold ETF have been dropping for 6.57 tons for the past five days, indicating the funds are not holding a positive view of the gold. However, data from the CFTC shows, till last Tuesday (October 21), the non-commercial net positions of gold (speculative positions) keep increasing for two weeks while the commercial positions of gold (hedging positions) remain dropping. Therefore, it is believed both speculators and producers are becoming more interested in gold investment in the short term.


Domestic silver remained narrowly range-bound last Friday. The short-term trend afterwards will be determined according to the performance of silver at RMB 3800. As for the operations, previous short-term short positions opened at RMB 3820 could be held. The stop-loss and stop-profit should be set at RMB 3830 and RMB 3760 respectively. The bolster effect of the RMB 3800 will be in focus during the intraday trading. 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. In terms of funds, data from the CFTC shows non-commercial net positions of silver keep decreasing while the commercial net positions of silver increases again. It could be then indicated that both speculators and producers are not holding a positive view of the silver.

Stock Index

Stock index fluctuated and dropped due to the closing of previous long positions. Economic data of Q3 and September is in accordance with expectations, which indicates the current weak economy may grow sound and steadily afterwards. With the help of micro stimulating policy and directional easing policy, hard-landing of economy is not likely to take place. The impact from the subscription of new stocks to funds continues. The reverse repurchase rate of the exchange bond continued increasing, dragging back the stock index. However, there are only two stocks’ subscriptions left this week. The biggest impact toward the funds has already passed. It is said that the Shanghai-Hong Kong Stock Connect may be put on indefinite hold. For short term, the stock index is believed to remain a downward trend due to the negative impact on those stocks which have been inspired by the Shanghai-Hong Kong Stock Connect.


Last week, though the whole market is thin, copper price rally from it. China’s manufacturing data was relatively good in last week, so it brings the market confidence; however the growth of output and orders slows down, followed up with the expectations for the future also slows down. Based on the data on last Friday, the real estate in China was weak therefore the market was under pressure. This week focus on the Fed meeting on Wednesday or Thursday, in order to figure out when the interest rates would actually rise up.
Fundamentals, LME spot premium increased by $3 to $60; after the increasing of 8000 tons inventory from last week, it increased 2000 tons more; the increasing mainly in Asia. By the end of last week SHFX inventory level dropped 2134 tons to 95000 tons. According to the CFTC report, till last Tuesday the non-commercial net short positions increased 3471 lots to 27700 lots. This figure is almost flat with the historical high of 32000 lots.
From the supply side, Antamina union announced that they are going to have an indefinite strike since 10th Nov. Labors profit is directly related with mine output and price; they require for bonus to offset income decreases. In the end, it could lead to reduction of 30000 tons per month.
This mina production are impacted by the quality decreasing this year; for previous 8-month the production dropped 14% year-on-year. Technically, copper price is waving around $6600 recently; clearly the rally is lack of momentum. Hence, we suggest there is limited rally in the future; investors could try short with stop-loss of $6730. On the other hand, investors could take actions after the Fed meeting.


Last Friday, LME 3-month aluminum fell, closed at $1966.75 per ton, dropped by 0.78%. From industry perspective, in September alumina imports fell by 23.58% year-on-year; in September, bauxite imports is 2.8557 million tons, fell by 61.48; based on the data published by the customs. Indonesia bauxite imports are still shutoff; 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.


Last Friday PP futures opened in a high price followed with upward trend, opened at RMB 9650 and closed at RMB 9808; price returns to the previous cost concentration areas. From the upstream, last Friday propylene prices remained flat. From the devices perspective, this week shutdown devices continues to decline; the rate of operation increases, which leads to supply pressure. For the spots, last week the market price continued falling; at the beginning of the week petrochemical district cut their ex-factory price one by one, in the end it has less support to the sourcing cost.
For instance of the wire drawing price, today's mainstream of North China bid in RMB 10100-10600 per ton, East China mainstream quotation in RMB 10450-10750 per ton, South China mainstream quotation in RMB 10400-10600 per ton. From the downstream, despite the supply of goods prices, the downstream factory should not rush to buy in. As spot prices close to ten thousand RMB, the factory is purchasing according. However, as a result of increased resistance for downstream to sell out, work enthusiasm is low.
                                                                                        Dong LV (Investment Certificate NO. TZ008452)