Daily Report 281014 2014-10-28

Macro Economy

In the domestic market, President Xi Jinping hosted the sixth meeting of the central comprehensive reform leading group. He pointed out that experience from Shanghai free trade zone should be spread to other parts of the country. In order to stimulate domestic economy, reform policies are released frequently. China’s economy tends to be slightly better as a result of those positive reform policies. However, before problems, like economic restructuring, are solved, the weak economic trend is hardly likely to be reversed.


Domestic gold remained narrowly range-bound in the night session 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. Short-term short positions could be opened if the gold drops below RMB 243. Defensive moves should be prepared around RMB 244. The market is relatively calm before the Fed’s interest rate decision; bond purchasing speed and the Fed Chair Janet Yellen’s speech are released on 2:00 a.m. Thursday. Both the U.S. existing home sales and the Markit manufacturing index are not as good as expected. The investors are cautious toward current market. The USD and the gold closed slightly lower. In terms of funds, the positions of gold ETF remain flat for the past three days. Although gold kept dropping for three days, the funds did not shrink their positions. The durable goods orders in September, consumer confidence index in October and the Richmond Fed Manufacturing index will all be released today and should be in focus.


Domestic silver dropped marginally in the night session. The trend of silver is relatively weak around the RMB 3800 for short term. As for the operations, previous short-term short positions opened at RMB 3820 could be held. Stop-loss should be set at 3830. Stop-profit should be set at RMB 3780 and RMB 3760 respectively. The bolster effect of RMB 3780 should be focused 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, the positions of silver ETF remain flat for nine days, which indicates the funds are observing and waiting for the following opportunities.

Stock Index

Stock index opened lower and fluctuated yesterday. It is said that the Shanghai- Hong Kong Stock Connect may be put on indefinite hold. As a result, blue chips, including brokers and banks, which are benefit from the news of Shanghai- Hong Kong Stock Connect, dropped. Besides, the trading volume of spot goods is relatively small for two days. Investors are mainly observing and waiting for next opportunity. Currently, the subscription of new stocks in this term is over. The funds are likely to return to normal. However, there may be risk for the stock index in short term. It will take some time for the stock index to grow sound and steadily. Investors are recommended to cautiously observe the market and wait for following opportunities.


On Monday, LME copper price rally again, closed up $45.5. The rally is mainly caused by the strike and the news of the store is going to close copper. Grasberg union plans to have the strike since 6th Nov., this mine produced 382000 tons of copper concentrate last year; this year they plan to produce 499000 tons. However, the one month long strike is going to make the output fall 40000 tons. Antamina union announced that they are also 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.
Moreover, the Chinese national bureau is going to purchase at the end of year, and the scare will be over 200000 tons; according to Citigroup report. This news brings some supports to the copper market. Fundamentals, domestic spot has discount of RMB 60 to premium of RMB 20; spot is still on supply surplus. LME spot premium increased $7 to $67; inventory level remains the same of 159500 tons. Pay attention to the risk of great rebound may appear after short covering. From trading perspective, short term short position could consider of closing out; Quantum Corporation should prepare for hedging. We should pay attention to the effectiveness of LME resistance level at $6830.


On Monday LME 3-month aluminum rally, closed at RMB 1978.75 per ton, up 0.61%. The U.S. signed second hand house in September warmed up; Germany enterprise business confidence fell; vice premier Zhang gaoli stressed that on the next spring and the upcoming winter air pollution prevention and RMB against the Singapore dollar could be traded directly, the direct trading of SSE and SEHK is not yet on the timetable. Industry news indicated that the supply decline of the Guinea bauxite export is influenced by the Ebola. Shanghai aluminum signs. SHFX aluminum seems warm up.


The No.1 soybean in Dalian Commodity Exchange dropped slightly due to the closing of long positions. The decrease of soybean spot in Hei Longjiang producing region results in negative impact to the market. Bearish sentiment is strong in the market as the increase of supply in new soybean and the changing of policy. The market trading volume is flat. The soybean meal spot in major area slipped from RMB 20/ ton to RMB 50/ ton yesterday. The mainstream quotations in Shan Dong and Jiang Su are from RMB 3400/ ton to RMB 3420/ ton. Stimulating by increase of the U.S. market, the trend of soybean meal in Dalian Commodity Exchange remains strong. In terms of operations, the soybean meal in Dalian Commodity Exchange is not likely to decline. Long positions are then recommended to the investors. As for the No.1 soybean, investors are not suggested to make further moves till the correction is over.


Yesterday PP futures was main waving, opened at RMB 9799 and closed at RMB 9767; the trading volume dropped 150000 lots to 301000 lots. From the upstream, last Friday propylene prices remained flat. For the spots, yesterday among the majority pp markets, pp price edged up roughly about RMB 50 per ton. Petrochemical CPC regions such as north China, south China, central China, the ex-factory price being increased; this has further enhance to the market cost; combined with the polypropylene futures continued to increase; people investing confidence is boost; merchant is less willing to trade on sale. For downstream, factory purchases are not very heavy, most trading is rigid demand.
For instance of the wire drawing price, today's mainstream of North China bid in RMB 10250-10600 per ton, East China mainstream quotation in RMB 10500-10750 per ton, South China mainstream quotation in RMB 10500-10700 per ton. Technically, the current price is under press of 20-day moving average; MACD appears cross, which means there will be a rebound. In short term, the price will wave around RMB 9600-9850 then the trend could be determined. Since contract 1501 is nearby switching month and the difference between future and spot is quite big; Investors who holds this contract may want to lighten up at low when the price is low. For contract 1505 investors could try short; pay attention to resistance at RMB 9200.
                                                                                          Dong LV (Investment Certificate NO. TZ008452)