Daily Report 291014 2014-10-29

Macro Economy

In domestic market, due to the influence of RMB two-way fluctuation, the central bank funds outstanding for foreign exchange slumped again for the month-on-month figure in September; plus and minus volatility become normal situation. There are rumors about the latest billion RMB directional easing of lending is going to be Medium term Lending Facilities (MLF), which made the directional interest rate cut clear. According to the industrial enterprise profits data released on Tuesday, from Jan. to Sep.domestic industrial enterprise profit increased year-on-year, though the cumulative figure is still decline. The economy continues to be test.

During the night session, gold price rushed up then fallback. It hit strong pressure at RMB 244 on 20-day moving average; it is on weak adjustment trend. In terms of operation, previous short positions which opened up on RMB 244 were squared off at RMB 242.5. In short term, making defense at RMB 244; intraday trading should be just wait and see. Consumer confidence is boost by the U.S. companies financial reports are better than expected; the three U.S. major indexes rose sharply, but the dollar index and gold price both had weak adjustment. The funds continues to bearish on gold price; overnight gold ETF holdings dropped 1.8 tons again.

During the night session, silver price edged up but it did not have enough momentum to go further. It still remained weak adjustment at RMB 3820 on 20-day moving average. In terms of operation, pay attention to the performance within RMB 3880-3780. Risk-averse investors should wait and see; the strategy should be weak volatility with limited downward space.
Recently silver price is less waving than the gold price. Silver price is less impacted by the U.S. assets price, which appears weak financial character. However, it still follows the gold trend closely; it may hardly go out of independence. From the funds, silver ETF remained the same for ten consecutive days. This suggests funds mainly wait and see.

On Tuesday LME copper had a dramatic rally, closed up $60. It caused by the reason follows. Firstly, two main mine have strikes, which makes people concern about the supply. Secondly, the weaken of U.S.dollar supports the copper price. Fundamentals, LME spots premium increased $6 to $73; inventory level increased 1500 tons to 161000 tons. In domestic market, LME spots premium continues slump and now it down to discount RMB 100-20. The upstream is rush to sell out for cash; the middlemen barely get into the market; the downstream is less interested in purchasing. The whole market is not so sure about the sustainability of rally; both trading and investing are thin.
From the supply side, for past two weeks there is around a thousand labor strike in Grasberg; the capacity utilization rate fell to 60%. The rest labor of Grasberg 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. Technically, copper price will wave around $6800.

Yesterday LME 3-month aluminum rose up, closed at $1995 per ton, up by 0.82%. The central bank MLF issued on agriculture, rural areas, farmers and small micro directional lower interest rate is quite obvious; lots of areas deploy measures of steady growth; the central bank is having 20 billion 14 days repurchase. Industry news indicated that the supply decline of the Guinea bauxite export is influenced by the Ebola. In September 2014, China exported 71000 tons of aluminum alloy wheels, year-on-year increase of 13.1%; International global unwrought aluminum association announced in September there is a total of 1.375 million tons of aluminum inventories, compared with August which dropped by 4000 tons. SHFX aluminum is waving up.
Yesterday PP futures opened in high price and followed with uptrend, opened at RMB 9819 and closed at RMB 9922; the trading volume was 416000 lots; the holdings was 208000 lots. From the upstream side, propylene price is flat. In terms of spots, yesterday in domestic market pp market price edged up around RMB 50 per ton. The main reason is pp future price rose up and there are limited spots in the market. People’s investing confidence is boost; merchant is less willing to trade on sale.
For instance of the wire drawing price, today's mainstream of North China bid in RMB 10400-10550 per ton, East China mainstream quotation in RMB 10500-10700 per ton, South China mainstream quotation in RMB 10600-10700 per ton. Though contract 1501 is impacted by closing out during the main contract being switched period, also by the pull of basis; it broke out 20-day moving average. The price of contract 1505 is still under pressure; we suggest waiting for the market signal; pay attention to resistance at RMB 9200 and 20-day moving average.
                                                                                                     Dong LV (Investment Certificate NO. TZ008452)