Daily Report 301014 2014-10-30
Macro Economy

In domestic market, Premier Li Keqiang hosted the executive meeting yesterday. During the meeting, he required related departments to stabilize housing consumption, promote security housing consumption, decrease requirements on using provident fund to pay rent and etc. It is the first time that the central government directly supports the housing market. Previous China’s real estate market has been dropping and dragging down the macro economy. Corresponding measures have been taken about the issue. It is believed the stabilization of housing consumption this time will help the rallying of real estate market in the short term.


Gold

Domestic gold decreased 1.05% in the night session, dropping below the bolster of RMB 242.5. It is believed the gold will remain weak in the short term. As for the operations, previous short positions opened at RMB 242.5 could be held. The bolster effect at RMB 240 will be tested during the intraday trading. The Fed meeting on interest rate in October decides to end the bond purchasing project in November and holds an optimistic view towards the rallying of economy. The inflation rate is still under 2%. The low interest rate will remain for a relatively long time, which is in line with market expectation. The capital market fluctuates substantially. The trend of gold is back to weak again. Three major U.S. stock indexes closed lower while the USD advanced. However, the highlight in this meeting is the Fed begins the stress test on liquidity reclaim. The expectation of market liquidity may be lower. Defensive moves should be taken to prepare the potential risk of decline on gold as a risk asset and the U.S. stocks. The positions of overnight gold ETF dropped 1.19 tons, which indicates the funds are not holding an optimistic view of the gold. The U.S. GDP in Q3 will be released today. The expected figure is 3%.


Silver

Not following the trend of gold, domestic silver remains narrowly range-bound in the night session. For the short term, silver is bolstered at RMB 3780. As for the operations, the performance of silver in the region between RMB 3880 and RMB 3780 should be in focus. The silver is believed to fluctuate and drop slightly. Short-term short positions could be taken if the silver is weak during the intraday trading. Stop-profit should be set at RMB 3750. 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 11 days, which indicates the funds are observing and waiting for the following opportunities.


Stock Index

Both the trading volume and the price of the stock index increased yesterday. As the subscription of the new stocks is over, funds for subscription are defrosted. Due to the easing monetary policy, part of the companies’ financial reports in Q3 is better than expected, which inspires the stock market. Currently, it is said that the Shanghai- Hong Kong Stock Connect has been approved by the supervision department in Hong Kong. The start of the project only requires the command from mainland. It is believed the Shanghai- Hong Kong Stock Connect may start in any minutes, which corrects previous pessimistic expectation that the Shanghai- Hong Kong Stock Connect will be postponed infinitely. Influenced by the positive news and policies, investors tend to open long positions. There is still space for the stock index to rebound. However, investors should be cautious towards the rebound space before the fundamental economic shift takes place.


Copper

On Wednesday LME copper price rushed up then fallback, closed down $28.75. The Fed said a series of employment indicators suggest the resource utilization is gradually being fully used; the inflation in relatively long period should be stable; they decided to finish the asset purchasing plan by the end of this month; after the end of this plan, the interest rate remains low figure may be appropriate; however if further information suggests that the employment and inflation targets rise faster than expected, then they may rise the interest rate earlier. Since the hawks statement has been announced; market expectations for the Fed to raise interest rates have increased; followed with copper price fell back.
Fundamentals, LME copper premium increased $1 to $74; inventory level increased 1625 tons to 162700 tons. In domestic market, spots premium increased RMB 50 to discount of RMB 50 to premium 30. For import copper, the premium space is limited; the middlemen buy in high quality copper; the downstream purchases based on the demand, and they trade carefully.
Chinese smelters are expected to rise up the clean processing and refining fee of copper concentrate from $92 and 9.2 cents this year to $100-110 and 10-11 cents. It suggests there is abundant supply of copper concentrate. Japan Pacific rim copper sets its processing fee over $100 and 10 cents in 2015. Technically, LME copper price hits resistance at $6820 on 60-day moving average; the rally may be terminated for a while. Trading should be on bearish, stop-loss at $6820.


Aluminum

On Wednesday LME 3-month aluminum rose up, closed at $ 2023.75, up 1.44%. In the first three quarters of this year, in domestic market ten kinds of non-ferrous metal production is 31.95 million tons, up 6.6% from a year earlier; the electrolytic aluminum production is 17.59 million tons, an increase of 7.8; alumina production rose 4.8%; In September 2014, China exported 71000 tons of aluminum alloy wheels, year-on-year increase of 13.1%. SHFX aluminum goes towards RMB 14000


Soybean

All contracts related to soybean in Dalian Commodity Exchange increased yesterday. The No.1 soybean advanced slightly. The fundamentals for soybean are relatively calm. Soybean spot in Hei Longjiang producing region is not strong. It is believed the soybean spot is facing further downward pressure as the selling peak of soybean is coming, which is negative for soybean futures as well. The prices of soybean meal spot in many areas are stable. Stimulated by the substantial increase of the U.S. soybean, the soybean spot will rise considerably. In the short term, domestic soybean is dragged up by the U.S. soybean. As for the operations, previous long positions of soybean meal in Dalian Commodity Exchange could be held. As for the No.1 soybean, small amount of long positions of No.1 soybean in near months could be held. No.1 soybean in far months is believed to remain weak.


PP

Yesterday PP future has a flat open followed with uptrend, opened at RMB 9930, closed at RMB 10007. The trading volume dropped 77508 lots to 338000 lots; the holdings increased 2026 lots to 210000 lots. From the upstream side, Korea FOB propylene price increased $5 per bucket. In terms of spots, yesterday in domestic market pp market price edged up around RMB 50 per ton. CPC in east China, most of the brands priced slightly upgraded their price again, costs supporting role of the market continue to increase; since it is close to the end of the month, most traders has completed this month sales plan; delivery pressure is fair, the shipment is based on the profit.
For instance of the wire drawing price, today's mainstream of North China bid in RMB 10650-10900 per ton, East China mainstream quotation in RMB 10600-10800 per ton, South China mainstream quotation in RMB 10600-10700 per ton. Considering from the market, by the end of trading session, the price was stable at 10000 point; since it is close to the main contract switching months, in the future the price is less likely to slump further. We suggest exercising previous short positions when the price is low; long positions are not recommended.
                                                                                       Dong LV (Investment Certificate NO. TZ008452)