Daily Report 311014 2014-10-31
Macro Economy

In domestic market, Vice-Chairman of the China Banking Regulatory Commission (CBRC) Wang Zhaoxing claimed yesterday that ‘financial reform will bring considerable impact to the operating and profitability of the banking industry. It is a stress test to small commercial banks in China as well.’ Quality of domestic banks’ assets is increasingly influenced by the cooling down of domestic real estate market and the downward economy. Small and medium-sized companies are still facing the financing problem as the emerging of bad loans and the continuous dropping risk preference of banks. It is expected that the People’s Bank of China will continue adopting directional easing policy.


Domestic gold kept dropping in the night session, with a decrease of 1.37%. In short term, the gold slipped below RMB 242.5 and RMB 239.5, after which there is no obvious bolster. It is believed the gold will remain the downward trend afterwards. As for the operations, previous short positions opened at RMB 242.5 could be held. Stop-profit should be set at RMB 233.5. New short positions could be opened if the gold rebounds to RMB 239.5 during the intraday trading. Stop-loss should be set at RMB 240. Currently, bearish sentiment is rather strong in the gold market. The positions of overnight gold ETF shrank for three days. Specifically, the positions dropped 1.2 tons, which indicates the funds are not holding an optimistic view of the gold. The bolster effect at $ 1200 is tested in the foreign market. Overselling begins to take place in domestic market. Defensive moves should be prepared for risk of rallying in short term. Statement from the Fed meeting on interest rate in October is relatively hawkish, which raised concerns toward the tightening of liquidity. The gold, of which the hedging currency interest rate is negative, suffered from slump. Besides, the U.S. GDP in Q3 is up by 3.5%, higher than the expected 3.0%. The employment market continues to improving as well. Positive U.S. economic prospect offsets impact from the shrinking of liquidity. On the whole, the gold may continue dropping before the rate hike of the Fed. Considering the cost, the gold is likely to drop below $ 1200, but the time for gold to remain under $ 1200 may be limited.


Domestic silver showed a gap down opening and dropped below the key bolster of RMB 3700 in the night session. The decrease is as high as 3.79%. In terms of operations, previous short positions opened at RMB 3780 are recommended to hold. The silver has already dropped below the lowest points ever since the silver futures come into the market. The pullback risk at RMB 3700 should be prepared against cautiously during the intraday trading. The silver in foreign market yesterday slipped below the USD convergence region between $17.6 and $ 16.6 after sideways adjustments of silver in the foreign market for the past 21 days. On the whole, the silver is still following the trend of gold, but the decrease of silver is higher than that of gold after the period of consolidation. The positions of silver ETF remains flat for 12 days, indicating the funds are basically waiting for the following opportunities.

Stock Index

Stock index fluctuated in the early session yesterday and increased in the afternoon session. The trading volume is increasing as well. After growing for a few days, the stock index offsets its previous decline and turns into a strong trend. The weak economy is likely to grow sound and steadily due to the easing policy, new policy on mortgage and other policies which aims to stabilize the economy. Whether the economy will rally or not still needs to be seen, but the policy expectation bolsters the market. The Shanghai- Hong Kong Stock Connect, the reform of state owned enterprises and the free trade zone drag the related stocks up as well. The stock index may remain the strong trend. Whether the RMB 2500 will be broken through should be in focus.


On Thursday LME copper price hit support when it goes down to $6680, which covered partial lost, closed down by $19.25. Recently, the U.S. dollar back to the upward trend, which hammered the copper price. Overnight information suggests that ECB is expected to apply ABS purchasing plan in Nov., which would support the copper price somehow.
Fundamentals, LME spot premium edged up $1 to $75; inventory level almost flat with 162700 tons. In domestic market copper premium rally back RMB 50 to discount RMB 50 to premium RMB 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.
From the supply side, Chile Company Antofagasta output level is 169200 tons in the third quarter, which dropped by 2.87% year-on-year and 3.11% compared to the same period last year. Los Pelambres had labor death accident which led to a decline of production. It repeated announce that this year it is going to remain 700000 tons output. Therefore the production on the fourth quarter should be improved. Technically, copper price is waving around $6700-6830. Considering with the upcoming strike, investors should invest for short-term.


On Thursday LME 3-month aluminum waved, closed at $2024 per ton, up 0.01%. 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. SHFX aluminum is waving up.


Part of previous gains of soybean and soybean meal in Dalian Commodity Exchange were offset yesterday. The price of soybean spot is relatively stable. Investors tend to wait for the following opportunities of the soybean market. The soybean spot may face further downward pressure as the selling peak of soybean is coming. Following the trend of the U.S. soybean market, domestic soybean meal spot was up from RMB 20 / ton to RMB 60 / ton. Domestic supply remains in a good condition. Bearish sentiment still exists due to the upcoming imported soybean in November. In terms of operations, long positions of soybean meals should be shrunk. As for the No.1 soybean, it is believed contracts in near months are strong while contracts in far months are weak.


Yesterday pp futures ended up with a cross on the K line, opened at RMB 10010, closed at RMB 10001. The high is at RMB 10043 and the low is at RMB 9960. The trading volume dropped 9648 lots to 328000 lots; the holdings dropped 31006 lots to 179000 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 10650 per ton, East China mainstream quotation around RMB 10700-10800 per ton, South China mainstream quotation in RMB 10600-10800 per ton. Fundamentals are short for momentum to pull up the price. Current price is waving around 10000 points; MACD exposure is upward, but upward momentum is not enough. In terms of operation, investors should wait for the confirmation of 10000 points.
                                                                                          Dong LV (Investment Certificate NO. TZ008452)