Daily Report 211215 2015-12-21
Macro Economy
Friday US stock market had its largest decline for the second day within three months as investors weighed the influence from Federal Reserve's rate hike and, the outlook from global economy slowdown. S&P 500 index dropped 36.37 point or 1.78% to 2005.52 point. Richmond Fed president Jeffrey Lacker indicated the public should take each FOMC as a meeting that would take actions; it was too early to estimate whether he supported Fed interest rate hike in January. San Francisco Fed president John Williams indicated Fed would promote employment and increase inflation depended on slowly interest rate hike which not followed any predictable patterns, interest rate might be hiked in every meetings. Overall, current speeches from Fed officers were still tended to hawkish but, from historical perspective, possibility on interest rate hike in January was small. The policy-making committee in January will make guidance on whether hikes interest rate in March. In addition, US president Obama signed a bipartisan law, including a $1.1 trillion government-wide spending measure through the end of current fiscal year and, a $680 billion tax package extending on individual and enterprise. More important, this bill lifts the forty-year crude oil export ban which harms the crude oil market. There is no possibility on crude oil goes strong in medium and long term presently, hence US overall inflation may hard to persistently strong after growing in the end of this year and the beginning of next year.
On domestic side, China’s central bank offered a total of 100 billion yuan in six-month medium-term lending facility loans at 3.25% to 13 financial institutions on 18 December, basically leveled off with operation in last month. In addition, United States Congress passed IMF governance reform scheme on Friday, which would make China, India and other emerging markets speak with a louder voice. After this reform come into force, China’s vote share in IMP would leap to the third from the sixth. This is a bullish for RMB “going out” in long-term but, from short-medium term, influence on RMB exchange was small.
Stock Index
The Central Economic Working Conference was held on Friday, the content of the Conference hadn’t issued but, from several aspects, we estimated the contents were boosted to the economy upward expectation. Firstly, prior the Politburo meeting indicated “economy operation was overall smoothly, boosting out of stabilizing”. Secondly, adjusted financial deficit; might expand deficit in next year and, shift more debts from business enterprise sector to government sector which had lower debts. Thirdly, Fed’s rate hike had already into practice which showed out of bearish and, might further reduced reserve fund. Fourthly was developed real estate market in the countryside. Fifthly, De-capacity, clamping down the zombie enterprises. They are all different from traditional stabilizing growth and, are sustainable development logically. Overall, current news tends to be optimistic and, economy data seems to already hovering in the low point, risk on hard landing is small. The bullish expectation from market on reforms is stronger than the concern on economy downturn. The core of index may continue rising, overall pattern is in fluctuation.

Last week cooper price fluctuated within interval and, soared on Friday. After Chinese Academy of Social Sciences and central bank released research report in succession, NDRC economy research group as well made outlook upon economy prospect in 2016. The outlook indicated, China’s economy development long-term bullish fundamental had no changes but, under the cumulated influence of structural and cyclical factors, economy operation was still under huge hammer of downturn in next year; need a positive and vigorous macro policy to accelerate reform and, maintain the economy operating in reasonable interval. It is predicted the whole year GDP increases 6.9%, CPI increases 1.5%. On copper market, LME was flat; domestic was discount RMB 90 to flat; last week three major exchanges copper inventory increased 7614 tons, including LME decreased 450 ton and SHFE inventory increased 9205 tons. On supply side, according to news on 19 December, Hongkong, domestic large scale copper smelting plants reached agreement in Saturday meeting, if copper price continued dropping or processing and refining costs were lower than smelters’ costs, they might expand its original  output reduction plan to over 350,000 tons. Technically, we tend to consider cooper price is likely to continue rising in the future; if LME rises above $4750, next target is $4900; if domestic copper resistance is RMB 36350, next target is RMB 38000. We recommend long positions to continue holding.
Soybean No.1 contract still fluctuated within interval; oil and meal switched the strong and weak tendency, oil against meal ratio started to weaken. Domestic soybean spots were strong out of stabilizing, current overall market buying and selling momentum was poor. Current surplus grain in Harbin and Suihua, Heilongjiang province was about 50%-60%; surplus grain in Heihe consumed fast at about 50%; consumption in Tsitsihar was lower than the 60% in previous years; surplus grain consumption in eastern was slow, generally above 70%, surplus grain in partial villages was even over 80%. We considered soybean No.1605 contract fluctuation interval was among RMB 3600-3800/ton in short-term, recommend buying at high and selling at low within this interval.
Soybean meal price was smoothly, partial areas and oil plants slightly adjusted; trading and investing momentum was in general level; forward basis sales were thin. Oil against meal ratio dropped to 2.34:1, tendency started to weaken. As for operation, we recommend holding arbitrage between long meal and short oil.
Last week PP futures continued fluctuated. On upstream side, up to Friday night, FOB Korea propylene average price was $581.5/ton. On spots side, last week PP market price downward tendency slowdown. Though crude oil price was continuously dropping, PP spots showed resilient. Futures price operating in high point had boosted the practitioner’s mindset.
Current main quoted prices for wires of north, east and south markets are RMB 6050-6150/ton, RMB 6150-6250/ton and RMB 6300-6500/ton, respectively.
As for operation, current moving average system twined, MACD red column extended; though lacked of upward momentum, it has been relatively resistant. Recent futures market condition was deviated from fundamental, we recommend staying in observing.

                                                                               Dong LV (Investment Certificate NO. TZ008452)