Daily Report 220216 2016-02-22
Macro Economy
US stock market benchmark index slightly shifted which set the best single week performance over eleven months; science and technology sector and consumption sector went high, offset the commodity downward trend from slumped oil price. S&P 500 index edged down 0.05 point was closed at 1917.78 point. US January core consumption price increased 0.3% month-on-month, set the largest increase over four years which bolster Fed’s expectation on inflation acceleration. Cleveland Fed president Mester regards US economy will get through the market turbulent period and the economy data weakness area, a gradually interest rate hike path is still appropriate. Fed releases economist report, tendency on inflation may torture the US economy. Fed duns interest rate futures indicates the probability of interest rate hike in March, June and December is 2.1%, 16.9% and 31%, stays in low probability as previous stage. In addition, Cameron, Prime Minister of UK indicated would hold a referendum about EU membership on 23 June and, claimed leave EU would threat UK economy and national security. From current circumstances, probability on UK leaving the EU should not be ignored and, Chief Minister of Scotland indicated UK leave the EU would force to hold a second referendum on Scottish independence. It is too early for the referendum presently, market hasn’t sharply fluctuated yet and, we will continue paying attention on the situation.
From domestic side, the State Council of China decided to remove Xiao Gang’s position of head of China’s securities watchdog and, appointed Liu Shiyu, former chairman of the Agricultural Bank of China to replace it. Historically, usually a personnel change from CSRC is a bullish to stock market. PBOC indicated minority of banks was no longer satisfied on orientated reduce reserve standard and, unable to continue benefited from the favorable reserve ratio; PBOC as well indicated it had nothing to do with new bank loans growth. But we regard this policy more or less considered the situation on M2 overly rapid growth and, it had the function of preventing exchange rate weakening. Central Bank vice president Yi Gang indicated, the monetary policy should keep stabilizing, moderating and flexible, over easing would cause hammer on exchange rate devaluation. Former consultant of Central Bank, Li Daokui indicated, China should stabilize the RMB exchange rate and, should not produce excessively devaluation hammer. Overall, possibility on RMB exchange rate especially the offshore exchange rate fell to prior low again is small; we predict it will fluctuate near current level.


Stock Index
The rally after the Spring Festival firstly was because of declaration from top managements: prime minister indicated would decisively take actions if the economy slipped out of reasonable interval; the eight ministries and commissions united announced that finance should support the real economy; Zhou Xiaochuan declared on exchange rate and, would against with the speculation momentum; along with social financing data sharply exceeded the expectation which dragged the market expectation on stabilizing growth. Local government bond volume increased would as well trigger the expectation on stabilizing growth. Secondly, because of the huge amount of credits and, were continuously increasing in February which exceeded the pessimism expectation on economy before the holidays. Thirdly, exchange rate was basically stabilizing, investors’ mindset were stabilizing. In consideration of the index is not high; has dropped for a long time; the short term mindset is strong; bolster is at the low point, the core of fluctuation may continue increasing.


Copper
Last week copper price slightly increased, crude oil price stopped falling which bolster the copper market; but since domestic copper inventory was constantly rising which made copper price lacked of rally momentum. Last week SHFE inventory increased 35,600 tons, increased 29,000 tons in the last week before the Spring Festival; so far inventory of SHFE has reached to 276,900 tons and set the record high. From analyze side, China copper inventory increase is relate to sharply increased import; presently we focusing on China copper producer reduce output and the reserve purchase condition from China State Reserve Bureau; whether China copper inventory would decrease in the future is the focus. Last week LME inventory decreased 14800 tons, COMEX inventory increased 728 tons. LME spots premium rallied back to $3.25 in the weekend after falling in last week. Overall, current policy tends to easing in macro side; copper market is still in the first quarter rally trend; LME interval is 4460-4760; domestic copper is RMB 35000-37000.


Soybean
Soybean is overall in weak after the holidays and, shows divergence between contracts. Soybean No.1 contract is weak out of fluctuation; oil against meal ratio met resist at 2.435 temporally. Northeast area soybean market is still in the sluggish, though most trading entities haven’t entering the market after the Spring Festival, scattered quotation is still in the weak trend; core of the whole price is down moving, hence the soybean No.1 contract futures weak tendency is expected hard to change.
On soybean meal side, oil plants at coastal region gradually starting operation, trading volume on soybean low price spots and basis has slightly increased; market observe momentum is plainly. The Spring Festival made soybean inventory at port increased but, February import soybean port arrival hammer was not huge, soybean quotation at port increased compare to before holidays. For operation: soybean No.1 contract adjusted in low point and, we recommend holding light in shorts; arbitrage between oil and meal may consider stop profit at 2.4:1.


Natural Rubber
Last week Shanghai rubber rose in fluctuation, US dollar spots market quotation increased about 20 over one week. Up to Friday: domestic spots price 1060-1070; domestic cargo price 1080-1090; US dollar RSS spots price 1250-1260; US dollar RSS cargo price 1250-1260; RMB mixed glue price 8500-8600. On news side: Qingdao Bonded Zone goods concentrated arrived during the holidays but, last week stock in and out was thin; SHFE inventory subtotal increased 552 tons to 275,897 tons; inventory futures increased 5170 tons to 221,450 tons; tire plants in the downstream were gradually back to production; US Department of Commerce launched antidumping duty and countervailing duty investigations again, it was reported that the window of avoid countervailing duty had almost closed and, the tire avoided antidumping duty need to be exported before 8 March. From macro side, last week China macro data concentrated released, concern on stagflation back to investors’ view; variation of natural rubber’s fundamental was not huge but, the overall risk appetite of the financial market had increased; we predicted Shanghai rubber would continue strong in short term and, was hard to get rid of fluctuation pattern in the midterm.


PP
Last week PP futures rallied after slumping. On upstream side, up to Friday night, FOB Korea propylene average price was $585.5/ton. From device side, current operation ratio is about 90.3%, slightly higher than before the Spring Festival. From spots side, since the product enterprises in downstream haven’t back to production yet, manufacturing enterprises accumulate lot of inventories during the holidays; market bearish momentum increased and price edged down.
Current main quoted prices for wires of north, east and south markets are RMB 6100-6300/ton, RMB 6200-6400/ton and RMB 6450-6600/ton, respectively.
As for operation, current moving average system is arranged in long; MACD red column extended; but the spots market hammer is huge after the holidays and, it is expected to continue fluctuation.


                                                     Dong LV (Investment Certificate NO. TZ008452)