Daily Report 050416 2016-04-05
Macro Economy
Yesterday US stock market benchmark index dropped from last year high point; collapse from consumption sector and industrial sector offset the gains from health care sector. S&P 500 index dropped 6.65 point or 0.32% to 2066.13 point. Last Friday and yesterday data indicated US March ISM manufacturing industry raised from 49.5 in February to 51.8 and, for the first time rose above the 50 threshold since last August which mainly was under boosted from soared orders. But US February factory orders dropped 1.7% from preceding month and, durable goods orders dropped 3%. March University of Michigan confidence data final value was dropped from 91.7 in February to 91. From the most important employment perspective, March non-agriculture employment increased 215,000 which exceeded expectation; February data after revised was increased 245,000; average hourly wage increased 0.3% month-on-month; unemployment rate edged up 5%. Overall, above data showed the US economy reviving trend hadn’t shifted, especially the manufacturing industry was rallying from the bottom. From Fed side, Cleveland Fed president Mester indicated the US economy bolstered interest rate hike within this year and, should not prolong the hike for too long. Boston Fed Rosengren indicated the market was over pessimism on the expectation of once rate hike each from this year and next. Standpoint from both was basically hawkish, since the Fed management on market expectation, we tend to consider probability on rate hike in April was extreme low under current condition and, June would be an important rate hike window phase. But if rate hikes in June, there will be hawkish expression indicated at Fed April meeting. Current probability on once rate hike in June, September and December is 25%, 39% and, 41%, respectively. US dollar index is still hovering at high point above 94; hammer on commodity market is low.
From domestic side, PBOC Monetary Policy Committee emphasized at the first quarter regular meeting, current Chinese economy and financial operation was overall in stabilization but, should not underestimate the complexity of market, should pay more attention on moderately easing and tightening; use multiple monetary policy tools flexibly. PBOC has injected RMB 16.67 billion through SLF and, RMB 134.5 billion through PSL to three policy banks in March; didn’t launch MLF. In addition, last Friday data showed Chinese March official manufacturing PMI raised back to 50.2, which for the first time stood above the threshold since last August. To put it into specific, productions, new orders, new export orders overall rallied; manufactured inventory decreased and, material inventory increased which showed the improvement on production and demand; manufacturers accumulated raw materials and expanded production. Meanwhile, expectation on production and operating activities raised again indicated the enterprise sectors were overall in optimistic expectation. From current circumstances, phased stabilizing of domestic economy is likely to continue.
 
 
Stock Index
Last week stock index raised after slumped twice, market sentiment was stabilizing. Caixin news: Chinese initial debt-to-equity swap scale was RMB 1 trillion, the debt-to-equity swap can reduce bad debt from banks and, lots of problems can continue prolonging, which showed bullish in a short term. News on mutual verification of stabilized economy: March newly increased credit data was likely to be higher than in February, credit at the first quarter might had exceed RMB 4.3 trillion. PMI data was 50.2, stood above threshold again, which indicated effect from finical had shown. NDRC: overall investments on newly operating project plan sharply increased 41.1% year-on-year; growth increased 42.9% year-on-year; industrial enterprise profit growth revived; target constructive funds from prior two quarters of this year was RMB 1 trillion totally. From external side, Yellen made dovish speech; US stock ended high; China had good external environment on continuing easing and fiscal incentive. But market was lacked of leadership currently, only it was hard to downward adjust, volatile might shown during the revive trend. We recommend operating in long out of the fluctuation.
 
 
Copper
LME copper price failed to rally among the Chinese Qingming holidays and, continued dropping; copper price ended at $4774 on Monday, was $100 or 2.1% lower than the 4872 at Chinese market end before the holidays. From relevant factors side, slumped crude oil price had dragged the copper price; possibility on crude oil producing country froze output was smaller, fundamental side had become the crucial momentum on crude oil price dropping. On copper market, LME dropped $6 to $18.42, last week three main exchanges overall inventories decreased 23536 tons, including SHFE decreased 17174 tons, LME decreased 6625 tons, COMEX increased 263 tons. And domestic bonded area inventory had increased to 510,000 tons up to the end of March, which set a record high point since last August, increased 130,000 tons compare to February; the increased domestic bonded area inventory might hammer the copper market. Monday LME inventory turned to slightly increased 75 tons. Global inventory was in the upward trend and, it was the largest hammer over copper market. Technically, copper price will try the 60-day moving average system at $4685. Resistance is at five-day moving average $4685.
 
 
Soybean
Oil against meal ratio continued setting record high at 2.637:1. Domestic soybean continued weak tendency, among which northeast area showed most plainly collapse; current moving average had down to RMB 3500/ton, market bearish momentum continued rising.
From soybean meal side, spots price was weak out of stabilization, oil plants quotation from most areas were at RMB 2380-2420/ton. Spots trading were flat and, low point basis trading volume slightly increased. Pig price increased but, pig breeding stock was hard to revive in a short term. Aquaculture was hard to increase the demand on fodder recently; soybean meal oversupply pattern didn’t change and, price was easy to drop and hard to rally. As for operation: we recommend soybean No.1 contract and soybean meal holding long in light positions or closing off; arbitrage between oil and meal staying in observation.
 
 
Natural Rubber
Shanghai rubber rallied after dropping before the Qingming holidays; futures followed to drop and US dollar spots followed to rally. Up to last Friday: domestic spots price was 1280-1290; domestic cargo price 1290-1300; US dollar RSS spots price 1430-1440; US dollar RSS cargo price 1430-1450; RMB mixed rubber 10000-10100. From news side, last week global economy data was concentrated released: non-agriculture report was strong with employment increased 215,000 after the seasonal report but, the US dollar was still in sluggish; US dollar oil price and gold price both dropped, since Fed president Yellen had plainly indicated no intention to hike rate in April. From domestic side, Chinese March manufacturing industry PMI raised back to 50.2%, stood above the threshold for the first time after seven months; but data before the holidays showed PBOC March net funds withdrawal had exceeded trillion RMB, the monetary policy was caught in a dilemma. Overall, Shanghai rubber domestic market No. 09 dominant contract was under a big influence from financial feature and, No. 05 contract was relative weak under the hammer from delivery; overall pattern was hard to get rid of fluctuation.
 
 
PP
Last week PP futures rallied after dropping. From upstream side, up to Monday night, FOB Korea propylene average price was $655.5/ton. From device side, current operating ratio was about 91%, slightly lower than preceding week. From spots side, last week domestic PP spots price edged up out of stabilization. Devices in Shenhua Baotou and Sinopec-SK Petrochemical were under overhauling, petrochemical price raised. But receiving from downstream was limited at the end of month which restricted the upward trend; market quotation was mainly adjusted among interval.
Take wires as example, quoted prices for wires spots of north, east and south markets are RMB 7250-7450/ton, RMB 7450-7650/ton and RMB 7650-7750/ton, respectively.  
As for operation, current moving average system was mainly arranged in long; MACD green column shortened; price broke through prior resistance level at 7000 mark as upward trend but, recent volatile on crude oil increased; whether production freeze agreement can be achieved was uncertain, risk was high and, we recommend staying in observation.

 
                                                   Dong LV (Investment Certificate NO. TZ008452)