Daily Report 070416 2016-04-07
Macro Economy
US stock market rallied; speculations on mergers and acquisitions boosted the health care sector and, the rallied oil prices boosted the energy sector. S&P 500 index set the largest increase range over more than three weeks, raised 21.49 point or 1.05% to 2066.66 point. Last night news showed, Fed released its March FOMC meeting minutes, indicated policymakers were uncompromising on whether to hike rate in April; majority officers suggested to be cautious since concerns on global risk would cumber US economy. St. Louis Fed President Bullard indicated though inflation had started rising, economic slowdown in the first-quarter may hammer the Fed slowly rate hiking plan. Cleveland Fed President Mester indicated it was appropriate for the Fed to continue gradually reducing the easing measures in this year. Overall, the content of this meeting was mainly in line with previous meeting statement, the possibility of April rate hike further dropped. On the other hand, the difference within the Fed officials still exists and is getting worse, inflation and macroeconomic risks remain a bone of contention. Currently, the possibilities of interest hike to 0.75% in April, June and December are 3.5%, 17.4% and 39.9%, respectively. Although the possibility of April rate hike is low, the attitude of the Fed meeting in April is still very important, which might provide guidance to whether to raise interest rates in June.
Domestically, "China Securities News" front-page commentary indicated multiple challenges of corporate debt risk outbreak, profitability improvement, inflation expectations caused by "pig cycle" occur with economy stabilization. In the short term, inflation mainly caused by structural factors and, in the long term risk of inflation rise is still alarming. In addition, China's central bank will announce March foreign exchange reserves data intraday. Under the circumstance of RMB appreciation in March, the decline rate of foreign exchange reserves is expected to slowdown, which is expected to decline from $ 3.2 trillion at the end of February to $ 3.196 trillion, and this will be the smallest decline since October last year, the last rise. In the short term, the slower pace of dollar interest rate hike reduces the hammer on RMB.
 
 
Stock Index
Yesterday stock index volatile sideway; IC was slightly stronger and the concept stock was strong. Recent rallied index was mainly benefited from the power of financial and, monetary easing, which already showed a certain impact. 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 be continued prolonging, which showed bullish in a short term. In addition, there was PMI, newly operating project plans, industrial enterprises profit revive and other signals showed economy was temporally stabilizing. From reform side: after the Change from Business Tax to Value-Added Tax, VAT income might split 50-50 from central and local government; in the long term, the adjustment on central and local government taxation right and authority might help the local government gradually getting out its dependence on land finance. 
From overseas side, Fed meeting minutes showed majority of FOMC members voted against with rate hike in April and, partial members support to hike interest rate in April. China got good external environment to continue easing and fiscal incentive. But there is no persistently leader in the market at present, market still wary on the economy under the seemingly stabilizing condition; in addition, concept on manufacturing industry has already been hyped, which is hard to hype again in this year. We recommend operating in long out of fluctuation in the future but, not too optimism.
 
 
Copper
Wednesday copper price slightly fluctuated at five-day moving average. On copper market side, LME spots premium edged up $0.75 to $18.5; inventory continued decreased 350 tons. Domestic spots discount were discount RMB 80-20; downstream still under observation mindset and, market trading mainly fell on middleman, trading volume increased compare to yesterday. From supply side, Japan Dowa Holding expected output on electrolytic copper from April to September decrease 15.4% to 48,000 tons year-on-year. But the decreased output was because of the shares on Onahama smelting and refining output had been taken over from Mitsubishi Material since this fiscal year. Technically, copper price is likely to adjust in a short term and, we recommend waiting for the new opportunity to short.
 
 
Soybean
DCE soybean rallied in the night session followed the overseas market; oil against meal ratio was 2.592:1. Heilong soybean price was stabilized, after filtered grain purchase price was already under RMB 3600/ton. Recent market was covered with pessimism sentiment; demand subject was hesitated to enter the market since concerns on price further dropping in the future; grain merchants and enterprises mostly purchase as own demand, market lacked of stocking momentum which caused the pattern on unsalable soybean even more sluggish. In addition, soya farmers were concentrated selling grains at present, phased supply had increased but demand was insufficient, which lower the price.
From soybean meal side, spots price edged down in partial area, oil plants quotation was at RMB 2350-2400/ton. Rallied aquaculture brought a certain extent on demand of soybean meal but, in limitation. As for operation: fundamental on soybean No.1 contract is weak and, we recommend staying in observing; soybean meal longing in light volume when price is low; arbitrage between oil and meal operates in short band ratio retracement at 2.62:1.

 
PP
Yesterday PP futures opened low and went lower; opened at 7020 and ended at 6912, trading volume increased 25888 lots to 1.657 million lots; holding increased 27366 lots to 645,000 lots. From spots side, yesterday partial domestic PP market price highly quoted; trading and investing was in stalemate. Market price was firm under the bolster from partial rallied producer price. But enterprises in downstream mainly purchase as demand, market trading was flat.
Intraday main quoted prices for wires of north, east and south markets are RMB 7400-7500/ton, RMB 7550-7650/ton and RMB 7650-7750/ton, respectively.  
As for operation, current moving average system still arranges in long but, price is plainly under hammer at 7000 mark; in addition, recent volatile on crude oil increases, risk on dropping has exacerbated. We recommend staying in observing.
 
 
                                               Dong LV (Investment Certificate NO. TZ008452)