Daily Report 110416 2016-04-11
Macro Economy
Last Friday US stock market edged up at close, and narrowed the maximum weekly drawdown in the recent two months. Rising oil price boosts energy sector which offset cumbrance of biotechnology sector. S&P 500 index raised 5.69 point or 0.28% to 2047.60 point. Last Friday night, New York Fed president Dudley indicated to be cautious on interest hike, as the capability for the Fed to reduce policy interest is limited, and global economy prospect is the source of uncertainty and risk for US. This statement is dovish and identical with before. What’s more, Atlanta Fed reduced first-quarter GDP growth expectation from 0.4% to 0.1%. At the meantime, many investment banks, including JP Morgan and Barclay reduced first-quarter GDP growth expectation. Overall, first-quarter US economy slowdown has been expected by investors. According to federal fund interest rate futures, the Fed April interest hike is with tiny possibility, and that of June is reducing. The Fed meeting this week will be another window of transformation, currently there is no persistent factor to support dollar to be strong, so dollar will maintain weak in the short term.
Domestically, NDRC claims that China will maintain the pig price in stabilizing, and stay stable at a high price level with limited increase space. We believe pig stock is at a low level and capability is limited, so pork price will increase with a high possibility. Structural inflation will continue, and the expectation for mid-term inflation is higher. State Statistics Bureau will release March inflation data at 9:30 intraday morning. According to expected mid-value from Bloomberg, CPI increases 2.4% year-on-year, and set the highest point over 22 months; PPI decreases 4.6% year-on-year, continuously downward record extends to 49 months. Bloomberg food inflation index increases 7.87% in March which set the biggest decline drop from January 2012. CPI will increase with high probability, we recommend paying attention on the performance of core CPI.
 
 
Stock Index
Last week stock index dropped for two straight days; Shenwan first class sector all line dropped, stock index and defense industry drop in the leadership, which used to be the leader on upward trend. Current market focus was gradually turning to debt default. CSRC relevant personage indicated “leverage release” on revise its risk management rules on securities firms was misread. Debt-to-equity swap from banking is bullish in a short term but, the long term effect is constantly under dispute.  Above all, from another point of view, the problems entity enterprises are facing is unable to rely on other measures to delay. Market starts to concern on local debt ever since 2012 and, as well concerns on the latter rigid payment problems; the accumulated problems will be larger in the future. Up till now, news on bond market default constantly spreading and, problems on PtoP platform emerges in an endless stream; seems like the debt problems is already in the stage of unable to cover under administrative power; market sentiment is likely turns to anxious tendency. Prior period rally is because of the fiscal incentive and, eased credit which causes the economy data turns to upward trend, but persistence on this upturn is questionable, before which, the expectation is worse and price is even lower, hence, rally trend shows. Current market is lacked of upward momentum and, is indifferent on the bullish from economy data, tax reduction and stimulation. It's not saying market has turned bearish but, current hammer on rallying is heavier then dropping.
 
 
Copper
Last Friday domestic and overseas copper price slightly adjusted at low point and, was extreme weak compare to crude oil soared 5.72%. Market expected Fed would hike rate in June, bolster from weakened US dollar to copper market was limited in a short term. Back to copper market, last Friday LME spots premium decreased $1.25 to $13.75, domestic spots turned to premium RMB 10-60. Last week three major exchanges overall inventory decreased 7605 tons, including SHFE decreased 7800 tons, LME inventory increased 250 ton and, COMEX inventory decreased 55 tons. Recent domestic inventory was reducing and, LME inventory stared increasing; the increased Chinese export was hammering LME. Current numerous Chinese inventories had caused concern from overseas investors. Workers from Cerro Verde copper mine of Freeport started striking earlier on Friday since the bonus problems; it was reported planned to strike for 48 hours and, the output in 2016 from which would increase from 247,000 tons to 500,000 tons. CFTC showed funds on short positions had increased. Overall, copper market performance was weak and, was likely to continue dropping after the short term adjustment.
 
 
Soybean
DCE soybean rallied following the overseas market, oil against meal ratio was 2.586:1. Recent northeast soybean price was still in weakly downward trend; market mainstream quotation was at RMB 3600/ton. Current wet rations amount was huge in northeast areas and, soya farmers were eager to sell out; soybean in low moisture and high protein occupied small percentage which was insufficient to rally the price.
From soybean meal side, last week spots quotation decreased out of stabilization, oil plants quoted among RMB 2320-2400/ton. Pressure from soybean port arrival amount would appear gradually since the second half of this month; soybean meal market was hard to say in optimism under the impact from sluggish corns but, downward range would not be huge in a short term, upward trend was weak. As for operation: fundamental on soybean No.1 contract is weak and, we recommend staying in observing. Soybean meal longing in light holdings when price is low; short the arbitrage between oil and meal at 2.62:1.

 
Natural Rubber
Last week Shanghai rubber sideways volatile; volume increased at Friday night session with price upward hitting 12000 point. Up to spots trading period: domestic spots price is 1340-1350; domestic cargo price 1350-1360; US RSS spots price 1480-1490; US RSS cargo price 1500-1520; Singapore cargo price 1390-1410; RMB mixed rubber price 10600-10700. From news side: SHFE inventory edged up 453 tons to 287947 tons, including inventory futures increased 12970 tons to 253720 tons. Shandong all-steel tires operation rate is 70.12%, increases 1.43% month-on-month. Steel-belted tires operation rate is 75.67%, increases 1.18% month-on-month. Market overall demand improves compare to prior period. Overall, under the resonance from persisted devaluating US dollar and stronger Thailand raw material, rock-bottom assets from Shanghai rubber continued entering market and, tendency was likely to continue strong. In addition, this week numerous amount of macro economy and financial data are due, which may influences the market risk appetite.  
 
 
PP
Last week PP futures dropped after rallying. From upstream side, up to Friday night, FOB Korea propylene average price was $675.5/ton. From device side, current operating ratio was about 92%, slightly lower than preceding week. From spots side, last week domestic PP market price slows its increase trend; trading and investing was weak. Although Sinopec raises producer price, but future market is weak, undermines investors’ confidence. Market trading is in difficulty. Enterprises in downstream mainly purchase as demand, and storage on raw material is low.
Intraday main quoted prices for wires of north, east and south markets are RMB 7350-7450/ton, RMB 7450-7650/ton and RMB 7550-7700/ton, respectively.
As for operation, current moving average system gradually shifts, MACD green column extends which shows a callback shape. Recent volatile on crude oil extends, and market is full of speculation of produce reduction; risk increases and we recommend staying in observation.
 
 
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