Daily Report 120416 2016-04-12
Macro Economy
US stock market dropped in the end of the trading day which offset the increase from mid-market and, investors might face the worst earning season since the financial crises. S&P 500 index dropped 5.61 points or 0.27%. From news side, San Francisco Fed President John Williams indicates over the past year, market based index upon data has increased, but is still worse than the normal level from prior period. Dallas Fed president Kaplan indicates, the first-quarter weak economy shows it’s not the right point for interest rate hike now, but still not sure about June; tactics up on interest hike is still cautious and patient, maintain its prudent dovish style. Mostly, it’s unlikely to increase interest rate in April; the attitude from Fed statement in April is noteworthy. From Europe side, up till 8 April, the amount of acquired assets dramatically increased more than doubled, reaching 18.8 billion Euro during the first week after the expansion of Quantitative Easing; set a record high after launching QE in March, 2015. ECB president Draghi indicates on 10 March that monthly asset purchase scale will increase from 60 billion to 80 billion Euro, starts from 1 April. We regarded US and European economy and money policy marginal gap will narrow but continue exists, which will lower the US dollar index range bound;  will continue weak before more news, reduce pressure on commodity market.
Domestically, Chinese president Keqiang Li presented on yesterday’s economic situation forum that,the favorable factors boost economy was increasing, but downward pressure still existed; Would gradually reduce enterprise leverage rate through debt-to-equity swap; promote imports and exports with all kinds of measures. Through data released yesterday, part of food and service price had reduced March CPI month-on-month after the spring festival, and 2.3% year-on-year increase range was lower than market expectation. Pork and vegetable price is the crucial force of price increase, and core CPI pick up slightly, but overall, the second-quarter inflation will continue moderate and controllable. Meanwhile, the month-on-month PPI turns positive for the first time over the past two year, indicating that the increase of commodity prices has brought about the revive of the industrial efficiency. We regard that Chinese monetary policy will emphasize on stabilizing in the short term, and easing policy might be put off; possibility of cut RRR and interest rate is low, and policy might turn to observe and maintain. Mid-term inflation expectation rallied, and differences existed on future inflation expectation. In addition, March financial index is still not announced, which will be announced before 15 this month.
Stock Index
Yesterday stock market opened high and soared. Securities, medicine and steel sector rose in the leadership. From news side, March profit of many listing securities increased month-on-month, in addtion, adjusting risk control target of securities firms still boost the sectors, and transmiting the protection of supervision level. The executive meetings of the State Council presented promoting imports and exports with all kinds of measures; reduce enterprise leverage rate through debt-to-equity swap. Debt-to-equity swap is bullish in the short term, but continuous arguing exists about its long term effect. Recently enterprise bond default event is a lot, which bring worry for economy. But bond default of state-owned enterprise and platform can boost capital invest into stock market. There still exists the asset allocation shortage. An excess of currency flows into all sorts of domains like tide. From data side, CPI 2.3% released yesterday was less than expected, raised CPI boosted by port big rally was difficult to continue, and would not restrict the money easing policy. Macro data will release concentrated in this week; data might be stable under steady economy increase.
Overall, stabilizing growth will firm the data; easing continues, and from reform side: Business Tax to Value-Added Tax, debt-to-equity swap and state-owned enterprise reform continue to process, so market is not easy to fall. But problems of economy structure, constancy of stabilizing growth and credit worse still exists. We recommend operating in volatile mindset; bullish news and problems coexist, and don’t chase when the price goes up or down.
Monday domestic and overseas copper market fluctuated narrowly; copper price resistant at average 5. Weak copper market comes from increasing crude oil, ferrous market and weak US dollar. Through analysis, this is related to copper fundamental, especially the worry over Chinese consumption and consumption amount of storage. Earlier increasing cooper price benefitted from global storage turns to China, and market regards China has better demand. But recently, market begins to focus on this huge storage start to export, which causes the weak copper price. Monday LME storage continued increasing 1675 tons; last week LME storage totally increased 250 tons, changed the sustained dropping tendency. Spots premium edged up $1.25 to $15, was lower than $20-$30 since mid March. Considering normally China peak period ends at May, consumption is at poor  condition, the state reserve bureau of China just finishing purchasing storage and, upstream production limit influenced by copper price rally, we think copper price is on the stage of rollback. If resistance at five day moving average system is effective, copper price will continue dropping.
Steel Rebar
Night session rebar futures price fluctuated and went high; rb1610 deal with high volume, ended with 2305. From Macro perspective, through Zhongyuan Real Estate data, Shanghai new houses dealing average price is 28533 RMB/㎡ between April 4th and April 10th, and decrease 13.3% month-on-month, first time lower than 30000 RMB/㎡ since last September. Deal of second and third line cities all line increase, and real estate de-stocking show effect. De-capacity plans of eight provinces have been reported, and local targets exceed country expectation. From industry side, 2016 first-quarter Lianyungang port imported iron ore and concentrate are totally 13.749 million tons and 0.576 billion dollars; year-on-year goods weight increase by 42.59%, but goods value decrease by 2.5%. From spot side, domestic leading building materials price continues increase. Beijing major diameter price is 2700 RMB/Ton; Tangshan level 3 earthquake resistance is around 2700 RMB/Ton; Shanghai district building material is around 2470 RMB/Ton; about hot coil, Shanghai 5.5-11.75*1500*C hot coil is 2730 RMB/Ton; Tianjin 5.5-11.75*1500*C hot coil is 2800 RMB/Ton. About billet steel, Tangshan billet price is 2220 RMB/Ton. Bolstered by downstream requirement, since spot resource is short and price remains strong, we maintain upward with fluctuation expectation.
Natural Rubber
Yesterday rubber continued raise with high volume reaching high limit; night session open high then fall. Raising price lit Qingdao Free Tax Zone trader offing activity; STR price is low relevant to offer. As is known, goods hoard in several investors with big positions; retail investors hold little STR spot goods, and not willing to sell. Up to spots trading period: domestic spots price is 1440-1450(+100); domestic cargo price is 1420-1440(+70); US RSS spots price is 1580-1590(+100); US RSS cargo price is 1590-1600(+90); RMB mixed rubber price is 11000-11100(+400). From news side: Through data released yesterday, part of food and service price reduce March CPI month-on-month after spring festival, and 2.3% year-on-year increase range is lower than market expectation. Year-on-year PPI is -4.3%, higher than expectation, downward range narrowed within continuous 49 months. From industry side, Qingdao Tax Free Zone storage continued slightly reduction tendency. First, inbound volume didn’t change much compared with last week. Then, outbound volume reduced sharply, about two or three thousand tons. Overall, Qingdao Tax Free Zone storage continues going down, but last week downward range is not big. CPI is lower than expectation; PPI downward range narrows and month-on-month ratio turn to increase, boosting commodity market with many varieties reach high limit. Although natural rubber is under hammer of delivery recent months, but demand for spot is good; traders are unwilling to sell with up going price tendency, which boost its price and will remain strong in the short term.
Yesterday PP futures opened high and fluctuated; opened at 6818 and ended at 6830, trading volume increased 29200 lots to 2.437 million lots; holding volume decreased 65866 lots to 617,000 lots. From spots side, yesterday domestic PP price adjusted weakly. Part of Sinopec reduced producer price; Practitioners’ confidence is limited and trader sell actively, hence profit is slightly surrendered. Homopolymerization quotation represents by wires drops in the south china area. Downstream enterprises purchase at low price, and overall firm offer is not good. Intraday main quoted prices for wires of north China, east China and south China markets are RMB 7350-7450/ton, RMB 7450-7650/ton and RMB 7550-7700/ton, respectively. As for operation, currently moving average system twines, MACD green column extends and weak volatility is expected; recently volatile on crude oil raised and risk increased, so we predict narrow fluctuation and recommend staying in observation.
                                                      Dong LV (Investment Certificate NO. TZ008452)