Daily Report 180416 2016-04-18
Macro Economy
Last Friday US stock benchmark index decreased, technology stocks joined the ranks of dropping of energy stocks. S&P 500 index dropped 2.05 point or 0.1% to 2080.73 point. Data shows that US March manufacturing industry output value decreased 0.3% month-on-month, created the biggest drop during the year, and the expectation was 0.1% increase. April University of Michigan consumer confidence index dropped to 89.7, created the lowest since last September. Chicago Fed president Evans claimed that US economy forecast is correspond to progressive interest hike. April interest hike faces high obstruct, but if data improves, there might be a third time interest hike. St. Louis Fed president Bullard claims that US first-quarter economy data should be concerned in a way. Overall, current data shows US first-quarter economy is really lower less than expected, though not changes the long-term revice tendency, it already influences the Fed tight monetary policy. It’s almost consensus that interest hike won’t happen in April, and the possibility of interest hike in June is declining.
In addition, 16 oil producing countries negotiated about freeze crude production last week at Doha. Earlier Monday morning Bejing time, oil producer failed to reach deal. Countries are conflict about whether Iran and other countries should join freeze crude production, which causes the failure of common statement. Nigeria oil minister claims oil producer will hold conference again in June to negotiate about freeze production again. Asian oil price slumped by 6% this morning. Failure agreement shows oil price increase power maybe not enough, and global especially US inflation won’t rise fast, which benefits to the Fed slow interest hike.
Domestically, data released last Friday showed that China first-quarter GDP growth was 6.7%; above designated size industry added value increased 6.8% year-on-year. March urban fixed asset investment cumulatively rose 10.7%; the total amount of consumable retail increased 10.5% year-on-year, which was rallied and beyond expectation of market. In addition, social financing scale is RMB 2.34 trillion, and new yuan loans RMB 1.37 trillion is beyond expectation. We consider that rallied inflation and the Fed interest hike slow down are all economy favorable factors; market expectation improvement and real data strength interact, so China economy stabilization will continue currently.
 
 
Stock Index
Last week stock index volatile sideways and tendency upward shifted, bolster from downward side was strong. China first-quarter GDP growth was 6.7%; above designated size industry added value increased 6.8% year-on-year. March urban fixed asset investment cumulatively rose 10.7%; the total amount of consumable retail increased 10.5% year-on-year, which showed stabilizing signal. Combined with factors like export industry enterprise profit increase, it can be seen that the economy is now in the status of stabilization. This is the effect of fiscal policy and easing monetary policy, which hasn’t appeared for nearly a year.
From reform side, firstly, during Business Tax to Value-Added Tax improvement, government transfers 500 billion profits to enterprise, which is a real reform. The state council reduces enterprise social security payment rate, and this will save 100 billion for enterprises. Secondly, debt-to-equity swap is favorable in the short term, but continuous arguing exists about its long term effect. Thirdly, currently default events continuous rising, and risks accumulated from prior period exposes now; market conveys worry by diving. But debt problems have occurred since 2012; systematic default and credit shrink have not form yet, and seems under control in the short term, which means bad debt problem is not that bad.
Overall, stable data benefits from steady increase; easing continues, and from reform side: Business Tax to Value-Added Tax, debt-to-equity swap and state-owned enterprise reform continue to process; In terms of fund side, there still exists the assets allocation shortage and an excess of money flows into all sorts of fields like tide. We expect the market to see an uptrend with volatility.
 
 
Copper
Last week stock index volatile sideways and tendency upward shifted, bolster from downward side was strong. China first-quarter GDP growth was 6.7%; above designated size industry added value increased 6.8% year-on-year. March urban fixed asset investment cumulatively rose 10.7%; the total amount of consumable retail increased 10.5% year-on-year, which showed stabilizing signal. Combined with factors like export industry enterprise profit increase, it can be seen that the economy is now in the status of stabilization. This is the effect of fiscal policy and easing monetary policy, which hasn’t appeared for nearly a year.
From reform side, firstly, during Business Tax to Value-Added Tax improvement, government transfers 500 billion profits to enterprise, which is a real reform. The state council reduces enterprise social security payment rate, and this will save 100 billion for enterprises. Secondly, debt-to-equity swap is favorable in the short term, but continuous arguing exists about its long term effect. Thirdly, currently default events continuous rising, and risks accumulated from prior period exposes now; market conveys worry by diving. But debt problems have occurred since 2012; systematic default and credit shrink have not form yet, and seems under control in the short term, which means bad debt problem is not that bad.
Overall, stable data benefits from steady increase; easing continues, and from reform side: Business Tax to Value-Added Tax, debt-to-equity swap and state-owned enterprise reform continue to process; In terms of fund side, there still exists the assets allocation shortage and an excess of money flows into all sorts of fields like tide. We expect the market to see an uptrend with volatility.
 
 
Soybean
Domestically, DCE soybean rallied following overseas market; oil against meal ratio is 2.474:1. Northeast China soybean spots price ended downward trend and became stabilized last week. Slightly rally happened at partial areas, and boost by south china market recovery, Northeast China market purchase and sale momentum increased. Heilongjiang surplus grain decreased to nearly 20% generally. High quality soybean price downward space is already limited, and future price might be steady and strong; high moisture soybean price might be steady in the short term, but tendency in the future is not optimistic.
From soybean meal side, spots price increased following overseas market, with amount of increase 70-100/ton last week, but market transaction volume didn’t plainly increase. Oil plants quotation was at RMB 2480-2520/ton. Oil plants operation rate increased; because of soybean port pressure will increase, and oil plants has inventory backlog, so short term price rally might be restricted. As for operation: we recommend soybean meal long holdings at low point paying attention to stop profit at 2500 mark; short arbitrage between oil and meal stopping profit below 2.5:1.
 
 
Natural Rubber
Last week Shanghai rubber opens high then falls, up to Friday, domestic spots price is 1440-1450(-10); domestic cargo price is 1450-1460(0); US RSS spots price is 1650-1660(+0); US RSS cargo price is 1660-1690(+0); RMB mixed rubber price is 11300-11400(-100). From news side, up to mid April 2016, Qingdao bonded zone rubber inventory decreased 3.4% to 248,300 tons, which is decreased by 8700 tons. For specific species, natural rubber decrease more, which pull down the total inventory. Synthetic rubber inventory increases, and mixed rubber increases most. Last week bonded zone rubber inbound volume is little, but outbound is active relatively, which is around 400-500 tons. SHFE inventory edged up 2941 tons to 290888 tons, including inventory futures increased 4500 tons to 258220 tons. Downstream tire factory both production and sales are in good condition, and export order remains stable. For domestic market, because of increasing cost, most manufacturers recall sales promotion scale, and some even increase the tire price. From macro perspective, China economy data released last week is brilliant, though GDP is not as good as expected, but CPI is controllable, month-on-month PPI turns positive and social financing, investment, industrial added value are much better than expected. Last week oil countries fail to reach deal on production freeze, oil price dropped heavily by 6%. Overall, although economy data last week boosts commodity long atmosphere, but short term hot money takes profit; we expect price fluctuate at high point.
 
 
 
PP
Last week PP futures continued fluctuation. From upstream side, up to last Friday night, FOB Korea propylene average price was $675.5/ton. From spots side, last week domestic PP spots price went down under pressure. Oil price and domestic market with a pessimistic atmosphere, merchants have the pressure to sell, which causes low quoted price. Merchants observe and not hurry to purchase. Intraday main quoted prices for wires of north China, east China and south China markets are RMB 7050-7150/ton, RMB 7050-7400/ton and RMB 7300-7400/ton, respectively. As for operation, current moving average system twisted; MACD exposure downward extended as weak pattern, and we estimated price would continue downward trend.


                                                                                     Dong LV (Investment Certificate NO. TZ008452)