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U.S. economic data eased recession fears, leading to oil price consolidation

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TraderKnows
08-16

[Precious Metals Update] US data eases recession fears, reducing rate cut expectations. Precious metals are rebounding. Light long positions suggested: SHFE gold 2410 at 560-580 RMB/gram, SHFE silver 2412 at 7100-7500 RMB/kilogram.

[Stock Indices] On the previous trading day, major stock indices rose across the board. The Shanghai Composite Index increased by 0.94%, the Shenzhen Component Index rose by 0.71%, the ChiNext Index and the STAR 50 Index both climbed by 0.94%, the CSI 300 went up by 0.99%, and the SSE 50 had the largest gain of 1.29%. The CSI 500 and CSI 1000 grew by 0.67% and 0.92%, respectively. The total trading volume reached 591.523 billion yuan, an increase of about 114 billion yuan from the previous trading day.

Northbound funds saw a net inflow of 12.206 billion yuan, compared to a net outflow of 7.166 billion yuan on the previous trading day. Among the Shenwan first-level industries, the coal sector performed the best with a rise of 2.23%, followed closely by the media industry, which rose 2.16%, and the real estate sector, which increased by 1.65%. Underperformers included agriculture, forestry, animal husbandry, and fisheries (up 0.26%), the comprehensive sector (up 0.21%), and beauty care (down 0.15%).

In terms of the basis, the basis of the four major index futures strengthened in line with the spot indices. The annualized basis rates for the IC and IM current contracts were -6.0% and -10.2%, respectively, while the IH and IF current contracts had annualized basis rates of -0.7% and -1.5%. Regarding intertemporal spreads, the near-to-far month spread of the four major index futures narrowed overall. Today marks the expiration of the 2408 contracts, and it is recommended that short hedge positions be transferred to the far-month 2503 contracts.

Recently, recession expectations in overseas markets have eased, while domestic economic data remains weak. Hence, the market's pricing power of fundamentals has weakened, but policy expectations are gradually heating up, resulting in short-term signs of a rebound in the stock index market. Strategically, it is recommended to focus on range trading. Genuine recovery in market risk appetite may require stronger policy support, and in the short term, a cautious left-side light position probe for long positions can be considered.

[Government Bonds] Unilateral Strategy: Currently, there is a struggle between central bank oversight and weak economic momentum. It is advised to buy low and sell high strategically. As interest rates dip below key levels again, short selling the TL2412 contract at high points in the near term is recommended. Cross-Species Strategy: The steepening trend of the interest rate curve faces challenges, with the T and TL spreads at recent lows. Hence, a temporary wait-and-see approach for cross-species arbitrage is advised. Intertemporal Strategy: The near-to-far month spread issue is not prominent at present, and a stable pace of transferring positions from the 09 to 12 contracts is anticipated. Hedging Strategy: Recently, the net basis level has risen, with the T contract being relatively low and the TL contract relatively high. The T2412 contract offers low-cost advantages for short hedging, while the TL2412 contract provides opportunities for short hedging amid expectations of unilateral downturns.

[Industrial Silicon] Industrial silicon futures slightly rebounded yesterday, with the market taking a brief respite following continued lower prices to observe movements on the supply side. Concerns about oversupply persist, with the spot market remaining desolate and prices continuing to trend downwards. On the supply side, industrial silicon supply remains high amid weak downstream demand, leading to ongoing inventory accumulation. More production cuts are necessary to balance supply and demand. In light of sustained price declines, further production cuts by some companies are expected. Overall, although industrial silicon prices are low, the supply-demand imbalance remains, and continued price declines may prompt more production cuts, potentially supporting prices. Operationally, a wait-and-see approach is recommended, with the SI2411 contract reference range at 9200-9700 yuan/ton.

[Lithium Carbonate] According to SMM data, lithium carbonate production continued to decrease this week by approximately 460 tons, marking the fifth consecutive week of month-over-month decline. Specifically, spodumene production decreased by 170 tons, mica fell by 250 tons, recycling materials decreased by 110 tons, while inventory increased by over 1,300 tons, with the growth rate continuing to decelerate. Falling prices have reduced production, and the arrival of the demand season has somewhat improved the supply-demand relationship. However, due to the delayed fall in ore prices and the absence of large-scale mine shutdowns, lithium carbonate remains in a state of inventory accumulation, making it difficult to effectively boost prices. Macroeconomically, U.S. consumption data exceeded expectations, alleviating economic downturn concerns, but domestic economic data remains weak, with the dollar rallying and the renminbi depreciating. The lithium carbonate price remained weak yesterday, with no fundamental drivers observed for a rebound. Short-term focus should be on volatility from trading activities. Price trend prediction: Lithium carbonate prices will remain weak, with the 11 contract expected to range between 70,000-75,000 yuan/ton. Operational strategy: Maintain light short positions, consider reducing positions to lock in gains if prices continue to fall, and consider selling deep out-of-the-money put options and shallow out-of-the-money call options.

[Iron Ore] This week, the average daily molten iron output was 2.2877 million tons, down 29,300 tons from the previous week. Steel mills continued to reduce production, perpetuating a negative feedback effect throughout the industry chain and further decreasing demand for raw materials. Inventory-wise, Mysteel statistics show that total imported iron ore inventories across 47 ports nationwide were 156.3392 million tons, down 1.1 million tons from the previous week. Among 45 ports, inventories totaled 149.3492 million tons, down 320,000 tons week-on-week. The combined inventories at seven major ports in Australia and Brazil increased by 62,000 tons to 13.197 million tons, the highest level since the third quarter. According to new statistics, the total imported sintered powder inventory of 114 steel mills was 25.9378 million tons, down 262,200 tons, with an inventory consumption ratio dropping to 22.91. Overall, the fundamental pressure on iron ore remains high. To improve the profit margins of steel mills, further production cuts are necessary, and molten iron output is expected to decline further. The iron ore market is still weak, with prices generally following the trend in finished products. Strategically, it is advisable to continue positioning short positions on price rallies.

[Rebar & Hot Rolled Coil] From January to July, national real estate development investment reached 6.0877 trillion yuan, down 10.2% year-over-year. The construction area of houses by real estate development enterprises was 7.03286 billion square meters, down 12.1% year-over-year. The newly started construction area of houses reached 437.33 million square meters, down 23.2% year-over-year. From January to July, the sales area of newly built commercial houses reached 541.49 million square meters, down 18.6% year-over-year. In the industry, the total inventory of the five major steel products fell by 226,300 tons to 17 million tons this week. Among them, steel mill inventory decreased by 58,200 tons to 4.6494 million tons, and social inventory decreased by 168,100 tons to 12.3506 million tons. Rebar total inventory decreased by 295,900 tons to 6.9056 million tons. Production fell by 21,700 tons week-over-week, while apparent demand increased by 52,000 tons. Hot rolled coil inventory increased by 131,700 tons to 4.5053 million tons, production decreased by 21,900 tons, and apparent demand decreased by 103,100 tons. Under the self-regulation of steel mills’ production, the fundamentals of rebar are seeking a new balance, but hot rolled coils are still accumulating inventory, leading to a short-term technical rebound. As long as inventory continues to accumulate, the negative feedback effect across the industry chain may persist. Operational strategy: There are tail risks in unilateral operations. Risk-averse investors may consider arbitrage strategies. In arbitrage strategies, the price gap between hot rolled coil and rebar still has room to narrow, and rebar prices might exceed hot rolled coil prices in the future.

[Nickel & Stainless Steel] Macroeconomically, U.S. retail data surpassed expectations, and initial jobless claims were lower than expected, indicating strong economic fundamentals in the U.S., which bolstered the overall performance of the non-ferrous sector. On the basic front, although there are signs of a minor rebound in new energy demand, enterprises' acceptance of nickel sulfate remains limited, resulting in lower-than-expected transactions for nickel sulfate. In Indonesia, nickel ore supply faces some disruptions, but due to negative feedback from stainless steel, nickel pig iron prices show a weakening trend. However, considering cost support, the downside for nickel pig iron prices might be limited. The stainless steel market mainly exhibits a wait-and-see sentiment with weak transactions. On the news front, the three major steel mills of 201-series stainless steel have reached a consensus to stabilize prices but have yet to form a consensus on production cuts, leading to a slight strengthening in stainless steel prices. Operational strategy: It is recommended to temporarily observe the nickel and stainless steel market. The reference range for the Shanghai Nickel 2409 contract is 124,000-134,000 yuan/ton, and the SS2410 contract reference range is 13,300-14,300 yuan/ton.

[Coking Coal & Coke] The price of coking coal received phase support around 1,300 yuan/ton, leading to a rebound as short positions were reduced. Upstream, coking coal still features inventory accumulation, with raw coal inventory nearly stable and clean coal inventory up nearly 80,000 tons. The inventory at the Ganqimaodu border crossing exceeded 3.5 million tons, and port inventory increased by over 300,000 tons. There is significant pressure on upstream shipments. Downstream, the de-stocking continues with steel mill inventory decreasing by 160,000 tons and coking plant inventory dropping by 330,000 tons. The coking plant’s coke inventory rose by 100,000 tons, while daily production fell by 8,000 tons, and steel mill inventory dropped by 20,000 tons. The daily production of molten iron decreased by 29,300 tons, and profitability remains low, causing significant pressure for further production cuts, suggesting that demand for coking coal and coke might continue to decline. In the short term, exiting short positions could lead to a price rebound, but the medium-term fundamentals remain weak, exerting downward pressure on prices. Strategically, it is advised to focus on the resistance levels at 1,420-1,450 yuan/ton for the coking coal 01 contract and 2,000-2,030 yuan/ton for the coke 01 contract.

[Copper] The macro outlook appears positive. The initial jobless claims in the U.S. last week declined to 227,000, below expectations, July retail sales grew by 1.0% month-over-month, exceeding expectations, and the New York Fed manufacturing index rebounded to -4.7 in August. Improvements in employment, consumption, and manufacturing data eased market fears of an economic recession, stabilizing and boosting copper prices. Fundamentally, the supply-demand dynamics in the copper market remain neutral. Yesterday, the copper warehouse receipts at the Shanghai Futures Exchange decreased by 9,003 tons to 171,900 tons, while LME copper stocks increased by 25 tons to 307,400 tons. Overall, the improvement in economic data has gradually alleviated recession concerns, but the demand outlook remains uncertain, limiting the rebound potential of copper prices. In the short term, copper prices are expected to oscillate and consolidate. The main operating range for the Shanghai Copper contract today is expected to be 73,000-74,500 yuan/ton. Operational strategy: It is recommended to either observe or adopt range trading strategies.

[Crude Oil] International crude oil futures rose on Thursday, primarily driven by improvements in U.S. economic data, significantly alleviating market concerns about a global recession.

1. Key Information on the Crude Oil Market

  1. U.S. July retail sales growth exceeded expectations, showing that consumption remained strong despite the high interest rate environment; Initial jobless claims in the U.S. decreased for the second consecutive week to the lowest level since July; Hurricane Beryl severely impacted refining activities in the Gulf of Mexico, and U.S. industrial production in July marked the largest decline since January; The President of the Federal Reserve Bank of St. Louis indicated that the timing for rate cuts is approaching, and the labor market no longer poses a risk to inflation.
  2. Data released by Singapore's Enterprise Development Bureau showed that as of the week of August 14, Singapore’s residual fuel oil inventory decreased by 1.584 million barrels, reaching a five-week low of 18.143 million barrels. Light distillate inventories increased by 1.024 million barrels to a three-week high of 15.095 million barrels, and middle distillate inventories increased by 23,000 barrels to a three-year high of 12.016 million barrels.
  3. Data from Dutch consultancy PJK Insights Global showed that as of the week of August 15, refined and stored product inventories at the ARA (Amsterdam-Rotterdam-Antwerp) hub increased by 4%, mainly driven by higher diesel inventories. Total inventories reached 5.96 million tons, with gasoline inventories down by over 1% to 995,000 tons, and diesel inventories up nearly 10% to 2.27 million tons, the highest level since May.
  4. Data from the North Dakota Pipeline Authority showed that the state's oil production decreased by 22,500 barrels per day in June, reaching an estimated 1.176 million barrels per day, marking the second consecutive monthly decline. Since peaking at 1.29 million barrels per day last September, the state's oil production has been falling continuously.
  5. An analysis by Bloomberg New Energy Finance based on Baidu data showed that traffic congestion levels in 15 key Chinese cities declined for the fourth consecutive week, down 1.7 percentage points week-over-week, reaching 98% of levels in January 2021.
  6. For the week of August 15, the utilization rate of atmospheric and vacuum distillation capacity at China's independent refineries was 56.63%, a week-over-week increase of 0.42 percentage points; some units at Shandong's refineries resumed operations, which led to an increase in the utilization rate of independent refineries. The utilization rate of main refineries' atmospheric and vacuum distillation capacity was 76.99%, down 4.73% year-over-year and still below the level of the same period last year.

2. Market Outlook

Movements in international financial markets significantly influence crude oil price trends. Recently, continuous improvements in U.S. economic data—higher than expected retail sales growth and a steady labor market—have led to a consecutive rise in oil prices. The supply-demand pattern in the crude oil market indicates that while demand remains sluggish, the reduction on the supply side is more significant, providing support for oil prices. Geopolitically, negotiations aimed at achieving a ceasefire and the release of hostages in Gaza have begun in Qatar, but the prospects remain uncertain. Oil prices are expected to continue fluctuating in the near future, and investors should adopt a wait-and-see approach.

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Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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