On February 25, ICE cotton futures suddenly plummeted. After setting a new high of 95.60 cents/pound in two and a half years, the main contract suddenly collapsed in an atmosphere of bullish pursuit of the increase. The main contract had a “big negative line” It fell directly below 90 cents/pound, which greatly exceeded the expectations of market participants.
Why did ICE futures return to a week ago overnight? Judging from the analysis of some institutions, cotton-related companies, and investment banks, opinions focused on the sharp surge in U.S. bond yields on February 25 and the rebound in the U.S. dollar index, which triggered a “sudden change in wind direction” in commodity futures and the three major U.S. stock indexes. On that day, the US Dow Jones Industrial Average fell by 1.75%, the S&P 500 Index fell by 2.45%, and the Nasdaq Index fell by 3.52%, which was the worst decline since October 2020. In addition, China canceled the 2021/22 U.S. cotton contract, and the signed exports of U.S. upland cotton for 2020/21 from February 12 to 18 were lower than expected. The bearish fundamentals such as the decline in upland cotton shipments have contributed to the ICE dive. role.
The author believes that the above factors are only secondary or auxiliary conditions that lead to the sharp decline of commodity futures and ICE, rather than the fundamental reasons. The following two points are the key:
1 It is the likelihood that the Biden administration’s $1.9 trillion economic stimulus plan will be passed or the amount will be greatly reduced. As the number of people filing for unemployment benefits for the first time in the United States last week was not lower than expected, U.S. core capital orders increased by 0.5%, and the U.S. fourth-quarter GDP data was revised upward to 4.1%, indicating that the U.S. economic recovery is strong, the Biden stimulus bill is gaining momentum among Republicans. There is no audience within the country and it is considered too wasteful; the steepening of the yield curve is undoubtedly a good thing for the economic outlook, and the U.S. economic stimulus plan does not rule out the possibility of failing to pass or being significantly reduced in scale;
Second, OPEC + oil-producing countries Negative factors such as a moderate relaxation of production restrictions from April and the gradual resumption of production by Texas refineries in the United States have put crude oil futures under pressure. Some institutions believe that OPEC’s option to increase production by 500,000 barrels per day starting in April seems possible, and Saudi Arabia’s voluntary production cut plan of 1 million barrels per day will end next month, and Saudi Arabia will begin to gradually recover from April. Expectations for increased production are gradually increasing. </p
