In the first week after the Spring Festival (January 30 to February 3), with the end of China’s Spring Festival holiday, the recovery of cotton demand in the domestic market continues to heat up, but macro factors continue to disturb the Fed’s interest rate hikes and U.S. non-farm employment. The data caused ICE cotton futures to fluctuate and fall, with the main March contract closing at 85.43 cents, a decrease of 1.68%.
Last week, the Federal Reserve raised its benchmark interest rate by 25 basis points to a target range of 4.5-4.75% as scheduled. This was the Fed’s eighth consecutive interest rate increase since March last year. The Federal Reserve’s Federal Open Market Committee (FOMC) said inflation has eased but is still rising. The committee warned that continued interest rate increases are needed to control inflation. The committee seeks to achieve 2% employment and inflation in the long term and expects continued increases in the target range to be appropriate. Despite the negative effects of interest rate hikes, data released by the U.S. Department of Labor on Friday showed that U.S. non-farm employment increased by 517,000 jobs in January, far exceeding market expectations of 190,000, and the unemployment rate also remained at 3.4% for the first time in 53 years. At lows, the news caused a sharp rebound in the U.S. dollar index, with crude oil, precious metals, grains and cotton all closing sharply lower.
U.S. investment institutions generally believe that the U.S. non-farm payroll data in January is a prominent signal of increasing inflation, and concerns about the Federal Reserve’s continued interest rate hikes in the later period have once again increased. However, the non-agricultural data should be interpreted from two aspects. On the one hand, it is the threat of increasing inflation, and on the other hand, the U.S. economy is actually recovering and is far from an economic crisis. The author believes that although interest rate hikes in the later period can still be expected, this round of interest rate hikes has also come to an end and will not cause a big ripple in the market. The recovery of the cotton market along with the economic situation is the general trend this year, and the industry should still pay attention to the later period. Have faith.
From a fundamental perspective, although the current cotton demand is far from strong and far from returning to normal levels, problems in the industrial chain are being eliminated. With the digestion of early high-priced inventories and the recent arrival of downstream orders, cost reductions and rising profits have led to a significant turnaround in the operations of textile companies. Major consumer countries have begun active procurement. The total volume of U.S. cotton contracts in the past three weeks has exceeded 600,000 bales. Considering the Spring Festival, this speed is quite good. However, after several years of risks and painful experiences, textile companies do not blindly purchase in the face of unpredictable risks. This is one of the reasons why the market has not made an upward breakthrough.
This week’s market focus will be on Wednesday night’s USDA supply and demand forecast and whether the momentum of U.S. cotton exports can be sustained. At the same time, the March contract options are about to expire, and fund rollover will have a certain impact on the market. In the short term, cotton prices have been stable at around 85 cents, with a fluctuation range of 80-90 cents. However, the bottom of the recent range has also been moving upward. If it breaks through upward, the next target price is estimated to be 95 cents, while below Support is at 80 cents.