During the week of December 5-9, the Chinese market was finally unblocked, but this good news has been digested by the market in advance. That week, U.S. stocks and oil prices fell, and the U.S. dollar index showed a stabilizing trend, and the cotton supply and demand forecast added to the negative outlook. In the absence of favorable factors, ICE’s main March contract retreated to the 80-cent line, basically giving up the previous week’s gains. On the contrary, domestic Zheng cotton continued to break through upward under the influence of market unblocking and short-term supply and demand, reaching a maximum of 14,000 yuan/ton.
The main reason why the external market speculation has cooled down is that there have been new changes in the macro situation. Most people have not felt this change. Although the market has been anticipating a slowdown in the Fed’s interest rate hikes for some time, this expectation has been digested by the market early. The focus of the next stage of the market is that the Fed will raise the terminal interest rate to a range of 5.00-5.25%. This is the current market The subject of speculation. Judging from recent market performance, the rise in U.S. stocks has shown signs of decline, while the U.S. dollar has begun to stabilize after a rapid decline. Both trends are not conducive to rising cotton prices.
While the macro picture is tightening, there is still no good news for cotton fundamentals. According to the USDA supply and demand forecast last Friday, U.S. cotton production and ending stocks were increased month-on-month, exports were reduced, and global consumption was significantly reduced. China and India both reduced by 1 million bales. The United States, Australia, India, Brazil, and West Africa Exports have been reduced across the board, and global ending stocks have increased significantly month-on-month, reflecting the fact that cotton demand continues to decline. Overall, the report’s expectations for cotton fundamentals are quite pessimistic, and the expectation that cotton consumption will continue to decline has been further verified.
With the unblocking of the Chinese market, expectations for cotton consumption seem to be beginning to show some light, or at least there is a hope. However, for now, various regions are at the peak of the first wave of infections after liberalization, and economic activities are still greatly suppressed. Instead of thawing, the market has a feeling of “quick freezing”, and actual consumption is different from expectations. Very far. According to the author’s understanding, although the southern yarn market has started slightly, yarn prices continue to fall. The reason is that supply exceeds demand, and the market recovery still needs a long way to go.
To reverse the bearish trend in fundamentals, the market must see an improvement in the economic outlook, but current macro news is mixed. This week, the market will focus on Tuesday’s CPI data for guidance on the Federal Reserve’s interest rate hikes. Even if the data shows signs of improvement, inflationary pressures will continue to force the Fed to continue to take hawkish action until the employment data cools. As long as interest rates continue to rise and terminal interest rates increase, a rebound in the U.S. dollar index is expected. Cotton, the U.S. dollar and U.S. stocks will perform a new trend.
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