That week (September 19-23), under the influence of the Federal Reserve’s sharp interest rate hike, the commodity market began a wave of deep adjustments. The domestic and foreign cotton markets fell together, and the market’s expected rebound after the interest rate hike was implemented also disappeared.
On September 21, the U.S. Federal Reserve announced an interest rate hike of 75 basis points, raising the federal funds rate target range to 3.00%-3.25%. This is the fifth time the Federal Reserve has raised interest rates this year and the third consecutive 75 basis point increase. basis points, marking the largest rate hike since 1981. In addition to raising interest rates by 75 basis points, the Fed’s statement also highlighted its hawkish stance. The market expected that the risk of a U.S. economic recession was rising. U.S. stocks collectively fell sharply, further fueling market pessimism.
That week, the main U.S. cotton ICE contract, which had been performing strongly due to market speculation about production cuts, failed to hold the important support of 100 cents and eventually fell to around 92 cents/pound, a weekly decline of about 8%. Zheng cotton’s performance was even weaker, falling from 14,500 yuan/ton to around 13,800 yuan/ton, and the important support at the Wansi mark was broken. Every time the Federal Reserve raises interest rates, it will cause significant market fluctuations. The center of gravity of commodity prices continues to shift downward. Even the prices of other commodities with better fundamentals have also fallen. This shows how much impact the Federal Reserve’s interest rate hikes have on the market. According to the performance after the previous interest rate hikes, commodities will set off a wave of rebound after the news of interest rate hikes. However, this time there was no expected rebound, but continued to fall. As the Federal Reserve continues to raise interest rates, market concerns are gradually increasing.
That week, machine-picked cotton in Xinjiang gradually opened scales for purchase. The purchase prices vary from place to place. In some places, the price of seed cotton was around 6.0 yuan per kilogram. In other places, the price was even lower, just over 5 yuan per kilogram. It is understood that some companies process new cotton at a cost of less than 13,000 yuan/ton, and hedging on futures, locking in a certain amount of profits. The progress of new cotton sales this year is slow, and the number of acquisitions by ginning companies is limited. Data from the National Cotton Market Monitoring System show that as of September 22, a total of 27,000 tons of seed cotton and lint cotton had been sold nationwide, an increase of 11,000 tons year-on-year and a decrease of 64,000 tons compared with the average of the past four years. At present, ginning companies are cautious in purchasing, and the price of seed cotton is also stable. For the time being, we have not seen the rush to harvest last year. Downstream consumption is still under pressure. The production and sales of textile companies have improved but are less than expected. Coupled with the sharp drop in cotton prices, companies still need to replenish their stocks. In the context of macroeconomic weakening and consumption restrictions, cotton prices may continue to run weakly.