That week (August 8-12), Zheng Cotton continued to rebound, with the highest point once breaking through the important pressure of 10,000 and 50,000 yuan, which surprised the market. In the case where downstream cotton spinning production has not yet shown obvious signs of improvement, the cotton price trend It is closely linked to the rebound in U.S. cotton and the decline in expectations for the Federal Reserve to raise interest rates.
It is understood that U.S. cotton production in 2022/23 is expected to be 12.6 million bales, the lowest level since 2009/10. The main reason for the decrease in production is a sharp increase in the abandonment rate in the southwest region of the United States. According to the August global production demand forecast released by the United States Department of Agriculture, the opening stocks of U.S. cotton in the 2022/23 season will increase slightly, and production will be reduced by nearly 3 million bales. With U.S. cotton production expected to drop significantly, ICE has performed strongly, with the main contract price exceeding 100 cents/pound, and the rising momentum shows no sign of stopping, and the possibility of a long squeeze continues to increase. Although the cotton market is strong externally and weak internally, driven by the rise of US cotton, Zheng cotton’s rebound is not small.
That week, the U.S. Bureau of Labor Statistics released data showing that the U.S. CPI rose 8.5% year-on-year in July, down from the 9.1% increase last month and lower than consensus market expectations. After the July inflation data was released, market expectations that the Federal Reserve would continue to raise interest rates significantly in September quickly cooled. The market currently expects that the probability that the Federal Reserve will continue to raise interest rates by 75 basis points in September is 37.5%. After the release of the strong non-farm payroll data in July, this probability once soared to nearly 70%. Now the probability of raising interest rates by 50 basis points in September has rebounded sharply. to 62.5%. The Federal Reserve has slowed its interest rate hikes, market concerns about economic recession have declined, capital markets have rekindled their enthusiasm for longs, and commodities including cotton have begun to rebound.
That week, the downstream demand for cotton has not improved significantly, foreign trade orders are still at a low level, and it is difficult for companies to receive orders. Domestic sales orders have recovered slightly, and the operating rates of cloth factories, dyeing factories and clothing companies have rebounded slightly, mainly producing 2023 spring clothing. Affected by the rebound in cotton prices, some cotton yarn companies began to tentatively increase yarn quotations. However, this move was resisted by downstream companies, making it difficult for prices to be transmitted to the back-end production channels. In short, unless downstream consumption increases significantly, it will be difficult to sustain the rise in cotton prices simply by relying on speculation on supply-side factors.