In the first week of November (October 31st to November 4th), the international cotton market suddenly changed its face. ICE cotton futures hit the daily limit four times in a row, which shocked everyone, from an intraday low of 70.21 cents to 87.87 cents. At the highest intraday price, the December contract saw its largest increase of 25% during the week. The decline that began at the end of August has lasted for two full months, and the long-awaited rebound has finally arrived.
Although judging from the experience of previous years, U.S. cotton futures prices usually stabilize and gradually rise from the end of the year to the beginning of the year, the rapid rebound is beyond imagination. The reason why the price rebounded strongly is mainly because it fell too low. Below 80 cents will change the supply and demand situation of US cotton next year, and the futures price of 70 cents has caused a serious deviation from the current price. It is now far away from the December contract. Deliveries are just over two weeks away, so futures prices need to return to spot prices. Because the price rebound was too violent, many short sellers closed their positions in a panic, thus pushing the price to continue to rise by the limit.
At the same time, in the past month or so, the U.S. dollar index has shown signs of peaking, and its impact on financial market sentiment is relatively obvious. Although the Federal Reserve has raised interest rates by 75 basis points four times in a row and continues to hold a hawkish attitude towards future interest rate increases, it also stated that a moderate slowdown at some point in time is also necessary. As the Federal Reserve enters the second half of raising interest rates, and other countries and regions in Europe begin to follow suit, it becomes more difficult for the U.S. dollar to continue to hit new highs. The top characteristics are now very obvious. As the market’s risk aversion sentiment converges, both U.S. stock markets and commodity futures will have opportunities to rise.
Another long-lost benefit last week was the apparent recovery of U.S. cotton exports. According to market feedback, when the cotton price fell to more than 70 cents the previous week, the on-call price transactions of textile mills increased significantly, indicating that the industry generally believed that the price was low enough. In the last week of October, the total volume of U.S. cotton contracts reached 46,300 tons, and China’s purchases also reached 27,700 tons. A total of 14 countries and regions purchased U.S. cotton, and the number of shipping destinations increased to 18. Analysts said that the increase in Chinese purchases is related to the centralized purchasing behavior of textile companies before the quota is about to expire. It is reported that China’s imports have begun to increase since mid-October, and this situation is expected to be further reflected in subsequent export reports.
After last week’s continuous sharp rise, the continued decline in cotton prices has finally taken a key step towards stabilizing and rebounding. It will take time to verify whether this rise is a rebound in a bear market or a new rise. From the current point of view, as the short-selling power subsides, the momentum of the market decline has significantly weakened, and it will enter a bottom shock from now on. If macro and fundamental factors can continue to cooperate, prices are expected to continue to develop upward during the transition between the new and the old.
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