On February 10, the U.S. Department of Labor released the latest data showing that the country’s consumer price index (CPI) increased by 7.5% year-on-year in January, the highest level since March 1982. The previous value was 7%. On a month-on-month basis, both the overall CPI and core CPI in the United States rose by 0.6% in January, both expected to be 0.4%.
After the CPI data was released, money markets expected the Federal Reserve to raise interest rates by a cumulative one percentage point in the next three meetings, which means that one of them may raise interest rates by 50 basis points, or officials may hold an unscheduled emergency policy meeting to raise interest rates. Currently, the market believes that the probability of a 50 basis point interest rate hike in March exceeds 75%, which was previously expected to be 50%. St. Louis Fed President James Bullard said he supports raising interest rates by a full percentage point in early July, including the first 50 basis point increase since 2000, to combat the hottest U.S. inflation in nearly four decades.
Market expectations for interest rate hikes have soared, causing violent fluctuations in U.S. stocks. In contrast, domestic stock markets and commodity markets have relatively little volatility. Professionals believe that this performance may be related to the January financial data released by the central bank yesterday. In January, RMB loans increased by 3.98 trillion yuan, a single-month statistical high, an increase of 394.4 billion yuan year-on-year; the increase in social financing reached 61,700 yuan. billion, exceeding market expectations, 984.2 billion yuan more than the same period last year, and also a record high in a single month. At the end of January, the balance of broad money (M2) was 243.1 trillion yuan, a year-on-year increase of 9.8%, and the growth rate was 0.8 and 0.4 percentage points higher than the end of last month and the same period last year respectively. This shows that the implementation and strengthening of policies to stabilize growth will, to a certain extent, offset the pessimistic expectations of upward pressure on the economy.
Regarding the specific impact on the cotton market, some market analysts believe that the Fed’s interest rate hike will indeed have a negative impact on the commodity market, but the extent of the impact depends on the intensity of the interest rate hike. Expectations for interest rate hikes in the first quarter are very strong and have been reflected in the market. The market will also see a downward trend, but the magnitude will not be large. If interest rates are raised significantly this year, it will have a big impact on commodities. The commercial inventory of cotton is now very large, especially the price of new cotton is high, the downstream acceptance is low, and the sales progress is far behind the same period last year. If downstream demand improves in the future and corporate orders increase, cotton prices can continue to remain high. Otherwise, it will be difficult to support such high prices in the long term.
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