In the week of mid-December, market sentiment remained relatively stable after the Federal Reserve meeting. The expected tapering of bond purchases and upcoming interest rate hikes were basically clear, and concerns in the financial market have eased. However, the power of the new coronavirus mutant strain “Omicron” has increased, and the epidemic situation in Europe and the United States has escalated again, continuing to suppress the impulse of financial markets to rise.
The market has become clearer this week. The Federal Open Market Committee (FOMC) made it clear that the Fed no longer considers inflation to be “temporary” and will double the pace of tapering its bond purchases starting in mid-January, and said it would taper at a similar pace in the coming months. Bond purchases may be appropriate. The Fed’s dot plot shows that it is expected to raise interest rates three times in 2022, each by 25 basis points, and three more times in 2023.
Although the market is encouraged by the implementation of the Federal Reserve’s decision, as the European winter holidays approach, the “Omicron virus” is raging around the world. The World Health Organization said on Saturday that the strain had been detected in tests in 43 of the 50 U.S. states and about 90 countries, with the number of cases doubling in 1.5 to 3 days. U.S. stocks and futures were volatile again over the weekend as investors continued to grapple with a resurgence in COVID-19 cases and an impending shift in the Federal Reserve’s easy monetary policy. As of daytime on December 20, Beijing time, international oil prices continued to plummet, and many commodities such as energy, agricultural products, and metals generally fell. ICE cotton futures followed the downward trend of the external market.
Judging from the situation in the past two weeks, there have been no major fluctuations in the cotton market. Although it has clearly stabilized after the early plunge, it has become extremely difficult for prices to rise again under the repeated impacts of the epidemic. Many foreign professionals believe that the long-term trend of cotton has not been completely reversed, but they are becoming more and more cautious and conservative about the future trend.
According to the current situation, there will be no substantial supply shortage of cotton in the next 6-12 months (the supply of new cotton flowers in the United States has not yet been fully released + cotton planting is expected to expand in 2022 but consumption growth is slow). The main reason is that cotton shipments cannot keep up. The pace is up, and the difference between the March 2022 ICE cotton futures contract and the December contract is more than 16 cents. Therefore, the factory can survive for several months, and it is not too late to wait until the December contract becomes the main contract before starting. Considering the impact of the epidemic on consumption, countries are currently cautious in purchasing cotton.
From a macro perspective, although the unexpected inflation in financial markets and commodities is coming to an end amid the tightening of monetary policies in Europe and the United States, Bank of America’s survey shows that in the eyes of investors, the primary investment risk in 2022 is the Federal Reserve’s policy mistakes by global central banks, and believes that the actual situation may be better than the Fed implies. Affected by the epidemic, Biden’s nearly $2 trillion tax and spending plan may be delayed, and international investment banks have also quickly lowered their U.S. economic growth expectations. Entering the new year, uncertainty about global monetary policy will still dominate.
In the next six months, the huge gap between ICE futures’ current and next year’s contracts will narrow significantly, either the December contract will rise or the current year’s contract will fall. During this process, if U.S. cotton signings can be maintained and shipments can keep up, the decline in cotton prices will be better supported.
</p
