On December 14, the cotton market was weak and consolidated, falling for most of the time. The market expressed great concern about the upcoming Federal Reserve interest rate meeting.
Traders and analysts expect the Federal Reserve to announce tightening monetary policy on Wednesday. The market believes that reducing stimulus measures to the U.S. economy is equivalent to raising interest rates as soon as possible. Of course, higher interest rates could translate into a stronger dollar, becoming another obstacle to U.S. exports.
Despite the general nervousness in financial markets, many cotton traders were positive about the USDA data. Last week’s US cotton exports and labor break forecasts were supportive of the market. In addition, although last Friday’s CPI data showed high inflation, it still had a positive impact on cotton prices.
According to the latest data released by the U.S. Department of Labor on Tuesday, U.S. PPI rose 9.6% in November, the fastest growth in history, indicating that inflationary pressure in the United States is still very high. The market generally expects that the U.S. PPI will increase by 9.2% for the whole year. The U.S. PPI and CPI growth rates in November reached the fastest rate in the past 40 years, and the core inflation rate is also the highest level in 30 years.
On December 14, traders were cautious in facing the upcoming Federal Reserve meeting and the new coronavirus mutant strain “Omicron”. ICE cotton futures came under pressure and fell. The Federal Reserve will hold meetings on Tuesday and Wednesday to decide whether to speed up its reduction of bond purchases. The scale of the process, recent inflation CPI and PPI reports provide the necessary justification for the Fed’s move.
Currently, the “Omicron” mutant strain is spreading across the United States, accounting for 3% of the new coronavirus samples analyzed by the Atlanta Center for Disease Control and Prevention. A week ago, this variant was present in less than 1% of samples evaluated. Last Sunday, the UK issued a level 4 COVID-19 alert. Energy prices fell after the International Energy Agency (International Energy Agency) reported that Omicron would have a negative impact on global demand recovery.
According to data from the China Bureau of Statistics, China’s cotton production fell by 3% in 2021 to 5.73 million tons. China’s planting area dropped by 4.4% in 2021 to 3.03 million hectares, but the yield per unit area was good. Nonetheless, traders viewed data from the U.S. Department of Agriculture last week as supportive of the market, especially a 1.2 million bale decline in global ending stocks. Therefore, the market believes that China will become the main buyer of US cotton next year.
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