From June 13th to 17th, the Federal Reserve’s firm interest rate hike of 75 basis points triggered greater market concerns about economic recession. The financial market was affected. The cotton market continued to fall under the negative influence of macroeconomic factors. ICE futures gave up the gains of the previous week. The main December contract closed at 118.29 cents, down 4.07 cents on the week and down 6.89 cents this month. From a technical perspective, the long-term trend of cotton prices has not yet completely ended, but its trend has entered a critical period.
The outstanding feature of the market last week was the impact of the Federal Reserve’s interest rate hike. Before and after the Fed’s interest rate hike, the U.S. Dow Jones Index plummeted by 3,000 points. The U.S. dollar index soared and hit record highs before the interest rate hike. A cold wind blew in the commodity market. . While the Federal Reserve is raising interest rates continuously, the European Union is also preparing to raise interest rates continuously. As inflation continues to rise and interest rates continue to rise, the risk that the global economy will fall into stagflation and recession is increasing, which makes the market’s expectations for a decline in end-use cotton consumption even stronger. Regarding the USDA’s new annual consumption forecast, analysts generally believe that with the decline in startup rates in Asian countries and the decline in terminal consumption in Europe and the United States, the consumption forecast for the next year is as obviously unjustifiable as the previous year.
However, although the situation is extremely unfavorable for cotton consumption, it is difficult to say whether cotton prices will plummet. In addition to the uncertainty surrounding next year’s supply, there are factors to consider.
For now, import demand from textile mills will provide support for falling cotton prices. According to sources, although the Indian government has not officially announced the extension of the duty-free import period, there are market rumors that the execution period has been extended from issuing bills of lading before September 30 to completing customs clearance before December 31. This may explain the recent full inquiry by Indian textile mills. Foreign cotton is outstanding in the international spot market. The illusion of tight cotton supply may be extended for several more months due to India’s concentrated and continued purchases. At the same time, the number of On-Call contracts on ICE futures is still increasing. The current number of point orders in 2022/23 has reached 88,800 lots, which will continue to provide a buffer for later market declines.
Last week, Zheng cotton futures finally broke through and fell, and the direction of domestic cotton prices has completely reversed. In the past, sharp declines in China’s cotton prices often led to corresponding declines in ICE futures, which at least hindered the external market. The reason is that the excessive price difference between domestic and foreign prices is detrimental to U.S. cotton exports. But now the situation has changed. Against the backdrop of Europe and the United States jointly imposing sanctions on Xinjiang cotton, due to limited domestic volume, China can only import cotton yarn to maintain growth in textile and apparel exports. As long as China imports, it will be difficult for foreign cotton prices to fall. If so, domestic and foreign cotton prices will diverge.
Back to the present, due to the poor macroeconomic situation, cotton prices may continue to be under pressure in the near future, but as prices fall, bargain hunting and purchasing by textile mills will support the market. Looking at the later stage, under the disturbance of weather factors, the December contract is still expected to remain at a high level. It is difficult to judge whether it can break through the 133.79 cents set in the previous period. The USDA actual sown area report at the end of this month will provide the basis for the US cotton production next year. Provide more accurate guidance.
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