Recently, Zheng Cotton has fallen smoothly, and finally broke the important support of the 20,000 mark. The magnitude and speed of the decline exceeded market expectations. The weakness of the fundamentals of the cotton market is obvious to all. After repeated shocks and washouts, the downward trend has finally begun. This also declares that the previous high of 22,000 yuan/ton has been basically established, and the unilateral upward trend of the cotton market is complete. end.
This time’s decline proves a rule, that is, the judgment of a few people in the financial market may not be accurate, and the truth is sometimes in the hands of the majority. Why do you say that? The author has heard many times before that when investing, you need to think in the opposite direction and stand against the majority of people, because in this market, a few people will always make money. Zheng Mian’s recent performance has provided a strong counterattack to this statement, because the vast majority of people are bearish on Zheng Mian. Some people think that most people are bearish on Zheng Mian. Zheng Mian may not fall smoothly and will definitely be washed up repeatedly. However, looking at the K-line history of Zheng Cotton, Zheng Cotton has shown an obvious downward trend since May. After a slight rebound in the middle, it immediately turned to decline, and there were no signs of multiple bull temptations.
Interest rate hikes and balance sheet reduction continue to advance, increasing market pressure
Of course, there are many factors for Zheng Cotton’s weak market trend. The trigger may be the unprecedented interest rate hike and balance sheet reduction by the Federal Reserve, which is also the biggest gray rhino in the market. On June 16, the Federal Reserve announced an interest rate resolution, raising interest rates by 75 basis points from now on, and also announced that the pace of balance sheet reduction would remain unchanged. This was the largest interest rate increase since 1994. At this meeting, the Fed emphasized its determination to stabilize inflation expectations, setting the tone in its statement that it was “firmly committed” to returning the inflation rate to its 2% goal. This casts a shadow over the future trend of commodities, because market liquidity will continue to decrease in the future. This shows that the Fed’s interest rate hike path has become the biggest source of risk in the market, which will affect economic expectations and market trends in the second half of the year. At the same time, the outside world is wary of the risk that the Fed’s interest rate hikes may trigger recession. The foundation for the recovery of the U.S. economy is not solid. According to the latest economic outlook released by the Federal Reserve in the early morning of the 16th, the U.S. economy is expected to grow by 1.7% in 2022, which is 1.1 percentage points lower than the March forecast.
Due to supply shortages caused by the Russia-Ukraine conflict and the COVID-19 epidemic, the inflation rate in the Eurozone has continued to rise, reaching a record high of 8.1%. After the 2008 economic crisis, the Eurozone has adhered to a quantitative easing monetary policy. According to the latest news, the 19 central banks of the Eurozone announced that they will end the quantitative easing policy on July 1 and raise interest rates by 25 basis points on July 21. If inflation conditions have not improved, interest rates will be raised again on September 8. If nothing else goes wrong, this will be the first interest rate hike by the European Central Bank since 2011. Although it closely follows the United States in raising interest rates, the euro zone economy is more fragile. The European PMI in May was 54.2%, down 0.9 points from the previous month. percentage points, falling month-on-month for four consecutive months. The European Central Bank expects real gross domestic product (GDP) growth in the euro area to be 2.8% in 2022 and 2.1% in 2023. Compared with its March forecast, the bank has significantly lowered its economic forecasts for this year and next. .
The actual area of cotton sown across the country has increased, and supply pressure has increased.
The macro outlook is not optimistic, and cotton fundamentals are even more worrying. According to the China Cotton Actual Sowing Area Survey Report released by the National Cotton Market Monitoring System, the country’s actual cotton sowing area in 2022 is 44.281 million acres, an increase of 1.091 million acres year-on-year, an increase of 2.5%.
Among them, the actual cotton sowing area in Xinjiang was 36.904 million acres, an increase of 1.344 million acres or 3.8% year-on-year; the actual cotton sowing area in the Yellow River Basin was 4.271 million acres, a year-on-year decrease of 291,000 acres, a decrease of 6.4%, and a decrease of 17.6% from the previous year. percentage points; the actual cotton sowing area in the middle and lower reaches of the Yangtze River was 2.604 million acres, a year-on-year decrease of 6,000 acres, a decrease of 0.2%, and a decrease of 29.0 percentage points from the previous year. Xinjiang’s cotton is currently growing well and has begun to bud and bloom. It is expected that this year’s yield per unit area and average output per mu will be better than last year. Coupled with the increase in actual sown area, there will undoubtedly be greater supply pressure on the cotton market this year.
Future consumption prospects are not optimistic
In December 2021, US President Biden signed the so-called “Uyghur Forced Labor Prevention Act”, which will officially take effect on June 21, 2022. Also on June 9, 2022, the European Parliament passed the “Resolution on Customs Measures against Forced Labor” with 513 votes in favor, 14 abstentions, and 1 vote against. The resolution requires customs in EU countries to take measures to prohibit “products of forced labor” from entering the EU market. The current list has not yet been determined and is expected to involve multiple industries including cotton.
If the US and EU markets ban the use of Xinjiang cotton and its products, how big a blow will it have to cotton consumption. According to customs data, in 2021, China’s textile and clothing exports to the four traditional markets of the United States, ASEAN, the European Union and Japan totaled US$172.49 billion, accounting for approximately 55% of global exports. Among them, the United States is the largest export target country, with annual exports to the United States of $56.35 billion, a year-on-year increase of 4.0%, accounting for 18% of the industry’s total exports; textile and apparel exports to ASEAN accounted for 16%; textile and apparel exports to the EU accounted for 15%; textile and clothing exports to Japan account for 6%; textile and clothing exports to South Korea, the United Kingdom, and Bangladesh each account for 3%; textile and clothing exports to Russia, Australia, Hong Kong, and India each account for 2%. This means that the United States and the European Union together account for� Reached 33%, equivalent to about one-third of my country’s total textile and clothing exports. Although the materials used in textiles and clothing include chemical fiber, cotton, down, wool, etc., the implementation of the ban in both countries will have a considerable impact on the cotton-containing products. Of course, cotton-containing products include pure cotton, cotton and chemical fiber blends, etc. Category, as long as Xinjiang cotton is detected, it is banned, which means that the export market of my country’s cotton fabrics will be greatly compressed in the future.
Can the domestic market carry the banner of consumption?
Now that the external export market has been suppressed, whether the domestic market can make up for it well will face considerable pressure in the short term. First, the United States and the European Union account for a combined 33%, which cannot be fully digested by the domestic consumer market; second, cotton and chemical fiber The price difference is widening, and the cost-effectiveness of chemical fiber is outstanding; thirdly, the domestic economy is under pressure and residents’ consumption is weak.
According to RMB deposit data released by the central bank, in May 2022, RMB deposits increased by 3.04 trillion yuan, an increase of 475 billion yuan year-on-year. Among them, household deposits increased by 739.3 billion yuan, and non-financial corporate deposits increased by 1.1 trillion yuan. It is worth noting that in the first five months, residents’ deposits increased by 7.86 trillion yuan, a year-on-year increase of 50.6%, and the increase exceeded the first year of the epidemic. The rising willingness to save money represents the declining willingness of residents to consume.
According to data from the National Bureau of Statistics, from January to May, the total retail sales of consumer goods was 17,168.9 billion yuan, a year-on-year decrease of 1.5%. In terms of consumption type, from January to May, retail sales of goods were 15,541.5 billion yuan, a year-on-year decrease of 0.7%; catering revenue was 1,627.4 billion yuan, a decrease of 8.5%. In May, retail sales of goods were 3,053.5 billion yuan, down 5.0% year-on-year; catering revenue was 301.2 billion yuan, down 21.1%. Therefore, when consumption data declines, it will be difficult for the country to accept orders that absorb foreign losses.
According to the cotton industry inventory survey report, in early June 2022, the yarn production and sales rate of the sampled enterprises was 88.5%, an increase of 1.2 percentage points month-on-month, and a year-on-year decrease of 6.6 percentage points; the inventory was 33 days of sales, an increase of 2.0 days month-on-month, and a year-on-year increase. 21.2 days. The production and sales rate of cloth was 82.7%, an increase of 3.6 percentage points month-on-month, and a year-on-year decrease of 2.3 percentage points; the inventory was 51 days of sales, an increase of 2.8 days month-on-month, and an increase of 12.4 days year-on-year.
The production and sales rate of yarn and cloth dropped, which seriously affected the sales progress of cotton. According to the latest purchase and sales data released by the National Cotton Market Monitoring System, as of June 16, a total of 3.563 million tons of lint cotton had been sold nationwide, a decrease of 2.304 million tons year-on-year, and a decrease of 1.541 million tons compared with the average of the past four years, of which 3.080 million tons were sold in Xinjiang. A year-on-year decrease of 2.108 million tons, a decrease of 1.223 million tons compared with the average of the past four years.
As the saying goes, the rise and fall of market prices is a concentrated reflection of comprehensive factors. Judging from the early trend of Zheng cotton, with the help of US cotton, Zheng cotton reached a high of 22,000 yuan/ton twice, but failed to continue to hit new highs. Then it fell. It has started a concussive downward trend, and the top signal has been very clear. Recently, it has fallen rapidly below the 20,000 mark, and finally stabilized around 19,500 yuan/ton. Market investors said that the downward space for cotton has opened up, and the operating range of the market outlook has been adjusted from more than 20,000 to less than 20,000. If there is no major bull signal, it will be difficult for cotton prices to return to more than 20,000.
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