Affected by the novel coronavirus pneumonia in China and the influenza epidemic in the United States, the main ICE cotton futures contract has fallen below 70 cents/pound, 68 cents/pound, and 67 cents/pound since late January. At the integer mark, speculative funds, bullish sentiment and confidence will be greatly affected by the “black swan” in the short term. If the pneumonia and influenza epidemics in the United States are not significantly curbed around mid-February, ICE cannot rule out the possibility of further testing 65 cents/lb.
Some international cotton merchants and traders have analyzed that the main ICE contract will once again oscillate at 66-68 cents/pound and bottom out. The current market performance is a bit panicky, based solely on daily trading volume, increase and decrease of positions. Judging from the situation, both the long and short sides are in a wait-and-see state, and the operations of buying the bottom or chasing shorts are temporarily suspended.
However, from the perspective of fundamentals and external markets, the medium and long-term upward trend of ICE has not changed due to the “black swan”. As the epidemic enters an inflection point from the rising period, is controllable, and then effectively cured, If it subsides, ICE will resume its rising momentum, and the 70 cents/pound, 75 cents/pound, 78 cents/pound and other levels may be broken one by one. The reasons are as follows:
First, the U.S. ISM manufacturing PMI in January significantly exceeded expectations, and new orders, production and exports performed strongly, forming upward support for the stock and bond markets, commodity futures markets, etc.; second, the growth in 2020 Purchases of U.S. cotton from Chinese and non-Chinese buyers will be strong in the first half of the year. According to the first phase of the Sino-US trade agreement, no matter which method China adopts to stimulate large imports, it will provide conditions for the rise of ICE; third, Zheng cotton has continued to dive since late January, and the day-to-day transaction rate of reserved cotton has rebounded rapidly (February 3 The daily transaction rate is 100%), so the supply liquidity of China’s high-quality and high-grade cotton has weakened, and the dependence on foreign cotton has increased; fourth, the central banks of various countries have adopted measures to lower interest rates and reserve requirements to put money into the market and ensure the liquidity of enterprises and market capital. It’s the norm. Constrained by factors such as the increased risks posed by public health emergencies to economic growth, the inversion of the U.S. bond yield curve again, and the possible negative impact of the novel coronavirus epidemic on global demand in the first quarter, some institutions and investment banks predict that the Federal Reserve’s interest rate cut expectations will increase.
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