Although U.S. cotton exports continue to pick up, U.S. cotton area may be significantly reduced, and the Federal Reserve has introduced powerful quantitative easing measures of “interest rate cuts + QE”, they have not been able to stop the decline of ICE cotton futures “again and again.” . On March 19, ICE’s main contract broke through the integer marks of 56 cents/pound, 55 cents/pound, and 54 cents/pound (the intraday low was 53.64 cents/pound, a 10-year low), triggering cotton-related companies, There is a degree of panic among speculators.
Judging from the feedback from some foreign businessmen and importing enterprises, there are relatively large differences in the market direction in March and April. One view is that the fundamentals and policies of U.S. cotton are positive; in addition, the U.S. and Countries around the world are “opening the floodgates” to rescue the market and COVID-19 vaccines have begun clinical trials in China and the United States. The negative effects of ICE are gradually exhausted. The downside space is very limited, and a rebound may occur at any time. Another view is very pessimistic. It is believed that the COVID-19 epidemic has gone out of control due to the “ostrich” policies implemented by Europe, the United States, etc., and is still far from the turning point. The impact on the global economy, trade, transportation, and shipping will be much higher than expected; the economic package proposed by President Trump Stimulus measures are likely to be “painting cakes to satisfy hunger” (the US government’s financial resources are tight), so the main force of ICE is likely to fall below 50 cents/pound.
The author believes that whether ICE has reached the stage of bargain hunting and rebound requires attention and answers to the following three factors:
First, whether the new coronavirus pneumonia epidemic can be contained or even disappear in the short term. Although China has achieved initial success in domestic epidemic prevention and control, Europe has entered the outbreak period, and the United States, Southeast Asia and other countries have not yet fully erupted. Therefore, there is basically no hope that the new coronavirus epidemic will end in June. Moreover, if Europe and the United States implement large-scale city closures, Ports and even border closures will have a much greater impact on global textile and clothing demand and cotton consumption than expected;
The second is whether the U.S. stock market has bottomed out. Since the 2008 financial crisis, the Federal Reserve has continued to implement quantitative easing policies, and the U.S. stock market has embarked on a ten-year bull market. Currently, whether looking at the ratio of the total market capitalization of the stock market to GDP, or the price-to-earnings ratio and PEG value of the S&P 500 index, the valuation level of the U.S. stock market is at a historically high level. Nobel Prize winner and American economist Robert Shiller warned that U.S. stocks are 40% overvalued and a severe correction is inevitable. It is also worth noting that the U.S. dollar index has risen above 102, hitting a new high since January 2017. From a historical perspective, when the U.S. dollar index rises above 100, an economic crisis will definitely break out around the world. It is still too early to say the bottom for U.S. stocks, and it is difficult for commodity futures to escape the decline.
The third is whether the international crude oil price has reached the bottom. OPEC and Russia have completely crushed oil prices. In just 11 trading days, international oil prices plummeted by more than 50%. However, in order not to be eliminated, Russia responded by improving work efficiency and increasing oil production. Once it succumbed to the market, it would open up a market for US shale oil. space. </p
