In mid-March, the main ICE cotton futures contract fell below the strong support level of 60 cents/pound and continued to consolidate within a narrow box of 58-60 cents/pound. There was an oversold force that triggered a small counter-tick; but on the weekend Under the strong pull of the Federal Reserve’s announcement to lower the basic interest rate to zero and launch of a US$700 billion quantitative easing plan, ICE’s main contract only barely opened 60 cents per pound.
Some institutions and cotton-related companies believe that ICE has launched a policy combination of “zero annual interest rate + QE” after the Federal Reserve, the momentum of U.S. cotton exports is strong, and the U.S. cotton planting area is expected to decline significantly in 2020. The U.S. With the economy still strong and other favorable factors, ICE has ended its bottoming and is expected to usher in a rebound, with the possibility of exceeding 65 cents/lb or even 68 cents/lb.
However, the author’s opinion is that in the short term, ICE should not underestimate the bottom, nor is it advisable to buy the bottom. If the following “stumbling blocks” are not eliminated and effectively resolved, ICE’s main contract may break 58.57 cents/ pound, even reaching the lowest point since May 2009 at 54.53 cents/pound (without discussing supply fundamentals).
First, the United Kingdom, Texas, France, Sweden and most European countries have adopted an “ostrich” policy or even surrendered in response to the new coronavirus epidemic. The peak of the epidemic has not yet arrived, which has a negative impact on the global economy, trade, exchanges, and consumption. The impact of the epidemic continues to increase;
Secondly, the Fed’s interest rate cuts + QE are just “drinking poison to quench thirst”, and even rebounds in financial markets, stock and bond markets, and commodity futures will be “short-lived”. Since the 2008 financial crisis, the United States and Europe have relied mainly on quantitative easing and ultra-low interest rates, leading to asset price bubbles and rising debt leverage (stock market valuations are seriously overvalued). The COVID-19 epidemic and the plunge in crude oil prices will lead to the bursting and liquidation of financial bubbles. ;
Thirdly, due to the epidemic and the obvious decline in economic prosperity in 2019/20, the decline in global cotton consumption may be much higher than expected. As the COVID-19 epidemic spread rapidly in Europe and gradually became the “epicenter”, in addition to Italy, Spain also began to implement nationwide “city closure” measures. On March 14, many governments took further response measures, including limiting the scale of public activities and Transportation, temporary closure of schools and non-essential commercial places, strict restrictions on the movement of people at the border, etc., have rapidly expanded their impact on textile and clothing consumption. Professor Zhang Wenhong, director of the Department of Infectious Diseases at Huashan Hospital Affiliated to Fudan University, wrote: It is basically impossible for the epidemic to end this summer. </p
