At around 10 pm on February 27, the main force of U.S. cotton quickly dived to around 63.30 cents/pound. Later, as the decline in U.S. stocks deepened, U.S. cotton continued to drop to around 63 cents/pound, a drop of one degree. Exceeding 3.6% (see Figure 1), the market fell into panic again, and the quiet night brought about by Zheng Cotton’s delayed opening of the market will not be peaceful again.
Picture 1 U.S. cotton main contract trend chart
When everyone believed that the public health incident would not cause a heavy blow to the economy and gradually built up firm confidence, the financial market once again gave us a loud warning A slap in the face, the public health incident spread rapidly outside China, and the uncertainty it brought to the economic outlook made investors panic. This time, the U.S. stock market and futures market have fallen sharply again, which will have a negative impact on the domestic market. As the fundamental support of U.S. cotton is stronger than that of Zheng cotton, the rapid and sharp decline of U.S. cotton will surely drag down Zheng cotton’s focus further. Moving, the main force of Zheng Cotton fell below the support of 12500 yuan / ton, or it may be a nail in the coffin, and it will continue to seek adjustment support downwards at 12300-12400 yuan / ton.
Why does the decline of US cotton definitely drag down Zheng cotton? Is it possible that Zheng cotton cannot get out of the independent support market? Because as mentioned earlier, the fundamentals of U.S. cotton and other factors have a relatively better driving force on prices than the domestic Zheng cotton market. In addition, the domestic Zheng cotton market is not very favored by funds, has high cotton inventories, and is slow to release back-end demand. Zheng Mian cannot form a separate strong market. Specifically:
First, there are expectations for increased exports of U.S. cotton. Although the current global public health incident may affect the window period for U.S. cotton exports, it will not affect the implementation of the first phase of the trade agreement between China and the United States. Once the risk is relieved, U.S. cotton exports will resume as soon as possible.
Second, the probability of the Federal Reserve cutting interest rates has increased. Recently, U.S. bond yields have continued to reach record lows. Experts believe that the Federal Reserve may cut interest rates again. If the Federal Reserve cuts interest rates, a weak U.S. dollar will indirectly benefit U.S. cotton.
Thirdly, Zheng Mian is not favored by funds. In addition to Zheng Mian receiving a large amount of capital injection in a single day before the Spring Festival, Zheng Mian is not a subject of strong financial attention as a whole. On the contrary, on the first day of the Spring Festival return, Zheng Mian fell to the limit and caused a rapid outflow of 2.704 billion yuan in funds. If the 3.024 billion yuan inflow on the last trading day before the holiday is taken into account, as of February 27, Zheng Mian’s total capital outflow was 56 million yuan. (See Figure 2)
Figure 2 Zheng Cotton capital flow trend chart
Fourth, domestic cotton stocks remain high, basically continuing to be in a state of accumulation, and digestion is slow. According to Longzhong monitoring data, as of February 27, the total number of Zheng cotton warehouse receipt registrations and valid forecasts reached 42,527, and Zheng cotton futures inventory reached 1.7011 million tons (see Figure 3); as of January, the national cotton commercial inventory was 501.19 million tons, a year-on-year increase of 3.40% (see Figure 4).
Figure 3 Zheng Cotton Futures Inventory Trend Chart
Figure 4 National cotton commercial inventory trend chart
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