Market Dynamics: The Global Economic Environment Affects The Cotton Price In September

In the middle of September, with the significant improvement of the macro environment, the positive sentiment of the cotton market increased significantly. ICE cotton futures ushered in the best weekly performance since the end of May this year. The contract price of the main force rose to more than 74 cents in December, the highest level since July, and the trend of technical graphs reversed. With the gradual increase of the lowest transaction price, the bottom of the price range is further confirmed.

On September 18, the Federal Reserve decided to cut short-term interest rates by 0.5%, which was the first cut in four years. The Federal Reserve said it would continue to assess the situation and expressed confidence that inflation was declining. Obviously, the interest rate cut has a very obvious role in boosting the cotton market. Although the interest rate cut was early in the market expectation and the Bank of England did not follow up in time, it suggested that further interest rate cuts might be implemented in the coming months. Considering the previous interest rate cut by the Bank of England and the easing of the EU's monetary policy, the market began to think that the global economy would gradually enter a stage of moderate stimulus. Although it would take a long time for the improvement of the macro environment to penetrate into the sales of terminal retail products, the impact on the operating costs of traders, manufacturers and retailers was immediate. After all, these are the factors that the futures market values most. Affected by the interest rate cut, the US dollar index has fallen sharply recently. Although it rebounded after the announcement of the interest rate cut, it is still at a low level, which is good for commodities.

In addition to the macro factors, the recent adjustment of weather and yield forecast also boosted cotton prices. The US Department of Agriculture has cut US cotton output for two consecutive months. After the adjustment this month, US cotton output has dropped by 540000 tons, from 3.7 million tons in July to 3.16 million tons. Recently, tropical storm "Frans" and other tropical cyclones have brought heavy rainfall to the delta and parts of the southeast of the United States. At present, the rate of American cotton boll opening has been more than half. After this rainfall, the quality and growth of American cotton may decline. As of September 15, the excellent rate of American new cotton was 39%, the lowest level this year.

From the position, as of the week ended September 17, the fund had covered 15000 short positions, and the short positions increased by more than 5000, so the net purchase exceeded 20000. During the cotton price rise last week, the market transaction was quite active, and the number of short covering and new long positions may further increase. During the week, ICE cotton futures positions fell by about 5000 hands, to 213000 at present. For the recent strong performance of cotton prices, the question is whether it is short-term speculative short covering, or more endurance to drive cotton prices higher after the focus switch of bulls. According to the analysis of foreign institutions, the reversal of the direction of interest rate policy may help alleviate people's concerns about the further slowdown of macroeconomic conditions.

According to the feedback from foreign investors and foreign authoritative analysis institutions, the recent rapid rebound in cotton prices has led to a significant reduction in the international spot market transactions. Although the prospect of cotton consumption is somewhat bright, the downstream orders have not yet improved further at this stage. The cotton mills are still on track to replenish the stock. The short-term consumption situation will remain the status quo, and the market will continue to wait for the signs of the factory driven demand finally rising. From a technical point of view, the bottom range of the current cotton price has moved upward, and it may run in a box of 66-76 cents on the whole. Further increase requires stronger positive signals.