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Domestic Zheng Cotton Growth Showed Fatigue, Fed Rate Hike Means Commodities Peak?

Author: name From: name Modify: Jun. 17, 2020
May. 12, 2022

Recently, the internal and external performance of the cotton city fluctuates, a single release of news can cause large fluctuations in the market, there is no rule at all, perhaps this is the path of the operation of the cotton city supported by funds. So, May 6 zheng cotton drop in the end is why?

This is closely related to yesterday's fall in American cotton, and the fall in American cotton and the overall financial environment is closely linked. The Dow Jones Industrial Average closed down 1063 points, or 3.12%, nearly two years after its last drop of more than 1,000 points.

The plunge was caused by concerns over employment, economic and financial policies or data released recently in the United States. In particular, Federal Reserve Chairman Powell said on Wednesday that the 75 basis point rate hike is not worth considering, but then on Thursday, the US interest rate futures price showed that the Federal Reserve in June 75 basis point rate hike is 75% possibility, directly leading to the market sentiment extremely pessimistic, the US cotton ICE fell by the limit.

Therefore, the core index affecting the market is still the Federal Reserve's policy of raising interest rates and shrinking the balance sheet. This indicator is the biggest gray rhino in the market, and it is too early to predict a recession or crisis as the Fed hopes for a soft landing for the economy.

Domestic Zheng cotton growth shows weakness, on the one hand is rising futures prices, on the other hand is constantly reducing production of textile enterprises, the fundamentals of a serious contradiction. Under the pressure of contradictions, Zheng Cotton can still break through the previous high, completely related to the trend of American cotton. U.S. cotton demand is good, foreign textile industry orders to form a strong support for cotton prices. On the contrary, textile garment orders are constantly lost to foreign countries. Due to the control of the epidemic, the number of domestic orders is also limited, and the opening rate of enterprises remains low. In addition, the high cotton price leads to the production loss of enterprises, and the production enthusiasm is not high. The conflict between falling demand and high cotton prices continues to intensify.

Does fed rate hike mean commodities have peaked? The Fed's interest rate hike and shrinking of the balance sheet will certainly restrain inflation to some extent, but the extent of the effect needs to be seen, because inflation is also affected by other factors. Now it is widely believed that the Fed's interest rate hike is likely to lead to stagflation or recession. Whether it is so needs later verification.  If this round of interest rate hikes play a good role in restraining inflation, the decline of commodity prices will have little impact on the economy; conversely, if the pace and pace of interest rate hikes affect economic development, it will also be negative for commodities. Therefore, in the context of interest rate hikes, the downward momentum of historically high commodity prices is significantly stronger than the upward momentum.

The reality of cotton spot price support strength is very strong, with cotton is also seasonal crops, to just start to raise interest rates and immediately go down the road, is not realistic, cotton city bulls and bears turn need time to cooperate, but also need macroeconomic environment and fundamental resonance with.

Source: China Yarn Network

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