From March 6th to March 10th, temperatures across the country soared after the Jingzhe. It seemed as if they couldn’t wait for summer. However, the cotton market was experiencing chills. Bad news from fundamentals and macros emerged frequently. ICE cotton futures closed continuously. Four negative conditions, Friday’s limit drop caused the main May contract to break through the psychological mark of 80 cents. Overall, expectations of the Federal Reserve raising interest rates are still the main factor affecting the market.
On March 7, Federal Reserve Chairman Powell testified before Congress that the Federal Reserve may raise interest rates more than previously expected, and that there is still a long way to go to curb inflation. This hawkish statement led the Federal Reserve to raise interest rates by 50 basis points. expectations rose sharply. However, subsequent unemployment data and non-agricultural data were mixed, and the turmoil caused by the collapse of Silicon Valley Bank significantly dispelled market expectations for a 50 basis point interest rate hike. On March 13, as the Federal Reserve stepped in to rescue the market and Silicon Valley Bank came back to life, the U.S. dollar index continued to plummet, and cotton futures also rebounded.
From the market’s expectation at the end of last year that the Fed would turn around this year, to a series of strong economic data since the beginning of this year that crushed interest rate cut expectations, to now Silicon Valley Bank’s collapse in an instant, the Fed’s interest rate hike expectations have been full of twists and turns in recent months, and investor sentiment has followed suit. Ups and downs. Well-known investor Larry McDonald recently said that the collapse of Silicon Valley banks may prompt the Federal Reserve to cut interest rates by 100 basis points before December this year to prevent the crisis from spreading in the financial system. If so, it will mark the Federal Reserve’s major move to curb inflation. There has been a major reversal in the course of tightening monetary policy. From the current point of view, Wall Street investors are worried that the Silicon Valley bank storm may threaten wider financial stability. They are currently preferring to raise interest rates by only 25 basis points in March. Some investment banks, including Goldman Sachs, said that the Federal Reserve should consider suspending rate hike. The author believes that no matter what the final situation is, raising interest rates for too long will eventually cause harm to the economy. This time the Silicon Valley Bank incident has sounded the alarm to the Federal Reserve.
For cotton, there are two major events this month. One is the Federal Reserve interest rate meeting on March 21-22 and its final decision to raise interest rates, and the other is the USDA’s intended cotton planting area on March 31. Before the announcement of the decision to raise interest rates, the cotton market was mainly controlled by expectations of interest rate hikes. This week’s CPI and PPI data are still the most important reference factors for the Fed’s interest rate hikes, and the market remains highly vigilant about this. After this, market attention will turn to planting in the new year. Judging from the current situation, due to increased rainfall, low cotton prices and increased production costs, it is obvious that cotton has been switched to corn in some areas of the United States. However, in the context of weak demand recovery, even speculation on weather and supply lacks sufficient confidence. Faced with the current macro environment and economic prospects, global factories are unwilling to actively purchase at this stage, and cotton prices still need to wait for the macro situation to change. good.
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