Like a pin stuck in a balloon, the wind blew away from markets last week as worsening economic news sparked a bear market. Once-resilient consumers appear to be changing their spending habits in the face of rising prices and the threat of a looming recession. Bearish traders see this as a harbinger of lower cotton demand. After six straight weeks he traded above $1, cotton fell to the limit on Friday where he closed at 99.29.
It all started with a monthly supply and demand report. In typical USDA fashion, they reversed course, reducing U.S. production by 3 million bales before he increased it by 1.2 million bales in just one month. Did your crop grow bigger than last month? Global consumption is projected to fall by 500,000 bales, and the most important end stock is estimated to increase by 2 million bales.
The current administration says the economy is recovering, but the numbers don’t lie. Consumer prices rose 8.3% year-on-year in August. Simply put, American households are paying $426 more a month for the same basket of goods and services than they did a year ago.
Clearly runaway inflation has not been contained, down slightly from last month’s 8.5%. The Fed has threatened to raise interest rates until it gets worse if necessary, and we can expect the Fed to implement another big rate hike at Wednesday’s meeting.
Retail sales unexpectedly rebounded by 0.3% in August, which is misleading. These sales numbers are not adjusted for inflation, so this increase may be the result of higher prices. It certainly wasn’t the usual back-to-school bump. We are reducing discretionary items.
As mentioned earlier, cotton is more affected by the economic environment than any other commodity. Therefore, it often moves in sync with the stock market. So it’s safe to say that part of his 5.5-cent drop in cotton prices last week was due to the stock market meltdown. The Dow Jones fell 1,337 points last week to a loss of over 4%.
This has been driven by continued high inflation and alarming earnings forecasts by major US carriers. FedEx, often seen as an economic leader, has warned that it will fall short of its revenue target by $500 million due to a slowing global economy, especially in Asia and Europe. Therefore, it may indicate an early sign of a global recession.
where from here? At Friday’s close, the next support is at 96.50, a 60% Fibonacci retracement level. Breaking this would reveal the previous low of 82 cents.
Although global production has increased, cotton fundamentals remain healthy and inventories are closing at very manageable levels, partly because merchants still want and buy cotton. it is clear. Therefore, in the absence of macroeconomic pressure, cotton prices should rise by more than $1. But these headwinds will be formidable.
