By Keith Brown DTN Cotton Contributing Analyst
December cotton was slightly lower Wednesday even though the Dow Jones put in a strong performance. However, we think it was the strength of the dollar that proved detrimental to cotton. Also, Wednesday is the last day of the month that technical traders will sometimes use to square up their positions.
It was equally interesting to see crude oil lower despite better inventory data. In fact, crude oil has suffered a $10 break. This decline has given rise to the general notion the global economy is slowing. Of course, much of that bearish responsibility is being attached to the U.S./China trade war. After all, we do have the world’s two largest economies financially going at each other. However, rising U.S. interest rates are taking their toll as well.
To that end, China’s official purchasing managers’ index also fell to 50.2 in October from 50.8 in September. The October number is the lowest in two years. A reading below 50.0 suggests contraction in the sector.
Also, the Chinese yuan has dropped to a 10-year low against the U.S. dollar this week. There is a concern whether the Chinese government wants the yuan to depreciate to gain world trade advantages. However, the Chinese government may want to stem the yuan’s slide due to fears of capital flight out of China.
Thursday, USDA will issue its weekly sales and exports data. Of late those reports have been less than robust for cotton trade. Another stark sign of a slowing world economy is the growing divergence between the U.S. and European Union economies. The Euro zone reported its unemployment rate for October at 8.1%. The U.S. rate is 3.7%. To that end, Euro zone inflation rate rose to a nearly six-year high of 2.2%, basis its latest consumer price index report issued Wednesday.
December cotton settled 76.86 cents, down 0.04 cent, March cotton was 78.30 cents, down 0.06 cent, red December was at 76.86 cents, up 0.09 cent. Estimated volume was 25,200, however a major portion of that action occurred in the last 30 or so minutes of trading.