FEBRUARY 1, 2019
WEEK BRINGS HIGHER DAILY VOLUME AND INCREASED OPEN INTEREST
- Open Interest Increased to 234,985, Highest Level Since November 18
- News Generally Positive for Markets This Week
- Report Schedule Released by Government Agencies
- December Export Sales and Cotton On-Call Reports Released
- China-U.S. Trade Talks Continue, Look Positive
Monday’s trading started on a sour note, as March futures briefly pushed down to 73.15 cents per pound. Nevertheless, the market was able to eke out successively higher closes for the next three days. Thursday’s settlement at 74.40 and high at 74.85 cents were both fresh highs for recent trading. Unfortunately, at the close of Friday’s trading futures fell back to 73.64 cents, ending the week 49 points lower than last Friday. Despite a trading range of just 170 points, average daily volume was higher and open interest increased 4,272 contracts to 234,985. Open interest is now at the highest level since November 18.
FEDERAL RESERVE DECISIONS
For the first time in what feels like an eternity, news was generally positive for markets this week. Over the past few months, traders have been concerned with the volatility, uncertainty, and ambiguity in three core areas: Federal Reserve policy, federal government funding, and the trade dispute with China. Worries of a slowdown in the economy, the negative impacts of the government shutdown and the trade dispute put this week’s Federal Open Market Committee meeting on center stage. (The FOMC is the committee that makes Federal Reserve monetary policy decisions.) At their last meeting, the FOMC’s decision to continue increasing rates ran contrary to market sentiment, so the financial sector collectively sighed in relief when they took a less aggressive stance at this meeting acknowledging the “cross currents” facing the market.
GOVERNMENT AGENCIES OPEN, REPORT SCHEDULE RELEASED
Government agencies were able to get back to work this week, too. After more than a month away, agency workers are still swimming through the backlog. We are thankful for the work they do, and thankful that release schedules for key reports have already been circulated. It is the intention of many government reports to level the playing field for smaller and medium-sized entities who may have fewer resources and an information disadvantage in the markets. Many traders have deeply missed the critical decision-making guidance that such reports provide. Markets welcomed the return of the reports, and there is nearly universal hope that government funding will reach a long-term resolution.
DECEMBER EXPORT SALES AND COTTON ON-CALL REPORTS RELEASED
With the government on a catch-up schedule, this week’s releases showed rather old data. However, the data was better than expected, with export sales information covering the week ended December 20, 2018, during which exporters made net new sales of 373,100 bales of Upland cotton and shipped 207,100 to fulfill orders. The sales were a new marketing year high, and prices had not yet made their lows. This week’s Cotton On-Call report also showed that mills found the prices to be favorable, pricing over a million bales of their on-call orders in the week ended December 21. These surprisingly good reports have many market watchers feeling more positive about the data that is still to come.
CHINA-U.S. TRADE TALKS CONTINUE
With the Federal Reserve taking a more accommodative tone and government report data starting to flow into the markets again, the China-U.S. trade talks are really the last fly in the ointment. This week’s meeting between top Chinese and U.S. officials seems to have gone very well. China seems to be making genuine steps toward reform and the administration seems to be devoting proper resources to keeping the negotiations moving forward. China has given goodwill gestures of removing some of their retaliatory tariffs and has ordered cargoes of oil, corn, and soybeans, with promises of more business to come. The deal is certainly not done, but the details seem to be going well enough that President Trump hopes to finalize a deal with President Xi Jinping in his upcoming trip to Asia.
VOLATILITY LIKELY AHEAD
With such good news, one has to ask why the market didn’t rally. The sad truth is that the markets have a backlog to work through themselves and that both government funding and trade negotiations with China simply are not finalized. The slow release of catch-up reports will help clarify supply and demand issues, but policy risk still hangs over the market. Additionally, traders will be watching next week’s WASDE report even more closely since USDA was not able to produce one in January. With open negotiations and a steady drip of catch-up reports coming, the next several weeks are likely to be volatile.
In the week ahead:
- Cotton On-Call as of December 28, 2018, will be released Monday at 2:30 p.m. Central Time.
- Commitments of Traders as of December 31 will be released Tuesday at 2:30 p.m. Central Time.
- Exports Sales Report for the week ended December 27 will be released Thursday at 7:30 a.m. Central Time.
- Cotton On-Call as of January 4, 2019, will be released Thursday at 2:30 p.m. Central Time
- February WASDE Report and Cotton Ginnings will be released Friday at 11:00 a.m. Central Time.
- Commitments of Traders as of January 7 will be released Friday at 2:30 p.m. Central Time.