The market turned friendly last week with July settling at 85.03 c/lb, up 1.29 c/lb in the week.
Traders will be trying to understand whether this moving market is an indication that we are heading higher from here, or whether this is a small correction on the way down. From a technical perspective, we note that the market never broke through the primary trend line and could therefore be deemed a bullish signal.
Furthermore, global economic data continues to improve. The DOW Jones and S&P 500 closed at record highs on Friday. Chinese economic growth surged by 18.3% year on year, and European markets also closed at record highs on Friday, marking its seventh straight week of gains. As the world recovers from the shock of Coronavirus, investors are more and more confident of a fast global economic recovery.
Although this seems to be bullish for cotton, we should however not take our eyes off the virus and the new variants that are being reported. In India the virus is surging through what is thought to be a double mutating variant and their cases have now surpassed those of Brazil. Any variant that can escape the vaccines will no doubt be a huge problem globally.
In the US the drought situation in Texas is showing no signs of improving. Around one quarter of the state is experiencing extreme drought, with Farmers there highlighting that things could be as bad as they were back in 2011. It suggests that abandonment could be very high as there is no ground moisture.
Shipping lines continues to be a thorn in the side of traders. Container freight rates have now reached historical highs and rates to West Africa and South America are now higher than any other major trade route. Shipping lines have placed orders to buy more containers but this does not solve the problem of the here and now. We do not expect this situation to ease until at least the end of 2021, but most probably by mid-2022.
Cotton demand has also been slightly subdued as the market has headed higher, and lockdowns in key markets are extended. Bangladesh this morning announced that their lockdown will be extended another 7 days. Pakistan announced a 30% increase in exports of textiles and garments from the same time last year. They are also allowing the importation of yarn duty free to combat the yarn shortages in the country. Vietnam has also been back in the market but often at levels that are not in line with market expectations.
As it stands we feel the market looks bullish again, technically, fundamentally and from a global perspective. The US cotton situation is getting very tight and there is still uncertainty over production for the new marketing year. China is also signaling intent to perhaps issue a large quota and if so this would only spur the market higher.
Πηγή: Mambo