Market continues to trade in a very tight range

06 Nov '09

6 min read

Cotton consumption has been a positive surprise this year, proving all the gloomy predictions wrong. To be fair, a year ago it was impossible to know what the fallout from the financial crisis would be and had it not been for the unprecedented efforts by governments and central bankers to pump the bubble back up, who knows what would have happened. It now seems that retail sales are still growing on a global basis, albeit at a much slower pace, and we are seeing some pronounced shifts in regional consumption.

For example, retail sales in the US peaked at around 380 billion dollars a month in November of 2007 and they are now about 35 billion dollars less at 345 billion dollars a month. However, on the other side of the Pacific, in China, retail sales grew by about 40 billion dollars a month during the same period, from 110 to 150 billion dollars a month. In other words, China's consumers have more than offset the reduction of their US counterparts. The story is similar in the rest of the world, with industrialized nations seeing a decline, while developing countries play catch up. Another factor to be considered is the heavy price discounting we have seen over the last twelve months, which means that the amount of goods sold is quite a bit higher than what the dollar volume may suggest.

Outside markets are still acting in support of cotton, as stock markets around the globe continue to climb the wall of worries and the CRB index remains just slightly below a 13-month high. The dollar once again tried to muster some strength, but got rejected like the week before and gold is closing in on 1'100 dollars/oz. In a nutshell, we believe that the massive amount of liquidity that has been injected into the financial markets all over the globe is trying to find investments. With real estate out and the bond market seen as overvalued, money has started to chase stocks and commodities. There is no end in sight to this trend unless the central bankers move towards a more restrictive monetary policy, which doesn't seem to be in the cards anytime soon. It is therefore frightening to think of how much 'investment' money could potential come into the commodity markets and there are as of yet no effective regulatory measures in place to stop this from happening.

So where do we go from here? We are still of the same opinion and believe that there is tremendous support waiting below 65/66 cents, while the increasing certified stock keeps a lid on the market - for now! However, once the December liquidation is behind us, we see nothing that would stop the market from making its next move to the upside. Everybody is waiting to buy the next big dip, but even if such a dip were to occur, there will only be a few lucky ones able to buy it, because there is simply too big an imbalance between traders who would like to buy the market below 65 cents and those who are willing to sell it at a discounted price.

Plexus Cotton

More Textiles News - United States Of America...