Interviews
News Flash
New York cotton market experiences dull trading
13 Dec '11
5 min read
It is unusual to see the market in such a lackluster state at this time of the year. We believe that a lack of spec participation and risk aversion by the trade are the reasons behind this dull market.
When we look at the lastest "Commitment of Traders' report by the CFTC (as of November 29), we have the spec sector with basically a flat position, since a net long of 0.7 million bales by large speculators (mainly hedge funds) is being more than offset by a 1.0 million bales net short position by small speculators (non-reportables). In other words, speculators have very little skin in the game at the moment.
This leaves Index Funds with a net long position of 5.1 million bales versus the trade with a 4.9 million bales net short position as the two main protagonists in the futures market. As we all know, Index Funds are very passive and positions change only if investors add or withdraw cash, or if there is some rebalancing.
With specs mostly on the sidelines and index funds in passive mode, the trade is currently in charge of the market's fate. The trade is a buyer of futures when existing basis-long positions are sold to mills, but every bounce seems to find ready sellers, because the general tone among traders is not bullish. However, they seem to be respectful of the Chinese Reserve and the fact that the US crop is already well committed, and are therefore reluctant to become too aggressive on the short side.
So where do we go from here? The risk aversion among speculators and traders is not likely to disappear anytime soon. It is quite striking to see that the current open interest in futures and options of 185'257 contracts amounts to just 55 percent of what it was a year ago.
Specs seem to have abandoned the cotton market and the trade is playing it safe after it got beaten up badly by a volatile market last season. The uncertainty surrounding the Euro and US debt crises doesn't help to restore confidence, as everyone seems to be waiting for the next shoe to drop.
As long as the Chinese Reserve continues to take excess supply off the market, prices will likely hold steady, which is why we continue to see the market in a trading range in the foreseeable future.
When we look at the lastest "Commitment of Traders' report by the CFTC (as of November 29), we have the spec sector with basically a flat position, since a net long of 0.7 million bales by large speculators (mainly hedge funds) is being more than offset by a 1.0 million bales net short position by small speculators (non-reportables). In other words, speculators have very little skin in the game at the moment.
This leaves Index Funds with a net long position of 5.1 million bales versus the trade with a 4.9 million bales net short position as the two main protagonists in the futures market. As we all know, Index Funds are very passive and positions change only if investors add or withdraw cash, or if there is some rebalancing.
With specs mostly on the sidelines and index funds in passive mode, the trade is currently in charge of the market's fate. The trade is a buyer of futures when existing basis-long positions are sold to mills, but every bounce seems to find ready sellers, because the general tone among traders is not bullish. However, they seem to be respectful of the Chinese Reserve and the fact that the US crop is already well committed, and are therefore reluctant to become too aggressive on the short side.
So where do we go from here? The risk aversion among speculators and traders is not likely to disappear anytime soon. It is quite striking to see that the current open interest in futures and options of 185'257 contracts amounts to just 55 percent of what it was a year ago.
Specs seem to have abandoned the cotton market and the trade is playing it safe after it got beaten up badly by a volatile market last season. The uncertainty surrounding the Euro and US debt crises doesn't help to restore confidence, as everyone seems to be waiting for the next shoe to drop.
As long as the Chinese Reserve continues to take excess supply off the market, prices will likely hold steady, which is why we continue to see the market in a trading range in the foreseeable future.
Plexus Cotton Limited
Popular News
Leave your Comments
Esteemed Clients
-Ltd..jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Thermore (Far East) Ltd.")
.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Telangana State Industrial Infrastructure Corporation Limited (TSllC Ltd)")
.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Taiwan Textile Federation (TTF)")
