Yesterday evening, the U.S. Department of Labor released a report showing that non-farm payrolls growth slowed slightly in June, and the labor market remained strong. The data showed that the US non-farm payrolls added 372,000 in June, far exceeding the expected 268,000 and slightly behind the 390,000 in May. Not only was non-farm payrolls growth above expectations for the third consecutive time, but it was also the largest since February.
After the non-farm payrolls report, the 10-year Treasury yield climbed about 10 basis points to 3.09% at one point, and the 2-year Treasury yield soared 13 basis points to 3.14% at one point.
Swap prices show an increase in the likelihood that Fed officials will raise the benchmark rate by 75 basis points in July, and traders' expectations for a peak in the federal funds rate in the first quarter of next year have jumped above 3.6 percent. Some overseas analysts pointed out that during the summer, it is necessary to pay attention to the recovery of the 2-year Treasury yield to 3.75%, and the 10-year Treasury yield rises to 3.50%, and the US CPI data released next week will also increase the pressure on the Fed to raise interest rates further if it remains high.
Fed Bostic said he supported the Fed raising interest rates by 75 basis points for the second time in a row later this month. "In my view, the strong momentum of the economy means that we can act at the next meeting at a magnitude of 75 basis points without causing a lot of lasting damage to the overall economy," he said in an interview with CNBC. "I fully support the 75 basis point operation."
Commenting on the non-farm payrolls data, U.S. President Joe Biden said that "our private sector has recovered all the jobs lost during the pandemic and added jobs on top of that," but he expects job growth to slow in the coming months as the country transitions to "steady growth."
Biden said in a statement: "There are more Americans working in the private sector today than at any time during Trump's presidency, more than at any time in our history." The employment situation puts the United States in a unique position to address a range of global economic challenges, from global inflation to the economic impact of the Russian-Ukrainian conflict. Biden said lawmakers can ensure sustained economic growth by passing two key pieces of legislation he proposed.
The Ukrainian side also has the latest action. According to Russia's TASS news agency reported on July 8, Ukrainian courts have seized all assets of Gazprom, Rosneft and Russian State Atomic Energy Company in Ukraine.
According to the information released on the official website of the National Security Service of Ukraine, the final beneficiaries of the enterprise rights and real estate facilities of 11 enterprises of a series of Russian state-owned groups have been seized, including the assets of Rosneft, The Russian State Atomic Energy Company and Gazprom in Ukraine," the official website of the State Security Service of Ukraine said. ”
Gazprom, Rosneft and Rosatom are all Russian giants, and the total assets of the three companies seized by ukrainian courts amount to 2.1 billion hryvnia (about $62 million). In addition, 46 real estate facilities owned by related enterprises in Ukraine were seized.
The Russian side also "opened fire" at the G20 foreign ministers' meeting.
Agence France-Presse reported last night that Russian Foreign Ministry spokesperson Zakharova said on the 8th that the Western plan to isolate Russia at the Group of Twenty (G20) foreign ministers' meeting because of Russia's special military operation against Ukraine failed.
Zakharova said on the instant messaging app Telegram channel: "The G7's plan to boycott Russia at the G20 (Foreign Ministers' Meeting) has failed." In addition, she accused German Foreign Minister Annalena Berbock of "lying.".
The G20 Foreign Ministers' Meeting kicked off in Bali, Indonesia, on the 7th of this month, a rare offline high-level meeting between major countries in the world under the background of the global COVID-19 pandemic, and the first time since the outbreak of the Russian-Ukrainian military conflict that Russian Foreign Minister Lavrov met with "colleagues from countries that have strong criticism of Russia."
In terms of market conditions, as of the close of 23:00, most of the main contracts of domestic futures fell. Soda ash and coke fell by more than 4%, coking coal and iron ore fell by nearly 4%, rebar fell by more than 3%, and hot coil and glass fell by more than 2%. In terms of gains, fuel oil rose more than 1%.
Major U.S. stock indexes have all risen cumulatively this week. Last week, the NASDAQ and Nasdaq 100 rose by 4.56% and 4.66%, the S&P rose by 1.94%, the Dow rose by 0.77%, and this week, the US oil and cloth oil still fell cumulatively, down 3.36% and 4.13% respectively, all of which gave back last week's gains. Base metals continued to fall mostly this week. Rensie, who led the decline, fell more than 4.8 percent, giving back more than half of last week's gains. Lun Copper fell about 3 percent, down five weeks in a row. Nickel fell more than 1 percent, six weeks in a row. Lun Aluminum fell more than 0.3 percent, seven weeks in a row. Lun lead, which fell more than 0.8 percent in a three-week straight fall just after last week. And Lun Zinc rose more than 2%, reversing the momentum of a four-week continuous decline.
Grease rebounds, market bears switch again?
Since June 8, the three major oils and fats have begun to fall, soybean oil reached the lowest on July 6, calculated from the highest price on June 8, the decline reached 29.25%, while the palm oil and rapeseed oil main contracts hit the lowest level of this round of decline on July 7, with a decline of 37.67% and 29.7%, respectively.
"The main reason for this round of sharp decline comes from the changes in the international palm oil market and the adjustment of Indonesian policies, which has led to a sharp decline in international palm oil prices, which in turn has dragged down domestic oil prices." Jia Hui, a researcher at Zhonghui Futures, said.
In the view of Shi Lihong, an oil analyst at CITIC Construction Investment Futures, the current round of oil and fat plunge, in addition to the systemic impact caused by recession concerns, is also due to some problems in palm oil fundamentals. Expectations of an accelerated Fed rate hike have increased recession fears, and a decline in market risk appetite has led to a widespread sell-off in risk assets, leading to a systematic downward shift in the price center of commodities, including oils and fats. In addition, Indonesia's three-week export ban and the slow export of the past month or so have led to the rapid accumulation of palm oil stocks, more than 8 million tons of historic high stocks are getting closer and closer to its tank capacity limit, the pressure is especially reflected in the upstream plantations and crude oil crushing plants, Indonesian palm fruit purchase price, CPO bidding price thus under pressure fell sharply, so that export quotations followed a sharp decline, the most direct impact on oil and fat.
However, on Friday, the oil and fat rebounded across the board, and Jia Hui believes that the rebound is mainly due to a series of positive factors, which push the futures price to stop falling and rise. On the supply side, the production of horse palm oil on July 1-5 fell month-on-month, which is conducive to alleviating the inventory accumulation expectation caused by poor exports. On the other hand, demand is expected to increase, with india's palm oil imports expected to grow in July, with an expected increase of 300,000 tonnes; In addition, yesterday Indonesian officials proposed that they are considering whether to further increase the palm oil blending ratio of biodiesel, that is, from the current 30% to 35% or even 40%, and this increase in this proportion will help increase the use of palm oil by 2.5 million tons.
"The rebound in the oil and fat market is not unrelated to the recovery of sentiment in the commodity market, after the oil and fat in the inner and outer plates touched the drop stop on July 6 but then opened the board, the market pessimism was released relatively fully in stages, and as the dollar index slowed down in the past two days and crude oil rose, commodities including oil and fat have opened a rebound." Shi Lihong said.
The reporter learned in the interview that the relatively strong rebound of grease was also boosted by some other news. The USDA drought monitoring report and crop progress report show that the proportion of drought in the main U.S. bean-producing areas has expanded from 15% last week to 22%, and the excellent rate has slipped from 65% to 63%, which has made the market start to have some expectations for weather speculation, which has a certain boost to the trend of the US market. In addition, the Indonesian government is also actively trying to digest the high domestic inventory, in addition to further liberalization of exports, there is a certain willingness to push the B35 or B40 biodiesel blending program, which is expected to bring 2.5 million tons of palm oil per year additional demand. After the oil and fat led by palm oil fell sharply by nearly 4,000 points from the high point, the demand improved with the profit of biodiesel and the replenishment of the main importing countries, which also made the disk surface appear to have a certain oversold rebound demand.
Some market participants also said that the current focus of the oil market is still focused on palm oil, supply and demand of soybean oil and vegetable oil in the overall supply and demand of relative balance, and did not highlight the contradiction too much, the contradiction is mainly in Indonesia's ultra-high palm oil inventory. The Indonesian government's mishandling of export policies in the early stage led to a historic rise in domestic palm oil inventories to historic highs, and as palm oil entered a period of seasonal increase in production, the pressure on the expansion of the reservoir became heavier. Although the demand for palm oil has increased after a sharp decline in prices, with the repair of the soybean palm spread, the replenishment of the demand state treasury and the improvement of biodiesel profits, Indonesia's high inventory still needs some time to digest.
Shi Lihong told reporters that although the current palm fruit price has fallen below the planting cost, and some crude oil crushing plants have also stopped harvesting palm fruit due to expansion, under the pressure of huge expansion, the so-called planting costs and potential losses of production are difficult to form an effective support for prices, and the current market focus is more on how Indonesia's inventory pressure will be released. The Indonesian government is already looking for ways to increase domestic consumption, and even considering pushing B35 or B40 for this reason, but the monthly demand increase of one or two hundred thousand tons is difficult to quickly alleviate the pressure on Indonesian inventories, and Indonesia must further expand exports if it wants to quickly go to the warehouse. The Indonesian government is also increasing the proportion of DMOs recently, and considering reducing export taxes and fees to promote exports, but the current Indonesian CPO bidding price is only about 450 US dollars / ton, export taxes and fees are as high as 488 US dollars / ton, if Indonesia further reduces the palm oil export tax, may make the palm oil quotation of the place of origin further bear downward pressure, because the export tax is affected by the CPO reference price, which may open a period of negative feedback between the quotation and the tax. In addition, the enhanced competitiveness of Indonesian palm oil exports will also enable Malaysian palm oil to open a rapid accumulation, which will suppress the price of oils and fats led by palm oil. We expect that in the next one or two months, until the pressure on Indonesia's expansion has been effectively alleviated, palm oil prices may be difficult to achieve real stabilization, and even if they rise, they can only be treated as a rebound.
What is the current supply and demand situation in the oil and fat market?
Jia Hui introduced that the current domestic three major oil and fat stocks are at the lowest level in the same period in the past five years, there is no suppression effect on domestic oil prices, and the main contradiction in market prices comes from the fluctuation of international palm oil market prices. The latest weekly inventory data as of July 4 showed that the three major oil and fat stocks were 1.4785 million tons, down nearly 500,000 tons from the same period of the year. Because Indonesia's excessively high inventory can not be released, resulting in further liberalization of Indonesia's export policy in July, because palm oil in July and even August is in the peak production season, Indonesia's palm oil export incentive policy will have a certain degree of sustainability. This means that the international palm oil supply is relatively sufficient in the short term, which is expected to directly suppress the international palm oil and domestic oil prices. Although the international market has continuously burst more bullish news in recent days, which has eased the price decline, the trend will continue to suppress the trend of oil and fat. After the release of the bearish policy of Indonesia's export expansion, the export and production of ma palm oil will become the main factors affecting the short-term fluctuations of futures prices. Pay attention to the Export and Production Data of Ma Palm Oil on July 10, if the data is less than expected, be wary of the weak finishing after the end of this round of short-term rally, and if the data is bullish, it will further boost the bullish effect of the market.
For the future market of oil and fat, Shi Lihong believes that the downward pressure on the oil and fat market in the next two months is still large. Against the backdrop of the Fed's expectation of 3 more rate hikes in the second half of the year, macro bearishness may not be released, and any data that suggests a recession is occurring or a tendency for the Fed to raise interest rates more aggressively could trigger a sharp decline in risk assets. In the context of the Fed's interest rate hike and balance sheet reduction to control inflation, crude oil prices, whether they remain strong or fall back to adjust, are likely to adversely affect oil prices. If oil prices remain high, high energy inflation may make the Fed more determined and strong willing to raise interest rates, which will put commodities under more pressure from macro; If oil prices fall, oil prices will still be inevitably dragged down by the decline of crude oil. In addition, Indonesia's inventory pressure release, whether through increased domestic consumption or accelerated exports, will take time to digest, and will more or less lead to the accumulation of palm oil in Malaysia, which will also limit the space for oil and fats led by palm oil to rebound.
"The liberalization of Indonesia's export policy will be bearish on the overall oil and fat price from the trend, but after the rapid decline, with the release of the bearish effect, the decline in oil and fat prices has a temporary stop and even rebound requirements." Follow-up attention to the export and production of horse palm oil to the short-term market guidance brought by the disk. However, if the horse palm oil data is too bearish, it is not ruled out that there is a possibility of suppressing the futures price and creating a new low. Jia Hui said.
Cotton futures prices hit a one-year low
Cotton futures continued to fall after reaching a new high in early May, hitting a one-year low. What is the reason for the continued decline in cotton futures?
"Weaker macro expectations, a weaker demand margin, and a continued decline in non-commercial net long positions combined to cause prices to fall sharply." Wu Jingwen, a cotton analyst at CITIC Futures, said that from the trading level, in May, the number of ON-call sell orders for the ICE cotton July contract peaked and fell, after the end of the "forced short pull"; ICE cotton non-commercial net long positions have accelerated since May and have declined for eight consecutive weeks by the week of June 28.
It is understood that inflation is high, the Fed had to speed up the tightening of monetary policy, the original mild interest rate hike expectations were broken, resulting in a sharp change in short-term macro, market panic heated up, commodities in mid-to-late June more appeared a sharp downward phenomenon, cotton performance outstanding.
"In the long run, the Fed's interest rate hike will increase the downside risks to the US economy, the slowdown in economic growth will make the demand for cotton cut, the tightening of monetary policy will also squeeze the high valuation bubble of commodities, and the high valuation attribute of cotton prices will be unsustainable." Wu Jingwen said.
Futures Daily reporter found in the interview that in 2022/2023, global cotton production is expected to increase and decrease, supply and demand will be looser than the previous year, and high-priced cotton has a downward driving force; From the perspective of marginal demand, the demand for clothing in the United States has peaked, southeast Asian textile apparel exports in May fell significantly month-on-month, and the compression of spinning profits has made the operating rate of foreign spinning enterprises decline and also put pressure on cotton prices; Domestic downstream demand is in the off-season, demand has been poor, textile mills are not willing to buy goods.
As of the close of trading on the morning of July 8, Zheng Mian's main contract was as low as 16220 yuan / ton, a new low since July 9, 2021. The ICE2 cotton staples reached a low of 88.10 cents per pound on July 7, a new low since July 26, 2021.
Wu Jingwen introduced that the domestic cotton upstream inventory is high, according to the national cotton market monitoring system, as of June 30, the national sales rate of 63.5%, down 35.5% year-on-year, down 23.6% from the average of the past four years, so in the next two months, the upstream factory still has 36% of the volume to be sold out, whether it is a registered warehouse receipt or a direct sale of spot, there is not much time left, and the cotton spot price is expected to weaken.
The reporter learned from the business people that the current downstream demand is not good, the current downstream demand is in the seasonal off-season, in general, it will take until August and September to gradually turn from light to strong; Textile mill operating rate continued to decline month on month, last week's cotton yarn mill operating rate of 44.8%, cotton blank cloth factory operating rate of 45.8%, are at a historical low; finished product inventory continued to accumulate, last week's cotton mill finished product inventory of 42.8 days, cotton blank factory finished product inventory of 42.5 days, are at a historical high.
In the U.S. cotton market, the planting area is expected to increase by 11% year-on-year in 2022/2023, but drought may increase the rate of abandonment and affect yields, focusing on the impact of weather on yields.
It is reported that the growth progress of U.S. cotton is normal, but the excellent rate is not good: as of July 3, the bud rate of U.S. cotton is 44%, the bud rate of the previous week is 33%, the level of the same period last year was 42%, and the average of the first five years was 44%; The ring rate of U.S. cotton is 13%, compared with 8% in the previous week, 10% in the same period last year, and the average of the first five years was 12%; The excellent growth rate of U.S. cotton is 36%, compared with 37% last week, down 1 percentage point; The same period last year was 52 percent, down 16 percentage points.
In addition, U.S. cotton signings increased significantly in the next year: according to USDA data, as of the week ended June 23, the total signing volume of U.S. cotton upland cotton and pima cotton in 2021/2022 was 3.6476 million tons, accounting for 114% of the total annual forecast export volume (3.21.1), and the cumulative export shipment volume was 2.7063 million tons, accounting for 74% of the total annual signing volume. In 2022/2023, the total signed sales of upland cotton were 911,800 tons, an increase of 75.31% year-on-year.
For the future market of international and domestic cotton, Wu Jingwen believes that in the second half of the year, as the Fed's interest rate hike policy continues, macro expectations weaken, the risk of economic growth slowdown increases, and commodities face downward pressure; After two years of growth in global cotton demand, with the slowdown in economic growth, it has also begun to weaken marginally, and the production increase and demand in the next year are reduced, and international cotton prices are expected to drive downwards. In the context of strong supply and weak demand, domestic cotton prices are expected to continue to weaken in the next two months. In terms of monthly spreads, the 9-1 spread is overvalued, and the probability of future convergence is large.
This article originated from Futures Daily