ICE Cotton traded almost unchanged this week, a slow, low-volume follow-up to last week’s strong gains. Cert stocks have steadily fallen to around 40k bales, with no new crop bales yet to turn up.
Export sales this week were better than most expected, with the bulk going to Turkey and various Far East markets; China bought only 25k bales but sales were nonetheless well above the pace needed to reach the USDA’s full season export target.
The H4-K4 spread has held at a small invert, the highest since September, and may be required to invert further in order to draw stocks to the board. This will likely happen, as tendering cert stocks becomes easier, faster, and less costly beginning with new ICE delivery rules applying to the H4 and beyond.
The Federal Reserve this week announced the beginning of “tapering,” with a reduction in bond purchases from $85b to $75b per month beginning in January.
At the same time, the Fed stated that “The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal.”
So despite the start of tapering, which should bring QE to an end in late 2014, interest rates will not rise for a long time. Equities liked the announcement, which combined with today’s upward revision of US Q3 GDP – to a robush 4.1% annualized rate – helped send them to yet fresh highs. Bonds have likewise held their ground, with the 10-year at a manageable 2.9%.
