CURRENCY fluctuations, limitations on finance and a hangover from last week’s exuberant start all contributed to a more benign wool market last week.
Not that any growers are complaining given the record prices being achieved across the Merino spectrum, but one can only sit and wonder about the merits of passing in wool because the market has a small hiccup.
As the sun went down on wool auctions for the week in stifling heat across much of the nation the market had registered a fall of 17c to close on 1801c. This also equated to a fall of Euro20c but thanks to a weaker US currency, prices in US dollar were actually 3c stronger.
AWEX’s north market indicator closed down 7c on 1901c. The 17 micron indicator closed on 2672c, 18 micron 2374c, 19 micron 2137c, 20 micron 1942c, 21 micron 1786c, 22 micron 1709c, 29 micron 808c, and 30 micron 594c.
While there seems to be a plethora of different things happening depending on the currency the overall direction of the market at the end of the week was clearly heading down. We are not heading into a full blown correction – whereby typically 50 per cent of the increase is given up – but just a reality check because last week got a little overheated.
The mood in China is much more enthusiastic with inquiry starting to flow again.
The erratic movement has given some processors reason to temporarily hit the pause button in their buying programs, especially in Europe where they have been a little more concerned about the volatility and ferocity of the upturn anyway. Now they are no doubt wondering if the balloon will deflate further, or if we have seen the last of negative moves already.
However, the mood in China is much more enthusiastic with inquiry starting to flow again as soon as auctions had closed for the week. No doubt some of the early stage processors in China are looking towards their annual shutdown over the Chinese New Year period and planning their requirements before and after this break in proceedings. Cash flow will be a big part of discussions and this was thought to be one of the factors that caused the blip this week when some major buyers exited the market temporarily while the beanies tallied up their purchases.
World currency markets appear to have got themselves in a bit of a mess lately. Commodities have been rising, as we know which is generally bullish for the commodity currencies such as the Aussie and Kiwi. Trump’s tax plan was supposed to be bullish for the US currency as it was going to ‘fix’ everything and ‘Make America Great Again’ but the US dollar has been trending down ever since its inception. This has been particularly evident with the Euro, which is considerably stronger against the US dollar and is now within spitting distance of a three year high.
History tells us that the wool market has a better time when the Europeans have more favourable exchange rates to export with so the current situation is one factor that is not quite what we would like. Also, once again we have the US Government on the cusp of shutting down if Congress cannot resolve their current budget impasse.
Perhaps the downgrading by a Chinese credit rating company of the USA sovereign debt this week to a level matching Peru, Colombia and Turkmenistan on the scale of creditworthiness was more than just a political barb. According to the HSBC note Dagong Global Credit Rating Co warned that the US’s increasing reliance on debt to drive development would erode its solvency – a phrase about people living in glass houses comes to mind.
Given China’s booming middle class consumption, and the Chinese government’s new strategies for influence around the globe there will be some interesting discussions taking place in coming months. Adding to this the two Korea’s that have ‘kissed and made up’ even if only temporarily for the Winter Olympics next month, and America may find it self marginalised in a number of scenarios.
Just when Merino was finally beginning to capture a decent slice of the American market through its exercise and outdoors marketing programs we could be in for a period of turmoil. All this may come to nothing more than a fake newstorm. However, there is enough smoke that growers should control their greed factor, unlike this week when we saw 7pc of the clip passed in.
Superfine: With a shortened selling week next week volumes of all Merino wool will be smaller and this will challenge buyers trying to fill orders. There would seem to be enough Chinese demand at present to maintain superfine prices, particularly the better tested lots.
Medium Merino: After the market has had its little blip to remind everyone that nothing goes up forever, we should see stability return but in which currency?
Crossbreds: Some signs of life in the market across the Tasman show that all is not lost, but it will still take time to clear the present stock and build demand in new/born-again products.