Wool market gains 31c | Elders

Australian wool market gains 31c

AWEX's Eastern Market Indicator gained 31c in local currency terms to close on 1754c.

AWEX's Eastern Market Indicator gained 31c in local currency terms to close on 1754c.


AWEX's Eastern Market Indicator gained 31c in local currency terms to close on 1754c.


THE Australian wool market entered the three-week recess period on a firm note as expected with AWEX's Eastern Market Indicator gaining 31c in local currency terms to close on 1754c.

A fluctuating currency market saw the US dollar prices initially ease, then rebound to close the week 9c higher, while the Europeans saw an increase of Euro10c for the week on the EMI for their quote sheets.

All Merino fleece indicators closed in positive territory with the superfine categories shrugging off their recent lethargy to close out the week 40c higher. The medium Merino fleece categories were also keenly sought after and closed up to 30c higher, although some of the poorer style lots brought the averages down.

AWEX's Northern Market Indicator closed up 42c on 1780c. The 17 micron closed on 2175c, 18 micron 2143c, 19 micron 2043c, 20 micron 2033c, and 28 micron 1045c.

Knitwear continues to be the flavour of the month or season and skirtings of all descriptions were 50c dearer. The carding market followed suit as buyers struggled to fill orders and a smattering of demand for short wool from Chinese mills saw around 50c added to the carding indicator. The crossbred end of the market was solid without being excessive and closed up around 20c dearer.

Buyers and auction staff now kick back and relax, travel overseas to visit clients and principals, or catch up on market analysis and updating buying barames ready to start all over again on August 7. For many buyers and exporters, the season has been challenging with a falling market making it more difficult to trade profitably, but the decrease in price over the past four months has alleviated some of the daily strain on financial resources.

Some exporters chose to take a less active role in the past couple of months to protect their hard-won gains, rather than relinquish them over the always difficult May-June period. The major topmakers from around the world have been the most active buyers at auction recently as we have seen, with the traders and speculators taking a back seat or awaiting some clarity in market direction before committing again.

That clarity in direction is still up in the air somewhat with plenty of individuals on both sides of the fence about what will happen in August. - Bruce McLeish, Elders

That clarity in direction is still up in the air somewhat with plenty of individuals on both sides of the fence about what will happen in August.

This uncertainty is not restricted to the wool industry, as plenty of other commodities and businesses face difficulties gaining traction at present. The global economy is spluttering along with all sorts of impediments leading to a reduced consumer confidence around the globe. This translates through to a lack of spending on anything which is not essential.

The driver of world growth, or the benchmark by which many measure prospects for the future being the US economy, is doing okay - just. The chairman of the Federal Reserve fronted the media during the week, by way of a Congressional Hearing, during which every word uttered was examined, dissected and analysed. In the end, a dovish tone was evident with the market all but sure now that US interest rates will be cut during the Fed's July meeting.

This sent the stock markets soaring, but hardly gives consumers cause for joy, in that the Fed feels it necessary to actually cut rates to head off weakness in the American economy. Although last week's job numbers from the US were surprisingly bullish, Jerome Powell highlighted the risk posed by the trade war as well as global economic weakness, as he hinted that perhaps, maybe, possibly they might look to cut interest rates this month.

As usual the equity traders are keen to direct the media stories so that the market will go the way they want it to. At some point they will want to reverse the position, but at present it suits their aim for the interest rates and currency to be going down, and the stock market to be heading up, so all the headlines are talking about the negative side of the equation. If one digs a bit deeper, rather than the limited financial reports on commercial television news, there is enough positivity around to suggest a cyclical upturn is imminent on the back of cheaper cash and hopefully a resolution in the trade war.

While there is virtually no-one outside of the negotiating team who is game enough to predict when we will see a resolution to the trade war between the US and China it is plain to see the mounting pressure on both sides that must surely force a resolution in coming months. The reduction of interest rates in the US will have only a limited short-term stimulus effect, and it would be safe to assume that as the US political cycle gathers pace a resolution extolling the virtues of this action will be rolled out by a triumphant incumbent president.

That is not to say that China will be able to wait it out until Mr Trump wants it fixed, as many around the world are now asking China to open up their financial markets among other measures. The pressure on President Xi is also mounting to find a resolution, and do so quickly as the pain deepens for businesses across China. There is no doubt already a finalised position for both parties, but for domestic political reasons on both sides of the Pacific, it must be one which is able to be explained as a win-win.

Once this particular thorn has been removed, whenever that may be, the global economy will breathe a sigh of relief and for the wool industry it will be a very important moment. With the auction recess now on, and European holidays looming a disenchanted Chinese processing industry is very unsure about which way to turn. Some production capacity has been reduced with a lack of pull-thru demand causing angst.

Retailers in some areas are still carrying stock left over from last season, hence they are reluctant to purchase anything on a forward basis for next season. When sales resume in August we can be certain of volatility for one thing. There will probably be a bit of a flurry of restocking activity in the first couple of weeks as mills refill the pipeline, but then we will drift along until the market sorts itself out. In the longer term all of the positive attributes for Merino wool will allow retailers to crank things up again, and the expected ongoing supply shortage should see prices climb back towards the $20 mark again.

- Bruce McLeish is Elders northern zone wool manager.

RELATED STORY: 'Australian wool market opens 7c higher'.


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