As was largely expected, it was a rather sedate week for Australian Wool auctions. There was a lot of inactivity due to the wait and see approach that inevitably comes each year around the Nanjing Wool Market (NWM) conference week, as that event usually will provide a strong lead as to the short to medium term market direction and a week or two post conference is required for that direction to become apparent.

Some initial price rises across the board were made on the opening day of sales, but these gains were quickly given back or prices stabilised at the slightly higher basis on a generally weaker final day. The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) gained 0.29% or 6ac for the series to close at 2094ac clean/kg. In USD terms, the indicator improved by a slightly better amount in percentage terms by shifting 0.43% higher or +6 usc to 1504 usc clean/kg.

What is most apparent in the Australian Merino market at present though is the disparity of prices being achieved between selling centres. Whilst all markets are generally aligned from 19 to 22 micron, the real differences becomes quite obvious on the superfine descriptions of 18.5 micron and finer. The Western and Southern markets are reasonably similar but the Northern market continues to quote these wools at 50 to 70 ac clean/kg higher than the other two centres.

Supply is the number one concern at present and the AWEX selling figures show that almost 50,000 less bales have been offered than at the same time last season. This represents 13.4% less than last year (2017/18) when at the similar time there was 10% more wool than the previous year(2016/17) at that time, which by seasons end had dwindled to just a total improvement of 2% or thereabouts. If the same seasonal pattern is followed, then justifiable concerns can be made for the outlook given the dire season situation in many wool growing regions.

Briefly the major issues emanating from the NWM conference include the environmental protection legislation in China and the associated budgets required to satisfy the highly restrictive new laws. The biggest issues surround scouring effluent and the waste water and sludge disposal. Water treatment and air purification devices are required and expensive, adding significant cost to scouring of greasy wools. Many shut downs are being enforced by government to enforce the adherence to the new policy.

The trade between USA and China was a key topic and at this stage textiles are caught up to an estimated 8 billion impact of the total 400 billion tariff. Within textiles, thankfully for most of our wool growers, that impact is centred on industrial Geo textiles and carpet export to USA. Pleasingly though, China sees an absolute separation between trade and cold war outcomes and consider the two outcomes completely unrelatable.

Price of course was also discussed at length and rather than complaining about the price, almost all China users are actively trying to adapt to the new price levels and to survive. Better management strategies and improving production techniques are their primary focus. They are fully sympathetic to the drought affected farmers and are fully cognisant of the effect on supply.

Next week around 36,500 bales go to auction.

Wool forwards report - Southern Aurora Markets

A quiet week on the forwards with the market looking for direction. All eyes where towards the 30th Annual Nanjing Wool Conference. The mood of the conference was buoyant but opinion divided on the medium and long term ability of the market to maintain these level. High on the minds of processors was the continuing trade issues with China and the USA. Sentiment on the impact of the tariffs varies from day to day.

Financing along the pipeline is getting tighter resulting in some discounting of stocks to satisfy bank commitments. These negatives to the market are somewhat balanced by solid demand and low supply especially in the finer microns. Interest remains out to the middle of next year highlight trades on the 19.0 micron contract were 2300 January out to May at 2255. The 21.0 micron contract attracted less interest reflecting the lack of anticipated long term demand at these levels. Generally buyers are finding it difficult to attract demand over 2200 in October, 2150 December and 2100 in the New Year.

AUD Commentary - Southern Aurora Markets

The Australian Dollar rallied off 2 1/2 year lows earlier this week of .7085, rising swiftly on Thursday to .7228 after the stronger employment report, before easing back today (friday) to .7194.

Employment data showed the jobless rate remained unchanged at 5.3 percent for August, however Australia’s Consumer Sentiment weakened as the Westpac Melbourne Institute survey fell 3 percent showing the affects of recent political instability, rising mortgage rates, larger debt, weak wages growth and falling house prices, Westpac again said it's likely the RBA will be forced to leave rates on hold at the record low of 1.5 per cent for the next 15 months. This contrasts sharply to the U.S were wages and corporate profits are rising and employment is surging, with the Fed confirmed rates will rise further. Overnight the Dow Jones hit a six month high of 26,146 and the S&P500 and Nasdaq closed at new record highs. Sentiment in the U.S lifted after President Trump invited China for a new round of trade negotiations. Central Banks in Europe and the U.K announced over-night that rates also remain at record lows for the time being.

Technically the rally in the Aussie this weeks suggests more upside bias, with a short term base now in place at .7085. The Aussie could rally further to resistance at .7380, however the bigger picture still suggests that downtrend is till in place and we will see a re-test of this week low in the coming weeks.