A currency driven outcome saw the Australian wool market decline in USD terms, but rise strongly in local currency terms.
Given the massive drop in the value of the Australian dollar just before sales commenced, prices bounced quite strongly last Wednesday with rises of 25 to 60 cents for most Merino fleece categories.
Only about half of the currency move was factored into prices with many sales having been made at the "old" rate of 0.7100 or thereabouts.
Indent buyers, operating on a spot exchange rate of about 0.6900 were able to operate much more aggressively.
The second day of selling on Thursday saw topmakers and exporters kick into gear and the market closed 20c dearer in USD terms.
So, for the week the Australian market closed 30c higher overall, with Merino fleece types up by 60c or more, and the crossbred and carding sectors dragging the average back as they were unchanged at best.
In USD terms the movement for the week was down 12c, and again Merino fleece types were unchanged or slightly positive, while crossbred and carding wools provided a drag on the overall market indicator.
Since sales concluded the currency volatility has continued, although mostly the wrong way for Australian exporters, which is limiting the amount of business consequently being written.
Furthermore, exporters are wary of selling too much quantity given the restricted offering available next week as Fremantle again takes a week off.
A national selection of 30,000 bales, of which 10,000 will probably be cross-breds and cardings, means not a lot of good spec Merino fleece is available.
So, even though the phones are not running hot at present, there will be enough orders in the market to keep things fully firm for Merino fleece, and hopefully just enough people chasing value and mill filling opportunities for the cross-bred and carding sectors to maintain thereabouts in the coming week.
Inflation concerns and central bank activities played havoc with the currency and equity markets during the week and affected most commodity markets to some degree or another.
The largest move in the wool market, aside from Fremantle which was playing catch-up after having a week off, was the 20-micron indicator in Melbourne which jumped by nearly 6 per cent for the week in Australian dollars, but only 2.3pc in USD terms.
Cotton prices fell heavily - about 6.5pc - as the market worried what higher interest rates would do for demand.
Wool prices have not risen anywhere as much as cotton over the past two years, so possibly do not need to react as much to concerns about demand, but it does raise a potential red flag for the wool industry going forward.
The market which is currently driving much of the processor demand is Europe.
Chinese topmakers, those with an export focus, are all very busy at present producing wooltops and yarn for this market, while those solely focussed on domestic production are stalling.
If the current inflation concerns do begin to bite and dampen demand in the European market, these export orientated mills will pivot as usual back to the domestic market. However, at the moment the Chinese domestic garment producers are reporting orders for the local market are only about 30pc of normal activity.
The ongoing COVID issues in China are making everyone nervous. After two-month lockdown Shanghai residents are again facing further restrictions and would be getting well and truly sick of the continuous testing regime.
Complaining about it is not going to change it, given the government's policy, but the longer it drags on, the more serious the economic damage, and presumably the damage to the consumer confidence as well.
Some domestic mills are looking, perhaps wistfully, for some government stimulus. None has yet been announced, and the Chinese government is not exactly flush with cash, but the textile industry in China is a very large, very important industry, so no doubt Beijing will be watching developments closely.
Should said stimulus arrive, the domestic mills can quickly gear up production, and meet the retail selling season, and of course uniforms are always an easy lever for the Chinese government to lean on.
If, however the Chinese domestic processing industry is left to its own devices, demand for Australian wool may begin to falter in August.
The next three weeks of sales will be supported simply by the needs of processors covering their mill fodder requirements of the annual recess, but after that, with Europe in full holiday mode, and potentially getting bashed about by the inflation bogey, the export scene may become more difficult.
On the other side of the coin, it is not hard to become enthused about the prospects of Merino wool given the swing towards natural, sustainable, and traceable fibres.
More and more companies are heeding the call from consumers to explain what is in their products, and share the story behind their production. This is leading to a greater level of compliance in terms of chemical usage, water usage and obviously carbon footprint, but greenwashing aside, the stories that wool can tell shine a very bright light indeed.
Keeping the facts on the table, and complying with the increasing number of requests from retailers and consumers will keep people busy, but sharing the good stories will lead to more garment sales, so the effort will be worthwhile. With more downward pressure on the local currency expected, and the need for mills to keep the pipeline full, the market should remain firm over the next three weeks. Post the recess, those who take advantage of the current forward market may be the ones wearing the biggest grins.
