The Australian wool market ticked along quite nicely last week in the penultimate sale before the Christmas auction recess.
There was enough business done in the few days prior to keep the trade active, and a volatile local currency added enough fuel to the fire to make it nice and warm - but not too hot.
In local currency terms, the market lifted by 14 cents a kilogram overall. This was US6c/kg and 8c/kg in Euro.
So, buyers overseas were not affected greatly, and could continue picking up their requirements.
Superfine Merino types were strongly sought after, particularly those with the best specifications, and most of these Micron Price Guides (MPGs) lifted by 30c/kg.
Medium Merino types were all positive, although a little more restrained in their increases - with gains of 15c/kg more like the norm.
Crossbred lines received a relatively large boost, in percentage terms at least, from their very low base.
These added 25c/kg as well, presumably as defensive mill fillers - as no spike in product demand has become evident yet, despite a lot of marketing.
Cardings were solid across the board and gained 10-15c/kg.
The turmoil generated by the uncertainty of the effects of the Omicron strain persisted through most of the week, and really only after the wool auctions had finished did news reports begin to filter out that maybe - hopefully - this new variant may not be the bogey that everyone at first feared.
The risk-off phase in markets saw commodities in general sold off, currencies such as the Australian Dollar dumped and a retreat to safety.
With each passing day, and news reports, the mood improved.
So, by week's end, the Australian Dollar had recovered all of its loss.
But a few lucky exporters were able to cover sales while it was low.
Cotton, which has been enjoying somewhat of a bull market, initially took a large hit and fell 12 cents - or 10 per cent - on futures markets.
It has since been able to recover about a quarter of that.
But the old adage of "the higher you go, the harder you fall", has certainly come to the fore in that market.
In contrast, the wool market has been relatively benign for the past couple of months.
So, it is less inclined to show as much volatility for a change.
There are some, however, who suggest that because the wool market has been range bound for so long, the price move - when it does come - will be more volatile.
What may trigger that jump, or fall, is probably something we will only know after it has occurred - as there are no clear pointers out there just yet.
Everything looks fairly stable around the world at present - purely from a wool buying, processing and trading perspective.
The market is calm.
With one week remaining in sales before the three-week recess, not a creature was stirring, not even a mouse.
Europe is also quiet, as it prepares for Christmas and struggles with the latest COVID-19 surge.
The Chinese uniform market is quite active.
But the domestic brands' market in China is very, very quiet.
Some suggest that buyers of garments in China are reluctant to place orders for next year until they have a better understanding of just where their economy will be in 2022.
Until then, they are happy to just buy from stocks.
This keeps their inventory levels low, but puts the pressure back onto the early and middle stage processors.
At present, stocks are building in China with greasy on the way, or awaiting processing, and some wooltop stock lying around.
But it has not yet reached uncomfortable levels and could disappear very quickly if the domestic market suddenly awakens.
Lead times are actually pushing out further and further, with just about every mill in China struggling to find enough workers, or enough willing workers to run the third shift.
Increased salaries need to be offered to entice people to work the night shift.
But then the flow-on cost increases - on top of the already higher cost of electricity and steam quickly putting margins under pressure.
Uniform business, while providing big volumes of work for many mills, doesn't come with a large profit margin.
So, most mills are working at around 70pc of capacity, while trying to limit their cost increases.
If the demand increases substantially, and looks like being sustained, they may take a different approach.
But, for now, caution is the name of the game.
The Chinese government is looking to tweak the levers of the economy, and has just cut the Required Reserve Ratio - which is the amount of funds banks must carry compared to loans.
So, this has the effect of pumping more credit into the economy, stimulating more activity and hopefully positive growth.
Like any Central Bank stimulus measure, too much can be dangerous and create excessive inflation, but a little bit can act like a tonic to the economy.
Hopefully this will be enough to pick up domestic activity in China a notch, get the consumers more active, and in turn encourage retailers to place orders for the 2022-23 season by February at the latest.
So, the break-out of the wool market still could be up, or could be down.
January will be very interesting, and potentially volatile - but the market could still go either way.
Chinese New Year will be celebrated on February 1.
But assuming nothing changes from a COVID-19 perspective, mills will begin to shut down from January 24 to give people time to travel and be home for this date.
So, we have two auction weeks in January before things go quiet in China.
If things get a little gloomier there in the next four weeks whilst Australia is on the beach, or watching the cricket, the first couple of sales in January could be challenging - especially if volumes are large.
But we have seen the market bolt away in January in recent years on pent-up demand.
So, if everything goes well in the next month - and everyone behaves themselves - we could see another jump in prices to start the new year. Time will tell.
