Article / 23 December 2013 at 8:30 GMT

Holiday markets, yes — but note key data and the China crisis

John J Hardy John J Hardy
Head of FX Strategy / Saxo Bank

By John J. Hardy

The holiday markets are upon us. Last Friday saw a notable failure by the market to follow through with the recent USD strength as it was perhaps too much to ask to get something more significant under way on the cusp of the typically rangebound and illiquid holiday season. From here until the first real trading days of the New Year (starting perhaps on January 2, but really not until January 6), we shouldn’t expect any market moves worth hanging our hats on. Still, there might be room for JPY crosses to move around this week considering the flurry of data set for release and after USDJPY touched new highs for the cycle.

wall st

Traders shouldn't expect any major market moves over the holidays. Photo: Nabil Shahid /

Looking ahead

The economic calendar is rather thin today. Trading this week, and possibly most of next, is likely be lacklustre and erratic at times as significant market players will be on the sidelines until the week after next. Still, we do have incoming data worth noting — both today and over the rest of the week. We have a serious credit crunch unfolding in China for the second time this year. One-week Shibor is now near 9 percent — up from just above 4percent last week and at the second-highest level of the year (there was a one-day spike to above 10 percent back in June). Clearly, there is widespread panic in China’s interbank market. A great Bloomberg article out today discusses a Deutsche Bank analyst’s pessimistic view of China, as well as that analyst’s very prescient and very poor historic calls on various markets.

As this will be my last update until Friday, I’ll run through the calendar items of note through to the end of the week.


  • US PCE inflation data: this is supposedly the US Federal Reserve’s favourite measure and the inflation/disinflation debate has been the hottest theme going in recent months. Last month’s core data was at 1.1 percent, the lowest reading since early 2011. There were a handful of readings just below 1 percent in 2009 and in late 2010/early 2011 that were the lowest in the data series’ history, which stretches back more than 50 years. If the core data pushes below 1 percent, the market may begin to fret a tapering of the taper (for example, the Fed having second thoughts eventually about further reductions). However, it would take either several more months of low readings near present levels or slightly lower — or a sharp and drastic reading over a shorter time frame — for this to raise concerns. The expectation is for a slightly higher 1.2 percent year-on-year reading.
  • Final University of Michigan Confidence reading: we saw a big jump in the initial December reading. Was this just about getting over the launch of Obamacare or is confidence spreading? The weekly Bloomberg confidence readings have bounced back as well, although we’re still well below the highs of the cycle and we’ve yet to see confirmation from the Conference Board number, which is set for release on December 31. Historically, confidence is most closely correlated with the strength of the job market.
  • Canada’s GDP: interesting after Friday’s pump and dump in USDCAD and a sign that new buyers are unwilling to get involved at these high levels. Is this simply a time of year issue or is something else afoot?


USDCAD posted an ugly reversal on Friday that represents a real disappointment for the bulls. It could take some time for the market to decide whether this is merely the bulls pulling in their horns due to the time of the year or whether we should take this as a significant warning that the pair is not ready to launch a major new rally just yet. Stay tuned in the New Year.


Source: Saxo Bank

Highlights for the rest of the week:


  • US November Durable Goods Orders and November New Home Sales (remember the massive surge in housing starts after the budget mess cleared up — are these strong numbers just a bit of a catch up or will the surge continue in the months ahead?)


  • Japan Market/JMMA December Manufacturing PMI and December Small Business Confidence. The latter survey has reached a recent high that was only exceeded twice (in 2006) since the late 1980s.
  • US weekly initial jobless claims: a very weak number last week. It is important for this to not become a trend. Watch Congress for news on whether unemployment benefits will be extended again.


  • Japan November Jobless Rate, CPI, Industrial Production, Retail Sales. The latest big batch of data looks at how well Abenomics continues to gain traction. The year-on-year core CPI is expected at a lofty plus 0.5 percent, which would be the highest in more than 15 years.

Stay careful out there.

Upcoming Economic Calendar Highlights (all times GMT)

  • Canada Oct. GDP (13:30)
  • US Nov. Personal Income and Spending (13:30)
  • US Nov. PCE Deflator/Core (13:30)
  • US Dec. Final University of Michigan Confidence (14:55)



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