How New Year Gifts of Good Fortune Affect the Markets

We hope you’re having a very Merry Christmas. Did Santa bring you everything you wanted last week? Today’s article is all about luck and good fortune. We’re looking at New Year gifting traditions and their impact on the markets. Following that, we’ll give you the shortest trading preview of the year. Ready? Let’s do this!

New Year and prosperity

Come the end of the week, people from hundreds of different cultures and nationalities from all over the globe will be following various traditions in a bid to make 2021 a particularly prosperous and lucky year. We could all do with a little prosperity now, couldn’t we?

Scots believe that a home and financial clean-up can bring them luck in the new year. For Filipinos, it’s all about wearing clothing with circles on it, which they believe symbolises prosperity. Latin Americans believe in the ultimate power of yellow underwear.

But what about gifting? Can you give the gift of good fortune? Do people do that? And if so, how does it affect the markets?

Gifting good fortune

While this is a tradition in numerous cultures, nowhere is it more popular than in China. The Chinese New Year, also known as the Lunar New Year, sees Chinese people around the world hold family reunions and gift substantial sums to their loved ones.

However, Chinese New Year is based on the lunar calendar and shifts annually, next year falling on the 12th of February. The year of the Metal Ox, in case you were wondering.

That celebration brings a seven day public holiday and most Chinese citizens take the majority of their annual leave before or after it. And so the country, and practically all of its industries, can shut down for around three to four weeks.

The holiday also impacts countries with large Chinese populations, e.g. Thailand, Indonesia, Singapore, Malaysia, South Korea, and the Philippines; as well as the US, Canada, Australia, and throughout Europe. In total, we’re talking about 1.4 billion people, worldwide. That’s quite a New Year’s party!

What’s the market impact?

This holiday affects the market in a few important ways…

● Cash withdrawals — gift-giving in the form of ‘red packets’ are a major feature of Chinese New Year. As companies and stock markets are closed at the time, a lot of profit-taking takes place, taking gigantic amounts of cash out of the system and causing fluctuations in stocks.

● Gold prices — China is both the biggest producer and consumer of gold on the planet. As a result, there’s always a sharp increase in domestic demand — as people look to give gold and jewellery as gifts. Couple that with the global demand for gold and the dip in supply due to the holiday shutdown, and the influence on gold prices early on in the calendar year is pretty noticeable!

● A drop in liquidity — the thing about everyone switching off from work is that it tends to include traders as well. Recent years have shown a big dip in trading volumes from around 2 weeks before the holiday, consistently dropping up until the last day of the holiday. Usually, the volumes take around a week after that to get back to normal.

● Industry shutdown — probably the most obvious impact! China is the world’s biggest manufacturer, so when it stops manufacturing, businesses and consumers the world over really feel it. It’s not just the holiday period, either. Orders for China’s goodies continue to roll in during the holiday, causing a huge backlog. This then hits retailers and importers rushing to get orders out of the country. Shipping and logistics then come under massive strain, which then impacts oil prices. You see what we’re getting at?

While February is still a little way off, as a trader, there’s no such thing as being too prepared. The gift of good fortune will certainly have a knock-on effect for us all. Consider yourself warned!

What’s on the trading agenda this week?

Truth be told, not a lot! We’re in the middle of down-time as the markets soak up every second of the Christmas/New Year break.

However, if you happen to be a CNY trader, you should definitely keep an eye on Thursday’s NBS Manufacturing PMI, which measures the manufacturing sector’s performance.

Otherwise, traders should use this time wisely. Keep up with current affairs; hone your trading strategy; check some historical price action. Most importantly, take a break. Stick on your favourite film, put your feet up and chill. Rest your head and your mouse finger, you’ll need them both to be on fire when the markets open back up again in January.

Here at Contentworks we closely follow market movements and prep content that we think your traders would love to read. Let’s get you started right here.

In case we don’t see you before Friday, Happy New Year! We hope 2021 brings you happiness and prosperity.

The Contentworks Team