A quick calendar of events, when they occur, and potential impacts:
9th of January: Merkel and Sarkozy meet to discuss eurozone future.
Impact: Very little actual, but might give a hope’n’hype rally since people need to reenter positions quickly. This is expected to undergo a strict acid test on January 13th (Italy issues €7bn of 5 to 15 year BTP’s) and January 19th (Spain, €4bn 5-10Y government bonds). Confidence reversal crash is entirely possible, especially in the meeting aftermath around late January.
24th – 25th of January: Federal Open Market Committee meeting.
Impact: Unlikely to be particularly great. Economic data looks like it’s superficially improving, tying the Fed’s hands and preventing it from doing much in the way of QE. Significant downside risks if the FOMC expects things to keep going poorly, and significant upside potential on QE announcements or plans, still with very negligible probability of announcement.
23rd – 25th of January, with leak until the start of February: Lunar (Chinese) New Year or Spring Festival.
Impact: Liquidity withdrawal to start in Hang Seng and Shanghai Composite at start of next week, with reentry between early February to mid-March depending on market conditions. Better means faster. Gold likely to be suppressed, and some liquidity in key Asian markets withdrawn.
Putting it all together:
Europe could lead a quick leak higher, which is unlikely to provide much in terms of longer-lasting effects, especially when the Asian markets retreat and people want to hear what the FOMC will say before they put their money at risk. A quick fall is highly likely in mid-late January as Merkozy dissapointment might exacerbate the withdrawal effects and set a tone which would allow any non-QE announcement out of the FOMC to be a sentiment catalyst downwards. This is likely to be more destabilizing in emerging market- and European indices, and in the case of emerging market indices a reversal might only come following increased volumes representing return to the stock market after the Lunar New Year.