China's Mid-Autumn closure tests markets ahead of National Day

Among major currencies, the Australian dollar carries the highest exposure. Typically it moves in part as a proxy for China, but with mainland markets closed it loses that reference point and must rely more on oil, Treasury yields and the RBA. Dalian iron ore futures are also shut, so price discovery for iron ore falls to the thinner Singapore contract.

Gold is similarly affected, losing a major source of demand during Asian hours. The Shanghai Gold Exchange closure removes Chinese physical and speculative buying, making gold prices more dependent on Treasury yields and the US dollar until Chinese buyers come back.

Equity desks in Asia could face lower volumes and wider bid-ask spreads, meaning individual headlines may cause exaggerated moves. Traders occasionally reduce exposure ahead of extended Chinese holidays, amplifying volatility in the three trading days before National Day. Once markets reopen, the initial sessions often see adjustment moves as mainland markets absorb a week's worth of global events at once.

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China observes a long weekend now and a full week in October, with each closure creating a larger void in the Asian trading session. The combination of sparse liquidity and a packed news schedule can produce increased volatility.

Key points for this period:

• Chinese onshore markets are closed from Friday, September 25 through Sunday, September 27 for the Mid-Autumn Festival.
• They reopen Monday for three sessions before the National Day holiday, which runs from October 1 to 7.
• China's rising significance in global markets means its absence makes the Asian session noticeably thinner.
• With the onshore yuan and Chinese commodity futures offline, offshore markets handle price discovery with reduced depth.
• Japan stays open, so cash Treasury trading continues during Tokyo hours.
• These closures coincide with oil price swings, Treasury yields at 17-year highs, and a widely expected RBA rate hike.

Mainland Chinese markets are closed Friday for the Mid-Autumn Festival, and the break extends through the weekend, with trading resuming Monday. This can be seen as a practice run. After only three trading days next week, China will close again for the week-long National Day holiday, from Thursday, October 1 to Wednesday, October 7.

Chinese holiday closures are a routine calendar event, but the void they create in the Asian trading day has expanded in line with the country's growing role in global markets. As the second-largest economy, China produces a substantial portion of the region's market activity. This includes corporate hedging, trade-related currency demand, portfolio investment, and a large amount of speculative trading. When that activity ceases, the Asian session can become markedly thinner.

The impact is visible across various asset classes. With the onshore yuan market shut, offshore yuan trading alone handles price discovery, typically with diminished depth. Commodity markets are missing Chinese futures activity, which is especially significant for iron ore considering its strong correlation with the Australian dollar. Equity markets in the region lose an important source of direction, and cross-border flows through Stock Connect channels slow down or halt.

This void is not inherently problematic. Many holiday sessions proceed calmly, with markets just waiting for Beijing and Shanghai to reopen. However, thin liquidity is a double-edged sword. When a headline emerges, prices can move more sharply and quickly than during normal sessions, and that risk is elevated given the current busy news environment.

The current news flow is far from calm. Oil prices are volatile due to Middle East developments, US Treasury yields have reached levels not seen since 2007, and the Reserve Bank of Australia is broadly anticipated to raise rates on Tuesday. Japan's markets stay open, so cash US Treasuries will trade during Tokyo hours, with the yen and Japanese government bond markets offering some stability for the region.

Friday provides a valuable indication of what traders can anticipate during the longer closure. China will be missing for a whole week while the RBA decision, US economic data, and Middle East diplomatic efforts all vie for focus. That could make early October one of the most news-sensitive periods of the year for the Asian session.