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12/17 05:54
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Political Turmoil and Market Reactions: September is anticipated to bring significant market volatility as U.S. President Donald Trump's recent firing of Federal Reserve Governor Lisa Cook and ongoing political issues in France raise concerns among investors. Historically, September has been a month of notable market swings, prompting a reassessment of portfolios.
Federal Reserve and Economic Indicators: The upcoming U.S. jobs report on September 5 and the Federal Reserve's meeting on September 16-17 are critical, especially after contentious July job data led to the dismissal of the Bureau of Labor Statistics chief. Markets are pricing in an 85% chance of a rate cut, but concerns about the Fed's independence and inflation control are growing.
French Government Stability: French Prime Minister Francois Bayrou is expected to lose a confidence vote on September 8, which could destabilize the minority government led by President Emmanuel Macron. This situation raises risks for European shares, particularly French banks and bonds, with yields nearing their highest levels since 2011.
Potential Rating Downgrades: Fitch Ratings is set to update its view on France on September 12, with further assessments from DBRS and Scope later in the month. A failure of the French government could trigger a domino effect impacting the sustainability of European markets.
Ukraine Conflict and Market Impacts: Following a summit between Trump and Russian President Vladimir Putin, investors are wary of the ongoing war in Ukraine, with Ukrainian bonds losing nearly half of their price gains. European defense stocks are gaining traction as defense spending increases in response to the conflict.
Tariff Risks and Trade Relations: Trump has imposed a punitive 25% tariff on Indian imports related to Russian oil, adding to existing tariffs on various goods. While preliminary trade deals with the U.S., Britain, and the EU have been established, tensions with major economies like India could lead to further tariff-related challenges.
Historical Performance in September: September is typically a weak month for stocks, with the MSCI World Index averaging a nearly 4% decline since 2020. Despite a strong August for U.S. equities, September stands out as the only month with negative average returns.
Bond Market Dynamics: Rising government borrowing and public finance sustainability are under scrutiny as the U.S., Japan, and Germany prepare to sell long-dated bonds. Japan's 30-year bond yields have surged nearly 100 basis points this year, reaching record highs, while European yields are also at multi-year peaks.
