August isn’t over yet but looking back at the August seasonal trends post, this month has gone almost exactly to script. At the start of the month, I highlighted how it was a tough month for risk trades and that is what has unfolded along with pain in NZD/USD, which is typical in the month.
The only exception to the seasonal trend has been yields. August is traditionally a month when yields fall as bonds strengthen but it didn’t play out that way this year as rates hit fresh cycle highs. In tandem with that, USD/JPY tends to struggle in August but it certainly didn’t this year.
September is a similar story as it’s the worst month on the calendar for the S&P 500 and the MSCI world index. One twist is that the FX market doesn’t follow the usual lead of stocks. For instance, NZD/USD tends to post gains in September and USD/CAD tends to decline (though the effect has waned in recent years). The yen also remains heavy.
In energy markets, seasonality kicks in strongly as natural gas ramps up and crude slides as driving season ends.
Overall, I’m continuing to find more and more reasons to be cautious on risk assets. China has helped to lift sentiment today but by cutting trading taxes rather than stimulating real demand. I don’t think that’s the foundation of a meaningful recovery.