By Paolo Laudani, Alessandro Parodi and Canan Sevgili
(Reuters) -A summer trading lull looks set to come to a halt with September risks stacking up hard and fast.
U.S. President Donald Trump’s decision to fire Federal Reserve Governor Lisa Cook and French political turmoil provide a glimpse of what’s to come in a month that historically brings notable market swings as investors reassess portfolios.
“My big concern is that when liquidity comes back after the summer, we see some big market moves,” said St. James’s Place CIO Justin Onuekwusi.
1/ TROUBLE AT THE FED
U.S. jobs numbers have become contentious after July data prompted Trump to fire the Bureau of Labor Statistics chief.
So, August’s reading, due on September 5, and the Fed’s September 16–17 meeting come at a time when investors are already concerned about tension between Trump and the central bank.
Fed chief Jerome Powell, whom Trump has pressured to cut rates, signalled a September move in his Jackson Hole speech, but also warned about sticky inflation.
Markets price in a roughly 85% chance of a rate cut this month, but questions about the Fed’s independence have heightened uncertainty over the rate outlook and its ability to control inflation.
“This latest political drama reignites concerns about the independence of the Fed, and by extension undermines confidence in the U.S. as the global benchmark for transparent and rules-based capital markets,” said Swissquote Bank senior analyst Ipek Ozkardeskaya.
2/ NO CONFIDENCE
French Prime Minister Francois Bayrou is expected to lose a September 8 confidence vote over government budget-cut plans, highlighting risks to European shares, French banks and long-term French bonds, yields of which are near their highest since 2011.
If the minority government falls, President Emmanuel Macron could install a new premier or dissolve parliament and hold new legislative elections, leaving budget issues unresolved for longer and raising French ratings downgrade risks.
Fitch Ratings updates its view on France on September 12, followed by DBRS on the 19th, and Scope on the 26th.
“If France fails, there will be a domino effect, and we will have to question the sustainability of the performance of European markets,” said Stephane Ekolo, global equity strategist at broker Tradition.
3/ DON’T FORGET GEOPOLITICS
After last month’s Alaska summit between Trump and Russian President Vladimir Putin, investors are assessing efforts to end the war in Ukraine.
In a sign of fading peace hopes, Ukraine’s bonds have given back nearly half of the price gains made ahead of the August meeting.
Supercharged European defence stocks remain popular as Europe commits to higher defence spending.
Also watch Brent crude oil prices, sensitive to headlines and supply disruptions as Russia and Ukraine step up attacks on each other’s energy infrastructure.
A punitive 25% tariff, imposed by Trump on imports from India due to its purchases of Russian oil, has been added to a prior 25% tariff on many goods.
But positive developments could benefit energy-sensitive stocks and firms that could play a role in Ukraine’s reconstruction such as materials group Holcim.
4/ TARIFF ANGST
Tariff-driven headline risk has fallen since April’s “Liberation Day” market turmoil.
The U.S. has agreed preliminary trade deals with Britain, the European Union, among others, but Trump has increased the heat on other big economies such as India, meaning tariff risks could still cause pain.
Traders are also watching to see if a recent U.S./China temporary tariff extension will become permanent or if Trump will again upend global supply chains with a fresh wave of prohibitively high duties on Chinese imports.
5/ BEWARE
Investors warn record high stock markets reflect complacency and are a reason for caution.
September is a historically weak month for shares. The MSCI World Index has dropped by nearly 4% on average each September since 2020.
While August has historically been strong for U.S. equities, September is the only month with negative average returns.
6/ UNEASE IN BOND LAND
Finally, pay attention to bond markets given rising government borrowing and the sustainability of public finances.
The United States, Japan and Germany all sell long-dated bonds in the first half of September in the next test of investor appetite.
Japan’s 30-year bond yields, up almost 100 basis points so far this year, are at record highs, while those in Europe are near multi-year peaks.
(Reporting by Paolo Laudani, Mirac Dereli, Vera Dvorakova, Alessandro Parodi and Canan Sevgili in Gdansk and Joice Alves in London, additional reporting by Marc Jones in London; Editing by Dhara Ranasinghe and Kirsten Donovan)
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