Monthly Forecast: What to Expect in September – Introduction
August was a mixed month for the financial markets. The US stocks markets ended the month closer to an all-time high. The Nasdaq, S&P, and Dow Jones Industrial Average gained by 5.86%, 2.86%, and 2.07% respectively. In Europe, the DAX and the FTSE ended the month lower by 3% and 3.11% respectively while in Asia, the Nikkei, Hang Seng, and Shanghai Composite fell by 0.45%, 1.60%, and 3.70% respectively.
The upward movement by the American stock market was attributed to the positive steps taken by the administration to resolve the ongoing trade war. It was also attributed to the positive growth in corporate profits. In this article, I will highlight the key issues that traders will focus on this month.
Last week, the US announced a new trade deal with Mexico. This deal excluded Canada, the largest trading partner for the United States. After the deal was announced, Canada was given until Friday to make concessions. The date passed and the issues were complicated with leaked incendiary comments from the US president. This month, traders will follow the development and see whether a new version of NAFTA will be successful. In addition to this, the US rejected a proposal by the Europeans to remove vehicle tariffs and in the leaked comments, he reiterated that the EU was worse than China. The US will also impose fresh tariffs on Chinese goods this month in what is expected to be a tough undertaking. In response, China will likely announce that it will stop buying US treasuries, which will lead to a sharp decline in US stocks.
Emerging Market economies are troubled. After the recent crisis in Turkey, Argentina was next. After days of the Argentinian peso falling, the president delivered a two-minute speech aimed at reassuring the market. The speech disappointed and the currency fell to the lowest level ever. In his speech, the president asked the IMF to deliver the promised $50 billion. The administration accepted the bailout after accepting new austerity measures that included slashing of the development budget. Argentina was followed by Indonesia, whose currency fell by more than 20%. This triggered support measures by the central bank.
As the fourth quarter nears, the March date for the Brexit to take effect is nearing as well. The EU and the UK are still divided on how to approach Brexit. On Sunday, Theresa May wrote an opinion page saying that she will not accept a deal that is not in the UK’s interest. This came after the Chief EU negotiator said that he was opposing the proposal passed by May’s cabinet. This month, traders will follow closely the Brexit issue.
This month, multiple central banks will meet. In the first week, the RBA and the BOC will meet and while they are not expected to hike, their monetary policy statements will be followed closely. In the coming week, the ECB and BOE will meet and in the following week, the Fed and the Reserve Bank of New Zealand (RBNZ) will release their statements. The Fed is the only bank expected to hike.
The agricultural commodities have been embattled as the dollar strengthens. Later this week, the Department of Agriculture will release the WASDE report. This is a report that shows the estimates of supply and demand. Traders will follow the report and see whether there are any changes in the demand and supply dynamics.