September Seasonals Not the Only Thing to Worry About

This September will be unlike others

 Highlights 

• While last week’s price action was impressive, investors are cashing in their profits — selling rips instead of buying the dips 

• Goldman Sachs just cut its recession odds to 15% from 20% despite gas prices and mortgage rates on the rise, and many American households forgoing food to make ends meet 

• September is historically the worst month of the year for U.S. stocks — but this September will be unlike others 

• Monetary policy operates with lags, and the fastest tightening cycle since the 1980s has yet to be fully felt in the economy 

While We Were Sleeping

U.S. equity futures have swung to the red and European markets are off -0.9% after losing all of yesterday’s rally and then some late in the session (the Euro Stoxx 600 is now riding a five-day losing streak). While last week’s price action was impressive, investors are cashing in their profits — selling rips instead of buying the dips — as they have been net sellers in U.S. equity mutual funds and ETFs in each of the past five weeks (longest stretch since the regional banking crisis that ended last March). Asia rocked and rolled yesterday on hopes that the Chinese stimulus measures would soon begin to percolate — Hong Kong spiked +2.5% and China’s Shanghai Composite rallied +1.4% (the most troubled property developers in China rallied the most — which smacked of a short-covering move in the most beaten-down sector). But that was yesterday and today what we see is a broadly based give-back outside of Japan (+0.3% and +26.6% year-to-date): Hong Kong (-2.1%), China’s Shanghai Composite (-0.7%), Singapore (-0.3%), Thailand (-0.2%) — Taiwan, Korea and India were all roughly unchanged. All in, the MSCI Asia Pac index is off -0.7% today and the EM complex is down -0.8% so far this morning.

Bond yields remain on the rise here and abroad — the 10-year T-note yield is up +3.5 basis points to 4.21% and somehow up +13 basis points since the immediate aftermath of the soft payroll data on Friday morning. The 10-year JGB rate has inched up +1.6 basis points to 0.65% (flirting with a nine-year high), drifting higher in the wake of what was a very weak bond auction today; the drift higher there was matched today in Europe (only the U.K. gilts market is unscathed). The 10-year government bond yield in New Zealand has popped a hefty +7 basis points today to 4.96% while the Australian comparable has risen +4 basis points to 4.13%.