Make no mistake, September may be coming in like a lamb, but it may yet leave like a lion. There are a number of worrying road bumps on the road ahead this month.
September promises to be a volatile month. The business world is returning from its summer doldrums and the markets are starting to pick up again. The Federal Open Market Committee are expected to make there big announcement at this month's meeting (to taper or not to taper, that is the question). The Syria crisis, although temporarily delayed, is by no means over yet. And economic crises continue to simmer in Europe, India, China and elsewhere, with any number of events threatening to send them over the cliff.
But for the time being, it seems we have entered a reprieve. Although China still remains on the precipice of the credit crunch that we have been outlining in recent months, some positive data has come along in recent days to buoy market sentiment. On Sunday it was reported that Chinese exports were up 7.2% in August compared to the year before, exceeding market expectations of a 5.5% increase. Yesterday it was announced that Chinese industrial output was growing at its fastest pace in 17 months, hitting a 10.4% year-on-year growth rate. All of this has been enough to reignite the equities markets that had taken a tumble on recent geopolitical instability and flight-to-safety trading. This also led to a short-lived three-day rally in copper, but commodities (copper included) were hammered back down on easing concerns about the Syrian crisis. European stocks have also been making a rally, hitting their highest levels in over three months on the back of the easing Syrian tensions and upbeat Chinese data. Japanese stocks also saw a mini-boost on news of the 2020 Olympics and all the starry-eyed forecasts of the income it is expected to generate (despite a string of money-losing games as of late).
As much as this rally is bringing some early September cheer to a workforce that's shaking off its summer slumbers, however, there are a number of worrying road bumps on the road ahead this month.
The first, most obvious event is the one everyone is talking about: the FOMC meeting. Will they or won't they ease off on the QE gas pedal? The big question that the markets have been speculating about (and panicking about) since May will finally be answered next week as the FOMC convenes for its next meeting on September 17-18. “Expert” opinion is divided on whether or not there will be a taper, or how much such a taper might be, but many think there will be a taper of some sort (if for outgoing Fed Chair Bernanke's legacy, if nothing else), although a token one of $5 or $10 billion a month as opposed to the $60 billion that was being floated earlier. Either way, we should see bonds, commodities and precious metals hammered down somewhat if the taper comes to pass, and a boost in the dollar and the stock market, assuming the taper hasn't already been completely priced in to the market.
Next up we have the German elections on September 22. This is significant because the German election cycle has been the single biggest factor keeping the lid on the simmering Euro crisis in recent months, with no one interested in rocking that particular boat in the midst of an election. After the 22nd, look for German Finance Minister Schäuble's recent observation that Greece is going to need another bailout to become a prime focus of attention once again as the lid comes off that particular Pandora's box (again).
Another potential storm on the horizon is the U.S. debt ceiling, which is expected to be reached once again by October 18. This potentially means it's almost time for yet another round of congressional brinksmanship over whether or not to raise the debt ceiling, although it is significantly less likely this time around as the GOP is looking to capitalize on Obama's recent Syrian missteps and angering the public by wrangling over the debt ceiling once again is probably not the way they want to handle that. Nevertheless, it may be an opportunity for Republicans to raise any number of economic issues in the House to score some political football points, including the hugely unpopular Obamacare which will start digging into Americans' pockets in earnest next year.
Add to all of this the latest wrangling over the Syrian military intervention and it looks like we're in for one hell of a month. Make no mistake, September may be coming in like a lamb, but it may yet leave like a lion.