September has historically been one of the most volatile months of the year and it looks like this September could be a doozy. Hurricane Harvey, an actual storm, has been dominating the late August headlines. The impact of this natural disaster may continue to impact trading into early September, but figurative storm clouds, rather than literal ones may steal the spotlight as the month progresses.
The urgent need for hurricane relief adds more urgency to a witches brew of issues US politicians may be dealing with this month including budget talks, tax reform, and the looming debt ceiling. The summer of discontent between both parties and within the Republicans makes it hard to see how an agreement can be reached, unless the Hurricane encourages them to pull together on that one issue at least just as Congress did on Russia sanctions.
Bottom line, it’s likely going to take a US government shutdown to clear the air, probably in October. Negotiations may dominate the headlines through the month and could impact this month’s main event, the September FOMC meeting.
A number of traders continue to think that the Fed could announce the start of balance sheet normalization this month and then raise rates in December. Back in 2013, a looming government shutdown forced the Fed to postpone QE tapering from September to December. This year’s looming shutdown suggests the Fed’s hands will likely be tied until the end of the year again. US data like nonfarm payrolls and PMI may be scrutinized over whether they support a hawkish or dovish Fed but politics is likely to trump (no pun intended) the data for the next couple of months.
On top of US domestic turmoil, international developments may also influence trading including growing tensions with North Korea plus ongoing Brexit and NAFTA negotiations. Germany is holding an election this month, which is expected to return more of the same but getting the campaign out of the way could open a window for reform discussions within the EU and Eurozone before next year’s election in Italy.
This all means that September trading could be dominated by capital flows between risk markets like stocks and defensive havens like gold and the Japanese Yen. In late August, traders have gone defensive but sentiment could swing
back and forth over the course of the month.
What happens with the US government and the Fed meeting may impact trading trends in USD and US indices. September also brings a number of other major central bank meetings that could impact their local currencies. In particular, CAD could be influenced by whether the Bank of Canada raises rates for a second meeting in a row or if it hints toward a second increase later in the year. The Euro has been on a tear lately, so traders may be looking to the ECB meeting for comments on when tapering may resume. A dovish Draghi could rain on the rally. With JPY active, the Bank of Japan meeting may also attract attention.
My August predictions ended up being a version of the good, the bad and the ugly. My Dax
forecast was right on the money. Unlike a lot of other analysts, I called for a stock market decline this month and the Dax came to within 40 points of my 11,825 downside objective form 12,211 when I made the call. My bullish sugar call didn’t work out, although a late month rebound from an early slide has it close to breakeven. My bearish EURUSD call turned out dead wrong as the pair stabilized initially rather than falling and then the pair rallied late in the month. While my forecasts have to stand for the whole month, these examples highlight the importance for traders of constant monitoring and using stop losses.
Three interesting markets for September 2017
1) Index S&P 500 Current Price 2,442 1 month forecast 2,360
Since peaking in early August just below 2,500, the S&P 500 has been trending downward. The index just broke its 50-day average and with the Dax having broken its 200-day average, it still looks vulnerable. The 200-day average for the S&P 500 appears near 2,360 in a zone between 2,375 and 2,308, common 23% and 38% retracements of the post-election uptrend.
2) Commodity Natural Gas Current Price $2.92 1 month forecast $3.30
September has historically been the best month of the year for Natural gas, with an average return of nearly 11.5%. Natural gas tends to attract attention at this time of year as traders start to anticipate home heating season which starts in November. After drifting downward through the summer, Natural gas found support near $2.75 and has been recovering toward $3.00. The $3.30 level coincides with a retest of the May high.
3) Currency EURGBP Current Price 0.9299 1 month forecast 0.9000
The Euro has been screaming higher against the Pound but is looking extremely overbought and vulnerable to a correction. EURGBP is retesting the 0.9300 high last reached in September 2016 and last exceeded in September of 2009. The exasperation expressed by EU officials indicates that Brexit negotiations are not going as well for them as hoped (ie that the UK isn’t capitulating) also suggests that enthusiasm for the Euro relative to the Pound may be overdone.
Historically the worst month of the year for commodities, August has been extremely volatile in both directions. It was a great month for metals with gold rallying 4.8%, while silver, copper and platinum all jumped 6-8%. On the other hand, it was a terrible month for grains with wheat and oats both falling over 10%. It was mixed month for energy with WTI oil falling 3.8%, while a late month weather related spike for gasoline took it up 9.8%.
My forecasts were also mixed. Arabica Coffee did really well the first half of the month as nearly reached my forecast price but then fell off in the second half to finish down 1.5% on the month.
Historically 13 of the 20 markets I follow drop in August, this year only 8 of 20 markets declined. September is historically a mixed month for commodities with 10 markets gaining and 10 markets falling. It’s the best month of the year for gold, rice, oats and natural gas, but the worst month of the year for platinum, gasoline, lumber and cotton.
Best Commodity Silver Current price $17.45 one-month forecast $18.65
Bloomberg Symbol SI
September is historically a pretty good month for Silver with an average gain of 0.68%. Heading into September this year, Silver has broken out over $17.25 with next potential resistance near $18.65 the 52-week high set back in April. Gold has been attracting renewed interest as a defensive haven, breaking out over $1,300 heading toward a potentially turbulent month politically. Silver has been lagging behind gold in recent months and appears to have room for a catch up rally.
Worst Commodity Gasoline Current Price $1.72 one-month forecast $1.55
Bloomberg Symbol XB
Gasoline looks particularly vulnerable heading into September. Summer driving season, the peak time of the year for gasoline demand comes to an end. September is historically the worst time of the year for gasoline, averaging a 6.4% decline. Gasoline staged an unseasonal spike in late August around Hurricane Harvey up toward channel resistance and its 52-week high and could fall back to Earth once the storm blows over. A correction back toward the 50 and 200-day averages and the middle of its trading range could take the price back to the $1.50-$1.55 area.
Key Dates for September 2017
September 1 Manufacturing PMI reports
September 1 Nonfarm payrolls
September 5 Labour Day holiday in the US and Canada
September 5 RBA meeting
September 6 Bank of Canada meeting
September 7 ECB meeting
September 8 Canada employment
September 12 Apple iPhone 8 launch event
September 14 Bank of England, SNB meetings
September 20 FOMC Decision, member projections and press conference
September 20 Bank of Japan meeting
September 22 New Zealand election
September 24 Germany election
September 26 FOMC Yellen speaking
September 27 RBNZ meeting
TBA US could hit its debt ceiling sometime this month
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