Welcome to The Month Ahead, our regular overview of what happened in the markets last month and pick of what to look out for over the coming month.
The month ahead
August proved to be another annual volatility-fest across a whole range of markets, leaving investors with plenty of questions going into September. The primary concern is one that has been top of the list for some time: just how stable is the economic recovery and is a double-dip recession a real risk? The first Friday in September may help provide some answers with the release of US nonfarm payroll unemployment numbers. Job losses have become a concern again in the USA and the slowdown in housing and construction is not helping, so these figures could well set the tone for investor sentiment in the first half of the month.
The announcements from the various central banks are going to play their part too – particularly close to home with our own Bank of England. With inflation still stubbornly above target and retail prices apparently rising at their fastest rate in 18 years, the Bank’s quarterly bulletin (due out on 20 September), along with the latest Monetary Policy Meeting minutes released two days later, will be closely scrutinised for any guidance on the central bank’s thinking on what can be done to rein inflation in without stalling the recovery.
A level too far?
After putting in its best performance for a year in July, the FTSE promptly reversed as August got underway. Once again the 5450-barrier proved to be a resistance level too far and stopped the rally – just as it did back in May. August’s story was one of investors losing their appetite for risk and as the month ended there were no signs of them regaining this.
Going into September it is beginning to sound like a stuck record (for those of us who remember vinyl) but markets will be looking for some sort of reassurance that economies are not going to nose dive in the second half of the year. Unemployment data is likely to be the focus for the month and until the FTSE cracks that 5450-barrier many traders are struggling to see much medium term upside at the moment.
USD finds some friends – but for how long?
With markets once again in panic mode about the fragile recovery, and the media trying to ratchet up the gloom with talk of a double-dip recession, many asset classes headed south during August. In times of trouble safe havens were sought – and the US Dollar was one popular one, gaining ground at the expense of recent favourites such as the pound and the euro.
However, it looks like it could still be too early to call for the end of the recovery in the euro that has been in place in recent months. After being knocked back by around 700 points in August there are some signs of confidence creeping back in, with chartists eyeing up 1.2500 as a big level of support. Whether this ends up holding through September remains to be seen, but with the US having its own economic pressures it looks like the dollar is not going to get it all its own way.
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