Analysis: Sober summer markets may defuse September strife

Wed Sep 4, 2013 1:57am EDT
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By Mike Dolan

LONDON (Reuters) - Investors have been braced for a stormy September for so long now it's getting difficult to see this month's stiffening gales blowing them off course for long.

September - traditionally the worst month of the year for U.S. stocks with an average loss since 1928 of 1.1 percent - does look rough again. It's just a wonder who's left to surprise.

Even a cursory glance at event diaries during the Spring would already have given fair warning of what the final month of the third quarter was brewing.

And markets have for months been shaping up for the first reduction of the U.S. Federal Reserve's bond buying program, or 'quantitative easing' on the 18th - with QE-buffeted emerging markets feeling the sharpest adjustment. German elections four days later could bring unfinished euro zone business - such as unresolved Greek bailout funding - back to the policy table.

U.S. budget wrangling also is set to resurface through the month as the Federal debt ceiling needs to be raised by mid-October to avoid default. And a possible U.S.-led strike on Syria, with all its potential impact on regional stability and world energy prices, emerged last month as a wild card.

But after several weeks mulling outcomes, postponing debt and equity issuance, hedging bets and diversifying portfolios, can there be any investors left unawares, and how much of all this is accounted for in prices?

Implied volatility gauges have popped higher , though only just back to June levels under 20 percent for Wall Street stocks and only slightly above long-term averages.

And aside from selected hard-hit emerging markets and currencies, such as Turkish stocks and India's rupee, most other major equity and bond markets have had less than 3 percent of froth blown away over the past two weeks.   Continued...

Traders work on the floor of the New York Stock Exchange September 3, 2013. REUTERS/Brendan McDermid