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September risks stacking up for markets

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Traditionally a weak month for stocks

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France, Fed independence potential hot spots

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Buoyant share markets reflect complacency, investors say

By Paolo Laudani, Alessandro Parodi and Canan Sevgili

Sept 1 (Reuters) - A summer trading lull looks set to

come to a halt with September risks stacking up hard and fast.

U.S. President Donald Trump's decision to fire Federal

Reserve Governor Lisa Cook and French political turmoil provide

a glimpse of what's to come in a month that historically brings

notable market swings as investors reassess portfolios.

"My big concern is that when liquidity comes back after the

summer, we see some big market moves," said St. James's Place

CIO Justin Onuekwusi.

1/ TROUBLE AT THE FED

U.S. jobs numbers have become contentious after July data

prompted Trump to fire the Bureau of Labor Statistics chief.

So, August's reading, due on September 5, and the Fed's

September 16-17 meeting come at a time when investors are

already concerned about tension between Trump and the central

bank.

Fed chief Jerome Powell, whom Trump has pressured to cut

rates, signalled a September move in his Jackson Hole speech,

but also warned about sticky inflation.

Markets price in a roughly 85% chance of a rate cut this

month, but questions about the Fed's independence

have heightened uncertainty over the rate outlook and its

ability to control inflation.

"This latest political drama reignites concerns about the

independence of the Fed, and by extension undermines confidence

in the U.S. as the global benchmark for transparent and

rules-based capital markets," said Swissquote Bank senior

analyst Ipek Ozkardeskaya.

2/ NO CONFIDENCE

French Prime Minister Francois Bayrou is expected to lose a

September 8 confidence vote over government budget-cut plans,

highlighting risks to European shares, French banks and

long-term French bonds, yields of which are near their highest

since 2011.

If the minority government falls, President Emmanuel Macron

could install a new premier or dissolve parliament and hold new

legislative elections, leaving budget issues unresolved for

longer and raising French ratings downgrade risks.

Fitch Ratings updates its view on France on September 12,

followed by DBRS on the 19th, and Scope on the 26th.

"If France fails, there will be a domino effect, and we will

have to question the sustainability of the performance of

European markets," said Stephane Ekolo, global equity strategist

at broker Tradition.

3/ DON'T FORGET GEOPOLITICS

After last month's Alaska summit between Trump and

Russian President Vladimir Putin, investors are assessing

efforts to end the war in Ukraine.

In a sign of fading peace hopes, Ukraine's bonds have given

back nearly half of the price gains made ahead of the August

meeting.

Supercharged European defence stocks remain

popular as Europe commits to higher defence spending.

Also watch Brent crude oil prices, sensitive to

headlines and supply disruptions as Russia and Ukraine step up

attacks on each other's energy infrastructure.

A punitive 25% tariff, imposed by Trump on imports from

India due to its purchases of Russian oil, has been added to a

prior 25% tariff on many goods.

But positive developments could benefit energy-sensitive

stocks and firms that could play a role in Ukraine's

reconstruction such as materials group Holcim.

  4/ TARIFF ANGST

Tariff-driven headline risk has fallen since April's

"Liberation Day" market turmoil.

The U.S. has agreed preliminary trade deals with Britain,

the European Union, among others, but Trump has increased the

heat on other big economies such as India, meaning tariff risks

could still cause pain.

Traders are also watching to see if a recent U.S./China

temporary tariff extension will become permanent or if Trump

will again upend global supply chains with a fresh wave of

prohibitively high duties on Chinese imports.

5/ BEWARE

Investors warn record high stock markets

reflect complacency and are a reason for caution.

September is a historically weak month for shares. The MSCI

World Index has dropped by nearly 4% on average

each September since 2020.

While August has historically been strong for U.S. equities

, September is the only month with negative average

returns.

6/ UNEASE IN BOND LAND

Finally, pay attention to bond markets given rising

government borrowing and the sustainability of public finances.

The United States, Japan and Germany all sell long-dated

bonds in the first half of September in the next test of

investor appetite.

Japan's 30-year bond yields, up almost 100 basis points so

far this year, are at record highs, while those

in Europe are near multi-year peaks .