Europe’s Stoxx 600 index pared most losses from earlier in the session after closing at an all-time high on Friday. Volkswagen AG rose 1.3% after the automaker said it’s considering unprecedented factory closures in Germany, while Rightmove Plc surged 27% in London on the back of takeover interest from Rupert Murdoch’s REA Group Ltd.
US equity futures were little changed. The dollar edged higher after its worst month this year, while cash Treasuries were closed for the US Labor Day holiday. Mexican stocks gained while Brazilian assets retreated.
Historically, September has been a particularly poor month for stocks over the past four years, according to data compiled by Bloomberg. Wall Street’s fear gauge - the Cboe Volatility Index, or VIX - has risen each September since 2021.
The trend could persist, especially with the upcoming US jobs report on Friday, which will provide crucial insights into how quickly or slowly the Federal Reserve might cut rates and as the US election campaign gets into full swing. Traders are pricing the US easing cycle will begin this month, with a roughly one-in-four chance of a 50 basis-point cut, according to data compiled by Bloomberg.
“I think the market is pretty well versed with what it thinks is going to happen — there will be some kind of cut,” Fiona Boal, global head of equities at S&P Dow Jones Indices, told Bloomberg Television. “As we move through autumn, we will see the VIX move more to thinking about the markets, thinking about political issues.”
JPMorgan Chase & Co. strategists cautioned that the equity market rally could stall even if the Fed initiates a rate cut. Any policy easing would be in response to slowing growth, while the seasonal trend for September would be another impediment, the team led by Mislav Matejka wrote in a note.
“We are not out of the woods yet,” Matejka said, reiterating his preference for defensive sectors against the backdrop of a pullback in bond yields. “Sentiment and positioning indicators look far from attractive, political and geopolitical uncertainty is elevated, and seasonals are more challenging.”
Jobs data potentially pointing to a very gradual cooling down of the US labor market could lead traders to adjust their expectations for rate cuts to the benefit of the dollar.
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