September Shakes

I know September is historically the worst month for equities and people have been wary of an Autumnal market fall, but we probably didn’t expect the selling to start right from the off on day 1. Is it just futures selling? Euro and China PMIs were better; the market should be up no? Well, the UK PMI was light and there is a whisper of a below consensus ISM from across the Atlantic, so perhaps these are the culprits. We also had the explanation of a big Estoxx options print with the resulting hedge being 35k futures to sell. But 600k futures have traded so far today and 130k traded in the 9-9.30 period when the markets fell, so I question if this could be the cause, although admittedly I'm not a Estoxx trader. Or maybe, it’s a bit of catch up being played by Europe after the ravages wrought on China during the month of August.

Tempting as it is to see this as the start of the rollover, especially given the market’s inability to push forward post better macro last week; it behooves us to remain cognizant of the fact that volumes will remain light this week, ahead of the Labour day weekend. Only into and after next week can we expect to see market participants donning their trading hats once more and approaching markets with a bit more zeal.

The bid for bonds has been maintained today as investors become ever more wary and in CDS world, XOver has traded through the 600 level again. While the reason(s) behind today’s equity move has been much questioned, it is interesting to note a bit a risk off yesterday afternoon. Equities were not much changed all day but bonds went better and we saw a big sell off in oil, this in spite of a dollar fall. Much of that dollar move has reversed today however as equities stumble. So perhaps this sell off was in the cards from yesterday afternoon. There certainly is a defensive bent to equities today with tobaccos, pharma, food & bev and telcos outperforming and the usual suspects on the cyclical front leading us down. Utils however, are not showing their usual resilience as E.ON drags the sector lower on a GS downgrade.

All that said, we’re only off 1%. Perhaps the song and dance made of this move is a sign of just how nervous the market is. Cue massive market rally no doubt…