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Low-tier data is expected during the European session, but it’s unlikely to have a significant impact. In the American session, the second GDP estimate and jobless claims will be released, with jobless claims potentially influencing the market. Initial claims are projected to be 230K, and continuing claims are expected at 1,970K. The labor market may become more active after previous stagnation, as regional surveys show improved activity.
During the European session, there are a few minor updates expected, including the final Swiss Q2 GDP and the final Eurozone consumer confidence report. These numbers are unlikely to have a significant impact on the market.
In the American session, we will see the second estimate of US Q2 GDP and US Jobless Claims. The GDP data will probably be overlooked since it reflects a past period. However, the jobless claims figures could sway the market, especially if there are unexpected changes.
September Effect In The Stock Market
If you ask a trader when’s a good time to be in the US stock market, you’ll hear plenty of answers.
Some will say earnings season, when big tech names release their numbers and volatility is at its peak. Others might point to the weeks following a Fed rate cut, when optimism floods risk assets. Or even late in the year, when the so-called Santa Claus rally tends to lift equities.
But flip the question around. When’s the worst time to enter the market?
Most traders, new or seasoned, will land on the same answer: September.
What Is The September Effect?
The ‘September Effect’ is one of those quirks of the market that has turned into almost folklore. It refers to the tendency of stocks, especially US indices like the S&P 500, to underperform in September compared to other months. Unlike other seasonal patterns that come and go, this one has persisted for decades.
What makes it so interesting is that it isn’t tied to one specific event, like earnings or Fed decisions. Instead, it’s a mix of psychology, portfolio moves, and calendar quirks that seem to create a drag on equities every year.
The Historical Background Of The September Effect
If you plot the S&P 500’s average monthly returns since the last decade, one thing jumps out: September sits at the bottom of the pile. According to historical data, the S&P 500 dropped by an average of 2.3% during September, making it the weakest month on record.
By contrast, most other months show at least modest gains. Not every September ends in red, of course. There are exceptions, like 2010 and 2020, when markets rallied.
But the weight of history is hard to ignore.
It’s why many traders approach September with caution. For some, it’s not about predicting doom but about recognising that probabilities lean towards more turbulence than usual.
Why Does It Happen?
So why does September seem to weigh on stocks more than other months? There isn’t one neat answer. Instead, investors and analysts have pieced together a set of explanations, each carrying some weight but none fully conclusive.
1. Fiscal Deadlines And Policy Jitters
September marks the end of the US government’s fiscal year, which often sparks budget showdowns and debt-ceiling debates. Add in the possibility of Federal Reserve interest-rate moves, and investors tend to tread cautiously. Uncertainty rarely fuels rallies.
2. Corporate Profit-Taking
After summer rallies, both investors and corporations sometimes cash in their chips. For companies, selling assets or shares can help shore up balance sheets before the quarter closes. For traders, it’s simply about locking in gains before any bad news hits.
3. Portfolio Rebalancing
Big institutions, like mutual funds, pensions, and hedge funds, often rebalance quarterly. If their models call for shifting weight toward bonds or alternative assets, September becomes the month to trim equity positions. That steady reallocation can push stocks lower, even if fundamentals haven’t changed.
4. Tax-Loss Harvesting
September also acts as a prelude to year-end tax planning. Investors start shedding underperformers early, using losses to offset gains elsewhere. While perfectly rational, the practice adds another layer of selling pressure at exactly the wrong time.
5. Post-Summer Scrutiny
Markets are quieter in July and August, but September brings everyone back from vacation. That renewed attention often means hard questions about earnings, economic data, and policy, leading to more cautious trading and, at times, selloffs.
6. Reduced Consumer Spending
Summer splurges on travel and leisure taper off once fall routines return. Retailers feel the pinch, and investors, expecting softer revenues, tend to sell off stocks in consumer-driven sectors, pulling indices lower in the process.
7. Herd Mentality
Sometimes the effect feeds on itself. If enough traders believe September will be weak, they sell early. That collective caution creates the very downturn they were trying to avoid.
How To Navigate September Without Losing Sleep
So what should investors and traders do in September? Sit out entirely?
Not necessarily. A few practical steps can help blunt the downside:
– Diversify broadly so that weakness in one pocket of the market doesn’t derail your portfolio.
– Check your allocations and rebalance if needed. September pullbacks can skew weightings quickly.
– Keep some cash handy to scoop up bargains if the dip materialises.
– Lean on quality. Companies with solid balance sheets and reliable cash flow usually ride out turbulence better than speculative names.
– Revisit tax planning, since September volatility can present opportunities to harvest losses.
None of these strategies guarantees you’ll sidestep the chop, but they can at least soften the blow.
Final Thoughts: A Month To Respect, Not Fear
The September Effect isn’t magic, and it’s not fate. It’s part history, part psychology, and part mechanics of the market.
The data may not doom every September to red ink, but the odds of bumpier trading are high enough that investors ignore it at their own risk.
Rather than hunting for big wins, September might be better treated as a defensive month, a time to protect capital, manage exposure, and get positioned for opportunities later in the year.
By October and November, the tone of the market often shifts. But until then, being a little more cautious in September is usually the wiser trade.
Goldman Sachs urges caution on commodity currencies, which are lagging behind emerging markets despite possible dollar weakness.
Goldman Sachs urges caution when considering commodity currencies such as the AUD (Australian dollar), NZD (New Zealand dollar), and CAD (Canadian dollar), despite signs of potential dollar weakness. These currencies have recently hit or approached their three-month targets and are now retreating against the dollar.
The AUD, NZD, and CAD are lagging behind higher-carry emerging market currencies, displaying unusual relative weakness. According to Goldman Sachs, this isn’t simply due to risk sentiment; it’s more about changes in domestic policies.
Domestic Policy Changes
In Australia, New Zealand, and Canada, expectations for future interest rates are falling, and there are signs of weaker domestic economies. These issues call for caution with these commodity currencies. While the dollar may weaken because of Fed easing, policy uncertainty, and global financial flows, it might be wiser to explore options like the EUR (euro) and JPY (Japanese yen). Goldman Sachs remains cautious about the AUD, NZD, and CAD, although there may still be potential upside if the dollar weakens. Currently, there are indications that the US dollar might weaken, but it’s not advisable to chase commodity currencies like the AUD, NZD, and CAD. These currencies have already surged to their recent targets and now show signs of a pullback. This trend suggests being careful in the upcoming weeks. Importantly, these commodity currencies are lagging behind higher-yield currencies in emerging markets, which is unusual. This relative weakness suggests that something more specific is driving these trends beyond general market sentiment. For example, Australia’s latest quarterly CPI data for Q2 2025 was softer than expected at 3.1%, reinforcing the idea that the Reserve Bank of Australia has likely stopped raising rates.Weakening Domestic Expectations
The core issue is a deteriorating domestic outlook and shifting interest rate expectations in Australia, New Zealand, and Canada. The recent Global Dairy Trade auction on August 19, 2025, revealed a 4.3% drop in prices, putting pressure on the Kiwi dollar. Also, Canada’s July 2025 jobs report surprised economists with a contraction, raising concerns about the economy’s strength compared to the US. For derivative traders, this situation means that buying simple call options on AUD/USD or CAD/USD might not be effective, as domestic weakness could limit any gains. A more effective move might be selling out-of-the-money call spreads. This strategy allows traders to collect premiums while betting that these currencies will underperform. To capitalize on potential dollar weakness from Federal Reserve easing, better opportunities exist in the euro and the yen. The Eurozone’s flash PMI data for August 2025 exceeded expectations, indicating stabilizing economic activity. This gives the euro a more robust foundation compared to commodity currencies right now. This divergence creates opportunities in cross-currency pairs, allowing traders to take advantage of weaknesses within the commodity currencies. We might look at strategies such as going long EUR/AUD or long JPY/CAD to directly play this theme. These positions could perform well, even if the overall trend of the US dollar becomes uncertain. Create your live VT Markets account and start trading now.Nakagawa emphasized that decisions will depend on data, with a slight reduction in trade policy uncertainty.
BOJ policymaker Junko Nakagawa said that decisions on policy will be made at each meeting based on solid data. This includes important insights from the BOJ Tankan survey, which helps gauge sentiment and capital spending.
Nakagawa mentioned that the risk of falling behind on adjustments to policy is currently low. He stated that long-term interest rates should be determined by market forces.
Uncertainty Around Trade Policies
He also pointed out that uncertainty regarding trade policies has eased somewhat since April. These comments strengthen our view that the Bank of Japan is not rushing to raise interest rates sharply. This careful, data-driven approach makes the yen carry trade appealing, where traders borrow yen at low rates to invest in currencies that yield higher returns. The USD/JPY exchange rate, which has remained above 155 this week, reflects this difference in policy. The specific focus on the Tankan survey highlights the early October release as a key event for Japanese markets. Until then, we can expect low volatility in yen currency pairs, creating chances for selling short-term options. A similar situation occurred after the disappointing July 2025 Tankan survey, which lowered expectations for rate hikes. The idea that long-term rates should be set by the market suggests the BOJ will allow the yield curve to steepen. We’ve already seen the 10-year Japanese government bond yield rise to 1.15%, a notable increase from the sub-1% levels in early 2025. This trend supports derivative positions that benefit from rising long-term interest rates.Patient Approach Supported by Inflation Figures
This careful approach is backed by the latest inflation data, which shows Japan’s core CPI for July 2025 dropped to 1.9%, down from the 2.5% highs seen in the first quarter. With inflation now below the 2% target, the central bank has little reason to act prematurely. This contrasts with the US, where inflation remains persistent, strengthening the dollar against the yen. While the overall trend seems clear, we must remain cautious of intervention risks from the Ministry of Finance. Looking back at the sharp market fluctuations during interventions in 2022 and 2024, any rapid rise of USD/JPY toward 160 could prompt sudden yen-buying actions. Traders should use options to manage their risk against such unexpected shifts in policy. Create your live VT Markets account and start trading now.Major currencies stabilize after volatile trading as market participants await month-end developments
The dollar had a rollercoaster day yesterday, rising at first but ultimately losing ground by the end of trading. Attention now shifts to the month-end trading, which often complicates the market. Investors expect about 55 basis points in Federal Reserve rate cuts by year-end, which initially boosted the dollar. However, these gains faded by the close.
Today, major currencies in Europe are mostly steady after yesterday’s ups and downs in the market. This stability is partly due to month-end flows that create uncertainty, making it hard to decide when to enter the market. Moreover, the US jobs report due next Friday adds caution, with no immediate changes following the events from Jackson Hole.
Key Data Releases
Today’s important data includes the second estimate of US Q2 GDP and weekly initial jobless claims. These reports are not expected to shift the market significantly unless there’s unexpected news. Moving forward, market activity will likely be influenced by month-end trends and reactions to Nvidia’s earnings report. With the market showing choppy and uncertain movements, caution is advised for the short term. Month-end flows are creating noise, which complicates establishing strong directional trades. Derivative traders might think about strategies to benefit from this sideways movement, while staying flexible. The expectation of 55 basis points in Fed cuts by year-end is the main theme to watch. According to the CME FedWatch Tool, there’s nearly a 70% chance of a 25-basis-point cut at the September FOMC meeting. This dovish outlook suggests that any significant dollar strength could be sold off, making call options on currencies such as the Euro or Japanese Yen appealing during dips. Next Friday’s US jobs report is now the big focus and will likely be a major driver of market action. We remember how the summer of 2024 featured similar tensions before key data led to sharp breaks. With the CBOE Volatility Index (VIX) currently low around 15, buying options straddles on major indices or currency pairs ahead of the jobs report could be a smart way to position for the expected increase in volatility.Opportunities in the Tech Sector
The market expects around 180,000 jobs to have been added in August, similar to July’s slightly lower number. A result significantly over 200,000 could challenge the expectation of rate cuts and push the dollar higher. On the other hand, if the figure comes in below 150,000, it would strengthen the case for easing and likely drive the dollar down. Following Nvidia’s earnings, we see chances in the tech sector. This current market lull offers a good opportunity to build positions in options on the Nasdaq 100. This approach allows us to prepare for the next macro-driven movement while the market processes recent developments and waits for clearer signals from the labor market. Create your live VT Markets account and start trading now.Weakest demand for Japan’s 2-year bond auction since 2009 shows fragile investor interest
Japan’s recent two-year bond auction saw the lowest demand since 2009. The bid-to-cover ratio hit a 15-year low.
Moreover, the auction produced the largest tail since 2023. This outcome shows weak interest in short-term Japanese Government Bonds.
Expected Rate Hike Impact
The poor performance of this auction suggests that the market believes the Bank of Japan (BoJ) will raise interest rates sooner than we expected. Investors are hesitant to buy short-term bonds at current rates because they anticipate better returns soon. This belief supports our view that the era of very low rates is coming to an end. To adapt, we should prepare for a stronger yen since higher rates will attract investment. The yen has been around the 165 mark against the dollar for most of August 2025, but this auction hints at a possible change. Buying call options on the JPY or put options on the USD/JPY pair could be a smart move in the coming weeks. In the rates market, we might want to consider paying fixed on Japanese yen interest rate swaps to bet on rising short-term rates. Data from the Tokyo Financial Exchange shows that open interest in three-month Euroyen futures has increased by 12% since July 2025, indicating that more traders are hedging or speculating on a rate rise. Shorting Japanese Government Bond (JGB) futures is another way to take action.Expected Market Volatility
This uncertainty in policy is likely to result in increased market volatility. Looking back to March 2024 when the BoJ ended its negative interest rate policy, the Nikkei Volatility Index rose over 25% in the following quarter. We can expect something similar, making long volatility positions through straddles on the Nikkei 225 index an appealing strategy. Higher borrowing costs will put pressure on Japanese stocks, especially in rate-sensitive sectors. Recent earnings from Q2 2025 already showed Japanese real estate companies facing tighter margins, a trend that is likely to continue. We should think about buying protective puts on the Nikkei 225 or specific sector ETFs to safeguard against a potential decline. Create your live VT Markets account and start trading now.Nvidia shares fall after cautious guidance, while Japan’s trade negotiator cancels US visit, impacting markets
Nvidia’s shares declined due to weaker guidance and the absence of sales forecasts for China, which is impacting US equity futures. In fiscal Q2, Nvidia reported revenue of $46.7 billion, exceeding expectations. However, its guidance for Q3 at around $54 billion did not meet some forecasts. Concerns about H20 chip sales in China were raised, but there could be positive developments if approvals are granted. Nvidia also announced share buybacks due to strong AI demand.
In Japan, tariff negotiator Akazawa canceled a trip to the US to focus on domestic matters. BOJ board member Nakagawa highlighted trade risks and stressed the significance of the Tankan survey for evaluating these impacts. The USD/JPY currency pair traded within a narrow range, while major currencies slightly weakened against the dollar.
Capital Expenditures and Interest Rates
In Australia, Q2 capital expenditures rose by 0.2%, below the anticipated 0.7%. The Bank of Korea kept its base rate steady at 2.5%. China held productive trade talks in Canada and aimed to increase AI chip production. Business confidence in New Zealand showed a slight uptick, but UK services confidence fell, with the CBI warning about costs and weak demand. Japan’s Nikkei 225 index increased by 0.7%, whereas Hong Kong’s Hang Seng index dropped by 0.6%. The Shanghai Composite rose by 0.1%, and Australia’s S&P/ASX 200 also inched up by 0.1%. Nvidia’s results indicate that the AI-driven market surge is losing steam, despite the overall positive numbers. The market’s negative reaction to guidance that wasn’t stunning signals that expectations have become too high. It may be wise to buy September or October put options on the Nasdaq 100 (QQQ) to safeguard against a wider tech sector decline.Opportunities in Volatility Products
The instability surrounding the market’s top leader offers a chance to utilize volatility products. The CBOE Volatility Index (VIX) has remained low, recently trading below 16, especially amidst increasing macroeconomic concerns. Purchasing VIX call options or futures could be a smart way to hedge against the complacency observed over the summer. We have seen this before, where a few major tech stocks drive the market, similar to late 2021 before the downturn in 2022. The fact that Nvidia’s strong results failed to lift futures is a concerning sign. It suggests that the easy profits in the AI sector may already be realized, making it a good time to protect gains by selling out-of-the-money call spreads on top tech stocks. The ongoing trade disputes are no longer mere background noise; they are clearly expanding beyond the US and China. The World Trade Organization has reported a mere 0.9% growth in global merchandise trade volumes during the first half of 2025, citing these tensions. This situation supports a stronger U.S. dollar, making long positions in the dollar index (DXY) against a mix of trade-sensitive currencies appealing. In the currency market, the Bank of Japan’s explicit warning about tariffs while USD/JPY hovers around 147.50 is particularly significant. We’ve seen major Japanese government intervention to support the yen back in 2022 when the dollar surpassed 145. The current lack of action from the BOJ, combined with geopolitical risks, suggests a potential sharp move in the market. This makes strategies like a long straddle on USD/JPY a viable option to capitalize on the increasing likelihood of a breakout. Create your live VT Markets account and start trading now.Nakagawa from the BOJ highlights tariff risks and the importance of the Tankan survey for sentiment
Tariff uncertainty and the upcoming Tankan survey could affect yen stability, but the possibility of a Bank of Japan (BOJ) rate hike this year supports the Japanese currency. BOJ board member Junko Nakagawa warned about the risks linked to U.S. tariff policies and highlighted the importance of the Tankan survey in measuring corporate sentiment amid trade tensions.
BOJ’s Data-Driven Approach
Nakagawa stressed that the BOJ is focused on data and will adjust monetary policy when necessary. With experience leading Nomura Asset Management, she takes a balanced view on policy. Last year, the BOJ ended its extensive stimulus program and raised rates to 0.5% in January, targeting a 2% inflation rate. In July, the bank kept its position but raised its inflation forecasts and expressed optimism about growth, maintaining expectations for another rate hike this year. Many analysts expect at least a 0.25% rate increase before the year ends. This expectation has grown since July. Nakagawa noted there is still significant uncertainty regarding how tariffs will impact the economy. Currently, the yen is experiencing a back-and-forth battle. Expectations for another BOJ rate hike provide some support, but the threat of U.S. tariffs, especially on the auto sector, limits the yen’s potential strength. This creates a cautious environment for derivative trading in the weeks ahead.Tankan Survey and Yen Outlook
All attention is on the upcoming Q3 Tankan survey, which is essential for measuring business confidence. In the past, a surprisingly weak Tankan survey in the first quarter of 2024 delayed the BOJ’s initial efforts to normalize policy. If we see a similar weak reading now, it could significantly push back the next expected rate hike, leading to a sharp sell-off in the yen. This scenario makes long-dated JPY put options a potentially useful hedge. Given this uncertainty, the implied volatility on USD/JPY options has been rising, recently reaching levels reminiscent of the policy shift in January 2025. Traders might find it wiser to adopt strategies that benefit from price fluctuations rather than betting on a specific direction. Long straddles or strangles could capture a breakout if the tariff news or Tankan survey surprises the market. The BOJ’s data-driven approach means the next inflation report is also critical. Last month’s core CPI was 2.1%, slightly above the BOJ’s 2% target. However, if it drops below that level, it could reinforce a negative Tankan signal. This would likely delay a rate hike until 2026, causing a significant re-evaluation of JPY interest rate swaps. Create your live VT Markets account and start trading now.Waller discusses his economic outlook at a Miami event on Thursday evening while aiming for the Fed Chair position.
Governor Waller’s Speech
Federal Reserve Board Governor Christopher Waller will share his economic outlook at an event in Miami. The presentation is set for Thursday, August 28, 2025, at 6:00 PM US Eastern time or 10:00 PM GMT. This event comes after Waller’s attempts to secure the Fed Chair position. It gives him a chance to discuss important economic issues in the current financial climate. Governor Waller’s speech is crucial because his potential bid for the Fed Chair could create uncertainty in monetary policy. We are curious to see if his economic outlook shifts from his usual hawkish view to a more favorable growth stance. This possible change is stirring tensions in the interest rate futures market. Recent economic data supports his arguments in both directions. The July 2025 CPI report showed that core inflation remains stubbornly high at 3.1%, above the Fed’s target. However, the latest employment numbers revealed slower job growth at 175,000, which could justify a more cautious approach. Currently, the derivatives market indicates a 60% chance of a 25 basis point rate cut by the December 2025 FOMC meeting. Waller’s comments tonight could either confirm these expectations and boost the markets or dampen them, leading to a sell-off. His tone is more crucial than the specific data he references.Market Implications
With the VIX at a relatively low 14, we think buying short-term options is wise. A straddle on the S&P 500, which benefits from significant price movements in either direction, is a smart way to trade the uncertainty around the speech. We expect implied volatility to rise before his speech and to drop sharply afterward. We’ve seen similar situations before. For instance, when Chairman Powell changed his hawkish stance in late 2018 due to political pressure, it triggered a major market rally in 2019. A similar signal from a known hawk like Waller could ignite a strong response in risk assets. History shows that a perceived change in the Fed’s position can be more influential than economic data itself. In the coming weeks, we will monitor how markets react to his speech and whether other Fed members share his views. A dovish signal would lead us to position for a year-end rally by buying call spreads on major indices. If he stays firmly hawkish, we would consider purchasing puts for protection against a market that might adjust to a “higher for longer” interest rate scenario. Create your live VT Markets account and start trading now.Nakagawa highlights current uncertainties impacting trade policy, economic activity, and price trends in Japan.
Bank of Japan board member Nakagawa has voiced concerns about how uncertain tariffs might affect the economy. If the outlook for economic activity and prices stabilizes, the BOJ might raise interest rates.
Uncertainty around trade policies could influence global business and household trust, impacting Japan and other countries. The results of the September Tankan survey will be crucial for understanding any changes in trade policies.
