Stocks Slip As Traders Brace For September Swings: Markets Wrap

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(Bloomberg) -- Global equities began September on the back foot as investors prepared for what's typically considered the most challenging month for stocks.

Europe's Stoxx 600 fell 0.2% from Friday's record high, with consumer goods sectors particularly affected. This downturn followed data showing a fourth consecutive month of contraction in Chinese manufacturing activity, alongside a deepening slump in the country's residential property market.

Mining giants such as Rio Tinto Plc and BHP Group Ltd. saw declines after iron ore prices dropped. In Frankfurt, Volkswagen AG gained more than 2% after the automaker said it's considering unprecedented factory closures in Germany.

US equity futures were little changed after the S&P 500 came close to an all-time high on Friday. The dollar was steady, while cash Treasuries were closed for the US Labor Day holiday.

September has been a notably poor month for stocks over the past four years, while the dollar typically outperforms, 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 may continue, especially with the upcoming US jobs report on Friday, serving as a guide to how quick, or slow, the Federal Reserve will 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.”

Two days before Friday's report, the government will issue figures on July job vacancies. The number of open positions, a measure of labor demand, is seen easing to a three-month low of 8.1 million — just above a more than three-year low.

The equity-market rally may stall even if the Federal Reserve starts its rate-cutting cycle, according to JPMorgan Chase & Co. strategists.

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.”

Elsewhere, German Chancellor Olaf Scholz's ruling coalition was punished in two regional elections on Sunday, with the far right clinching its first triumph in a state ballot since World War II. Still, political parties moved to block the Alternative for Germany from power in the eastern states of Thuringia and Saxony.

China Woes

In Asian markets, multiple rounds of stimulus have failed to revive growth in China, where a prolonged property market slump is curbing domestic demand in the world's second-largest economy.

“I think there's a huge problem — by now everybody recognizes that,” Hao Ong, chief economist at Grow Investment Group, told Bloomberg's David Ingles and Yvonne Man in an interview. “The government needs to do substantially more.”

In commodities, oil fluctuated between small gains and losses as traders weigh a planned production increase from OPEC+ next month, economic headwinds in China and lower output in Libya.