Economic concerns dampen rate hike prospects, but could September see the bears return?

• China fears continue as real estate giant posts huge loss
• US markets on the rise, but September brings risk for bulls
• Eurozone inflation dominates sentiment
• US economic data continues to dominate after signs of potential impending recession

European markets are taking on a more constructive tone in early trade today, with the recent optimism around a more hesitant central bank outlook helping drive gains. While Western sentiment appears to be driven by rate hold prospects, Asian markets are experiencing a more turbulent time as concerns around China roll on. The recent stream of worrying news out of China continued today, with property giant Country Garden warning that it is facing the prospect of defaulting on its debt after posting a first-half loss of almost $7 billion. Meanwhile, overnight PMI data out of China saw a mixed bag, as manufacturing improved as services fell more than expected.

With August coming to an end, cyclical traders will be well aware of the historical weakness shown over the month of September, which is historically the worst month for the S&P 500. The S&P 500 comes into today’s session off the back of four consecutive days of gains, its best run in over six weeks. With September typically a big month of dollar strength and equity market weakness, many will fear an impending period of downside despite the current optimism. 

European sentiment has been dominated by economic data of late, with economies throughout the region starting to show signs of distress that could represent a belated impact of higher rates. Inflation figures released throughout the eurozone have been a mixed bag, with a whopping 1% rise in French CPI in August alone raising the likeliness of another hike from the ECB. The eurozone inflation figure similarly provided a mixed signal, with headline inflation remaining steady, while core CPI dropped to 5.3%.

Recent weakness in US economic data has helped lift equities to the detriment of the dollar, with JOLTS, GDP, and ADP payrolls all deteriorating over the past two days. This puts extra focus onto the jobless claims data release today, with any further signs of economic distress likely to benefit stocks on expectation that the Federal Reserve would take their foot off the gas on the prospect that their action is finally making an impact on the economy.