After such a tumultuous start to the year, it would be understandable if the market was even more diligent than usual in switching off this summer. Markets around this time are generally perceived to be quiet anyway, but the lack of liquidity most likely contributes to August on average seeing some of the biggest moves of all the months in several instruments – a theme that may even be more extreme this year. Investors expecting the summer doldrums are likely to be disappointed.

August is a strong month on average for the dollar (top-left chart, showing the broad USD index, which is vs EM as well as DM currencies). Equity volatility also has a higher bias in August, again likely due to a lack of liquidity (top-right chart). 10y yields in the US tend to be biased much lower in August (bottom-left chart) – we will see if the recent fall in yields extends into next month. Gold, too, tends to exhibit strong seasonality in August and September due to buying in India. This year of course may be impacted by pandemic-related restrictions, for eg wedding gatherings. Seasonals in general should not be used on their own to make investment decisions, but when one month displays such a strong bias, being aware of this information is very useful, especially when investors may be off their guard.

 

Source: Bloomberg, Macrobond and Variant Percpeption