Skip to main content

The Globe and Mail

Top Business Stories: Welcome back to a wild September for markets

These are stories Report on Business is following Tuesday, Sept. 4, 2012.

Follow Michael Babad and the Globe's top business stories on Twitter.

September a key month
September is shaping up to be a crucial month for financial markets.

Story continues below advertisement

The kids are back at school and the cottage is a fond memory. Looming large now is everything from the euro crisis to the Quebec election. Key to the puzzle are meetings of central banks in Canada, the United States and Europe, with all eyes on the last two amid hopes for action.

"Markets are in a speculative state, easily swayed by what policy makers say," said Kit Juckes, the chief of foreign exchange at Société Générale.

This doesn't necessarily mean it's going to be a bad month for investors, only that there's a lot for stock, bond and currency markets to digest.

Here's what to watch for:


The Bank of Canada will hold its benchmark overnight rate at 1 per cent, but markets will be watching for any shift in language, particularly whether Governor Mark Carney and his colleagues change their view that the next move in interest rates will be up, not down.

"Governor Carney has employed enormous flexibility in the statement language by using guidance phrases such as 'to the extent' that its forecasts come true, it 'may' hike rates by a 'modest' amount at some point over the 'medium term,'" said Derek Holt of Bank of Nova Scotia.

Story continues below advertisement

"We wouldn't recommend ship navigation along the same line of reasoning, but the tone, style and aggressiveness of the related communications has been interpreted more harshly as hawkish in nature, thus providing a boost to [the dollar] that goes beyond just commodity dynamics," he said in a research note.

"It is unlikely that this tone will change next week despite enormous geopolitical risk ahead of the global economy and downsides to the Canadian economy amid very soft inflation readings."

Markets will also be watching for the results of, and post-victory rhetoric from, the election in Quebec, where the Parti Québécois is expected to win. As The Globe and Mail's David Parkinson reports, the market impact is expected to be muted, though the dollar could take a small hit.

"We believe that a victory by the PQ would have a very marginal negative impact on Canadian assets, especially the Canadian dollar, given the increased political uncertainty," said Charles St-Arnaud of Nomura Securities in New York. "However, we believe that since the likelihood of a referendum remains low, investors should fade any reactions to the elections."

Much depends on how the PQ fares, of course.

"The Quebec election poses a risk to [the Canadian dollar] given the potential for adverse reactions from investors, where higher yields on Quebec's provincial debt could result from fears of a referendum in the event of a majority win for the Parti Québécois," said currency strategist Eric Theoret of Bank of Nova Scotia.

Story continues below advertisement


The European Central Bank unveils its policy decision, and is expected to outline its plans to help drive down bond yields in the troubled countries such as Spain and Italy, lowering borrowing costs by intervening, if it can bring Germany's Bundesbank on side with the scheme.

This is a central bank with a lot on its plate, plagued by recession and stubbornly high unemployment in some countries, and deep divisions among the politicians of the 17-member euro zone.

"The euro area is facing negative growth and with austerity on the horizon for the next few years, growth will probably do well to scramble back up to 1 per cent," said Benjamin Reitzes of BMO Nesbitt Burns.

"Expect crisis-fighting measures from the ECB, but, unfortunately, steps beyond those are unlikely."

Some observers also expect the central bank to again cut interest rates, and leave some uncertainty around the bond-buying scheme being pushed by ECB chief Mario Draghi.

"We expect the governing council to cut the refi rate by 25 basis points (to 0.5 per cent), lower the marginal lending rate, but keep the deposit rate at 0 per cent," said observers at Royal Bank of Canada.

"We also think it will outline the broad contours of the promised government bond market intervention, although keep key details under wraps at this stage."

Mr. Draghi is said to have given some details of the bond plan at a closed discussion at the European Parliament yesterday, saying that the ECB could buy bonds maturing in three years or less without violating EU rules

Sept. 8-9

Investors have been reacting to every piece of economic news from China, which is supposed to help the world recover from its funk but has been suffering its own blues of late.

"China's hard landing risks have increased in the wake of recent data reports, and Sept. 8-9 will see the next data deluge from that key region," said chief economist Avery Shenfeld of CIBC World Markets.

"It's too soon to expect any good news from recent monetary stimulus, so downside risks dominate."

Sept. 13

What markets want most of all is more stimulus from the Federal Reserve in the form of quantitative easing, or QE3, as investors have dubbed it.

Chairman Ben Bernanke keeps hinting, but he has yet to lay out any time-line. The question seems to be when, not if. So markets are closely watching the next meeting of the U.S. central bank.

"Fed Governors won't rest until they fulfil their mandate to help the economy reach full employment while consumer price inflation is kept at bay," said Mr. Juckes.

"Despite the impending 'agflation' from droughts, there is no serious inflationary pressure because there is so little wage growth. So they are preparing for more QE. We think on balance it will be announced in September, but even if recent data were to delay that slightly, it would not change the bias of policy."


Midmonth brings several events that will help determine where the embattled euro zone is headed.

First, Germany's constitutional court is expected to rule Sept. 12 on the euro zone's bailout fund and Europe's fiscal compact.

Dutch elections will be held the same day, followed two days later by a summit of EU finance ministers.

"Historically, September has been the worst month for stocks," noted CIBC's Mr. Shenfeld.

"But barring a prior theory for why that month bears bad news, finding it to be the weakest, even if the gap is 'statistically significant,' is meaningless," he said in a recent report.

"Randomly, if one tested all 12 months, one would typically be weak enough to be significantly different from the mean at the 90-per-cent confidence level. Moreover, much of the 'September effect' owes to a handful of outliers. Still, this particular September has a calendar that is full of minefields for equity markets."

Late September

Inspectors from the so-called troika of the European Union, European Central Bank and International Monetary Fund are expected to issue their findings on Greece, though the report may not come until October.

This report will be key as it will examine whether Athens is meeting the budget measures tied to its bailout money.

And …

There's also a Sept. 15 deadline in talks between the National Hockey League and the NHL Players Association, which could throw everyone for a loop.

Onex strikes U.S. deal
Onex Corp. has struck an $813-million (U.S.) deal for a U.S.-based digital imaging company.

Toronto-based Onex announced the acquisition of SGS International Inc. of Kentucky today.

SGS operates in 14 countries, with 2,400 employees and annual revenue of some $400-million.

Its business involves graphics services to the packaging industry, largely in North America, Europe and Asia.

Business Ticker

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to