Traders will be watching out for a potential sharp sell-off approaching at the end of July, as the same period last year saw the worst market turmoil of the year, with several factors pointing to conditions in 2025 being even more ripe for a melt-down.
After the serious market turbulence in the first week of August 2024, Henry Allen, macro strategist at Deutsche Bank, warned that: "This year, that week looks seriously problematic again from a market perspective."
The main difference is that this year sees 1 August as also being Donald Trump's tariffs deadline, are "clearly not" being priced in by markets, due to the so-called TACO trade - Trump Always Chickens Out.
"So we may only know the outcome in the final hours, offering the potential for a sharp market reaction and heightened volatility," said Allen in a note to clients.
As that tariff deadline happens to also fall at the end of the week, the first Friday of the month is generally when the US non-farm payrolls report is published.
Last year that US jobs report sparked a sharp sell-off in New York and around global marlets, even though the numbers were only slightly below expectations.
The problem was that investors were already jittery, said Allen.
As for this year, there is also a third different factor, the strategist noted, with longer-duration government bond yields going into this period at higher levels than they were a year ago, with the US 20- and 30-year Treasury bonds at just under 5% compared to just under 4.5% last July.
This means it "would take less of a jump before we move into problematic territory that re-ignites fears around fiscal policy", Allen added.
"This means the market narrative could suddenly shift in a more negative direction. If the tariffs snap back higher on August 1, and we then get an underwhelming jobs report, that would easily resurrect fears around a US recession," says Allen.
Last year the first Friday of August saw the FTSE lose 100 points, with the following Monday another 170 being knocked off, following the US ISM manufacturing report coming in lower than every forecast on Bloomberg, and an unexpected jump in the main US unemployment rate breaching the 'Sahm recession indicator', leading to mounting fears about a US slowdown.
"So it doesn’t require weeks of buildup, and it’s not difficult to draw a picture of how this could happen in the space of 48 hours," Allen warned.