Summer surprises

Anyone who thinks August is a quiet month hasn’t read a history book

‘Anyone who thinks that August is a quiet month hasn’t checked a history book’

Pack the sun cream, pick out a couple of paperbacks, and choose the right shades to wear by the pool. From tomorrow, it is August, and we can all relax, secure in the knowledge that nothing much will happen for the next four weeks. The markets will be about as busy as the headquarters of the Theresa May fan club, while the office will be safely in the hands of a couple of interns and they will be too busy checking their Instagram accounts to do any actual work. Everything will be on hold until autumn rolls around.

Except, uh oh, in fact anyone who thinks August is a quiet month for the markets obviously hasn’t checked a history book recently. Often, it is the month that sees the major upheavals.

Not convinced? Well, the credit crunch started in August 2007. The Asian financial crisis kicked off in August 1998, the Dow Jones peaked in August 1987 before starting its dramatic collapse, and president Richard Nixon took the United States off the gold standard in August 1971, ushering in the era of purely paper money.

Plenty of stuff happens in politics too. Take your pick from the start of the First World War, the end of the Second World War, the Russian invasion of Prague, the resignation of Nixon, or the Iraqi invasion of Kuwait (August 1914, 1945, 1968, 1974 and 1990 respectively).

So what could get investors desperately searching for the hotel Wi-fi code so they can quickly re-juggle portfolios this August? Here are five possibilities to watch out for.

First, Donald Trump resigns. The US president’s position is already precarious, and there appear to be so many smoking guns it is hard to keep track of them all. With the US economy growing at 4pc a year and his ambitious tax reforms in place it might occur to the Donald that a sudden departure, along with a full pardon for any crimes or misdemeanours committed over the last four decades, would be a lot more satisfying than years of legal arguments leading up to a drawn-out impeachment. After all, he is predictable only in his unpredictability. If he dramatically departed office, it would rock the markets – although investors would quickly like the look of the soberly conservative president Mike Pence, and his new vice-president Jeb Bush.

Next, a German bank collapses. Rewind a few years and there was nothing more solid than a major German bank. Dull, sure. Slow-witted, perhaps. Yet completely dependable.

But that was before the euro area turned into the most dysfunctional currency zone ever created. The massive imbalances between the core and the periphery have to show up somewhere – and one place is the German banking system. Deutsche Bank shares have almost halved in the last year, and are down by 80pc since 2006. If a German bank has to be bailed out, it will not only rattle the markets, but will provoke a fresh eurozone crisis as well.

Thirdly, Italy quits the euro. Italy’s new populist government is made up of leaders who have publicly toyed with leaving the single currency, or else launching a parallel currency as a first step towards getting out. True, they appear to have backed away from their hostility to the euro since taking office. But who knows what they are planning? One thing we know for sure about quitting the euro is that, rather like a military operation, it would be best to make it a complete surprise. A quiet weekend in the middle of August would be the perfect moment.

Fourthly, Bitcoin rises to $30,000 a coin, and then collapses. After a wild 2017, this year the digital currency has done the one thing no one really expected. It has become a bit dull.

From February through to July, the price stayed between $6,000 and $8,000, with no dramatic spikes. Maybe it is starting to find its real price and settle down? Or perhaps it is just taking a breather? In a thin month for trading in other assets, it could suddenly surge, and quickly collapse.

Lastly, the UK concedes a second referendum. Britain’s exit from the EU is drawing closer, and yet there is still no agreed plan for getting out. The arguments are growing more bitter, and the negotiators in Brussels remain implacable, while the Government’s majority is too thin for Britain to play hardball. One way out of the impasse? To keep her party and the country together, the Prime Minister might concede a second referendum, offering a no-deal exit, a bad deal, or staying in. All of a sudden, the UK would be plunged back into months more uncertainty while diehard Remainers and Leavers engaged in a bitter civil war. The economy was coping fine with getting out – but another referendum would knock the confidence out of it, and the pound and the FTSE 100 would plummet.