September has a habit of humbling optimists. It’s the month traders dread. Liquidity dries up, summer rallies look overextended, and even a stray headline can land like a knockout punch. Most commentary this year has fastened on Washington — Donald Trump’s new tariffs, his pressure on the Fed, his unpredictable tweets — as the looming catalyst for the next market wobble.
But what if the shock doesn’t come from the White House? What if the real risks sit quietly across the Atlantic — in Paris and London — where politics and fiscal reality are on a collision course?
France: juggling three flaming torches
On 8 September, the French government faces a no-confidence vote. Normally, this would be background noise. But in today’s febrile bond markets, the timing could hardly be worse. Investors are already nervous about France’s borrowing needs. The spread between French OATs (Obligations Assimilables du Trésor, the country’s benchmark government bonds) and German Bunds — shorthand for how much extra France must pay to borrow compared with Europe’s safest credit — has been edging wider.
Can Paris really square this fiscal circle? Growth is anaemic, debt hovers around 110% of GDP, and reforms are stalling. A no-confidence vote won’t necessarily topple the government, but even a hint of political paralysis could spook markets. It’s like watching a tightrope walker in gale-force winds. One slip, and the OAT spread could blow out, dragging Italian BTPs and the wider eurozone periphery with it.
Investors like to pretend Europe is dull compared to the drama in Washington. Yet history suggests otherwise. Recall 2011, when Italian yields nearly broke the eurozone. September’s French vote could be this cycle’s version of that test.
Britain: the gilt edges are fraying
Across the Channel, Britain is staging its own high-wire act. Chancellor Rachel Reeves faces the daunting task of presenting an autumn Budget while staring down a £20bn fiscal hole. The Office for Budget Responsibility will soon lock in its forecasts, and if gilt yields are elevated when they do, Reeves’ wiggle room evaporates.
Markets already smell blood. Long-dated gilt yields recently climbed above 5.6% — higher than America’s Treasuries, higher even than Spain or Italy. That inversion should never happen. It tells us investors are losing confidence in Britain’s ability to finance itself cheaply.
The easy option? Tax the banks. NatWest, Lloyds, Barclays — all sold off last week on rumours of a levy. Sure, it fills the coffers. But it also squeezes credit creation, precisely when Britain can least afford a credit squeeze. One can imagine the headlines: “Growth budget mugs lenders.” Reeves insists growth is her priority, but her MPs want revenue (tax and spend anybody?). Who wins that tug-of-war?
The deeper problem is structural. As The Spectator’s Economics Editor Michael Simmons noted, Britain’s debt has ballooned to £2.7 trillion, with a staggering share indexed to inflation. Linkers, once a clever wheeze, have become a fiscal albatross. In June alone, interest payments doubled to near-record levels, largely because those linkers reprice automatically with inflation. Britain is spending more servicing debt in a single month than on policing its borders for an entire year.
So, here’s the billion pound question no UK politician dares ask: what happens if one of the Debt Management Office’s weekly gilt auctions fails? No bids. No rollover. Just silence. That’s when the façade crumbles.
Markets on edge: thin ice everywhere
Set these European dramas against already fragile global markets. US equities, propelled by AI euphoria, just suffered their worst week since spring. Nvidia disappointed, Marvell collapsed, and suddenly the Philadelphia Semiconductor Index looked shaky. Inflation is still sticky, the Fed is hinting at cuts, yet the dollar remains firm. Gold trades above $3,400 an ounce, a classic hedge for fear.
September is seasonally weak for equities. Institutional rebalancing, thinner retail flows, and rising volatility all conspire against bulls. Throw in a French confidence vote or a British Budget misstep, and the spark could ignite.
Yes, Trump’s tariffs matter. Yes, his barbs at the Fed unsettle. But Washington risk is priced in; Paris and London are not. And in markets, it’s always the unpriced shock that does the damage.
Australia: the quiet lesson in drift
And then there’s Australia, often cast as the lucky bystander. The Reserve Bank has cut rates three times this year, with a fourth expected in November. Housing markets are back on the boil, Sydney prices climbing at an 8.5 per cent annual clip.
But beneath the surface, the story is less comforting. Productivity growth has flatlined. Public spending keeps ballooning. The National Disability Insurance Scheme now consumes more than the defence budget. Debt still looks manageable, but only because Australia entered the century with a clean slate. That buffer won’t last forever.
As Christopher Joye — whose weekly columns in the Australian Financial Review are always thought-provoking — warns, Australia is becoming a structurally high-cost economy. Rate cuts may soothe borrowers, but sticky inflation could force the RBA back into hiking by 2026. If so, assets that depend on cheap money will get a rude awakening.
Australia won’t be the trigger for a global correction. But it offers a case study in how easy complacency can set in. Spend, borrow, inflate — and assume the lucky country will muddle through. Until it doesn’t.
The reckoning
So, where does this leave us as September begins? On thin ice.