BNY Mellon: Familiarity a Risk

8 okt 2018

By Simon Derrick, Chief Currency Strategist, BNY Mellon

2018 has proved an odd year, with the predominant feeling being one of deja vu.

Italy had returned as a topic of debate by late April, as had Brexit. Similarly, the battle over NAFTA, the US/China trade war and Turkey had been well-flagged by the summer.

The cumulative effect was that the market collectively (and understandably) positioned itself for risk aversion over the summer.

The risk of familiarity can, however, be one of complacency, something that regulators have been warning of for some while now. With this in mind it’s worth recalling quite how risky October has proved to be in the modern era.

The Dow

The second half of the year has proved more fraught with danger than the first for the Dow since 1970, accounting for 31 of the top 50 monthly declines. The average decline seen over these 31 months was 8.38%.

August has seven appearances on the list with an average decline for these months of 8.9%. September also has seven appearances on the list although the average decline (-8.4%) was slightly less than that seen in August.

October sees six appearances on the list, but by far the worst average decline (-10.7%). However, this was skewed by the 23.2% decline seen in October 1987 (the fifth-steepest monthly decline on record and the worst since March 1938) and the 14% decline seen in October 2008.

Tokyo Stock Price Index

Since 1976 the TOPIX has experienced 226 down months. 27 of the 50 worst declines came in the second half of the year with October accounting for 6 of these (the second highest number after August with 7). The average decline over these 6 months was 9.71% with the worst coming in October 2008 (20.25%) and the second worst in 1987 (10.25%). 

USD/JPY

The second half of the year has also proved rather more dangerous for the USD since 1970, with 29 of the top 50 monthly declines against the JPY being seen during this time.

July and October have proved the worst months in H2, with seven appearances each on the top 50 list. The average decline seen October (7.33%) was materially worse than that for July (5.29%).