August angst Why markets get the fear in late summer

Fears of a recession in the US.

- Larry Elliott

The biggest one-day fall on the Japanese stock market since 1987. Policymakers away on their summer breaks, leaving their deputies in charge.

All familiar enough territory for August - one of the most dangerous months in the economic and financial calendar.

In theory, August should be a month when not much happens and often that is the case. Stock market trading volumes tend to be light. But bad things can happen, and when they do they can have profound consequences.

Henry Allen, a macro strategist at Deutsche Bank, says the latesummer period is often a difficult time for markets. He notes that the average spike in the Vix index, which measures market volatility and is commonly known as Wall Streets's fear index, has been higher in the July to September period than in any other quarter.

So the markets are right to tread carefully in August. In some years it is the month when a crisis erupts, in others it is when strains become apparent that eventually lead to crises in September - if anything, a month with an even worse reputation for trouble.

At the end of July 1990, few were expecting Saddam Hussein to invade Kuwait. But on 2 August, Iraqi troops crossed the border, triggering a three-fold increase in oil prices. This added to already strong cost of living pressures in the west, including Britain, where the inflation rate climbed above 10%.