U.S. equity investors have had plenty to worry about in August, with an escalating U.S.-China trade spat and a brief inversion of a key yield spread helping to send stocks to their worst performance in the first half of a month in 2019.

The Dow Jones Industrial Average












DJIA, +1.20%










is down 3.7% on a month-to-date basis, the S&P 500












SPX, +1.44%










has fallen 3.1% and the Nasdaq Composite index












COMP, +1.67%










has lost 3.4%.

But even as high-probability risks — like the U.S.-China trade conflict — capture the minds of investors, there is a growing combination of lower-probability risks, so-called grey swan events, that could individually or in combination create even more heartburn for investors as the third quarter draws to a close.

1. No-deal Brexit: The Oct. 31 deadline for Britain to reach a deal to exit the European Union in an orderly fashion is fast approaching, and newly elected Prime Minister Boris Johnson has signaled that he is willing to face the consequences of a no-deal Brexit, “come what may, do or die.” One conservative lawmaker has even suggested that Johnson could take Britain out of the EU unilaterally by Aug. 24.

The U.K. Office of Budget Responsibility estimated in July that a no-deal Brexit would put the world’s sixth largest economy into recession. The European economy, already shaken by the global manufacturing slowdown, would also be adversely affected by new trade barriers and uncertainty that would flow from Britain’s leaving the EU.

2. Automobile tariffs: An even greater threat to the European and global economies could be a significant increase in U.S.-EU trade tensions. On May 17, the Trump administration announced its determination that U.S. imports of automobiles and automobile parts pose a national-security risk, setting the stage for tariffs on up to $128 billion in automotive tariffs from the EU and Japan, which would be the main targets of new levies

See also: Trump delays EU, Japan auto tariffs for six months

3. EU-U.S. trade dispute: Aside from automobile tariffs, the threat of a broader European-U.S. trade conflict looms. Europe was hit by 25% steel and 10% aluminum tariffs imposed in 2018, against which the EU retaliated with a 25% steel tariff of its own.

The latest development is the Trump administration’s proposed imposition of tariffs on European aerospace manufacturer Airbus SE












EADSY, +0.50%










, with Europe expected to retaliate in kind against Boeing Co.












BA, +0.75%










 . Though circumscribed so far, a ramping up of trade tensions with the EU could be a much bigger deal than China, given the degree of economic integration.

4. Hong Kong protests: Political unrest has been raging in Hong Kong for more than two months, as a protest against an extradition agreement with mainland China has metastasized into a broader pro-democracy movement.

The conflict has helped trigger a 14% decline in the benchmark Hang Seng index












HSI, +0.94%










since May, as investors worry over the fate of Hong Kong as a global financial center and whether a potential crackdown by Beijing could trigger further conflict with the West

5. Italian budget drama: While Italy has avoided sanctions from Brussels over its failure to reduce its budget deficit to acceptable levels in 2019, Europe’s third largest economy is moving headlong toward a conflict with the European Commission in 2020, when its budget deficit is set to rise to 3.5% of GDP, well above the 3% limit set by EU rules.

6. Iran conflict: A series of quasimilitary clashes between the U.S. and Iran have been largely shrugged off by oil and equity markets this year, including claims by the Iranian and U.S. militaries that each had shot down an opposing drone operating near the Strait of Hormuz — a 21-mile choke point for global oil supplies that borders Iran and separates the Persian Gulf from the Arabian Sea.

These incidents were followed by tit-for-tat seizures of British and Iranian tankers and threats by Iran to close off the strait entirely, which would cut off the flow of one-third of global oil shipments and threaten broader military conflict that could impact the global economy and markets.

7. Currency wars: A headwind for U.S. stocks this year has been the historically strong dollar, underpinned by relatively strong U.S. economic growth and extraordinary monetary stimulus from the European Central Bank and the Bank of Japan.

Central bankers say monetary stimulus is aimed at lowering interest rates in their home economies, not at devaluing currencies to boost exports, but President Trump has placed this reality at the forefront of his attacks, accusing perceived trade rivals of using monetary stimulus to lower the values of their currencies.

The administration has recently labeled China a currency manipulator, while pressuring the Federal Reserve to cut rates, in part to devalue the dollar. An escalation toward currency wars could further sap investor and business confidence, already a significant headwind for global markets.

8. India-Pakistan conflict: The Kashmir region has been a point of (sometimes military) conflict between the two nuclear powers since the partition of British India into independent states in 1947.

Tensions are once again on the rise after Indian Prime Minister Narenda Modi’s government revoked the special status of the Indian state of Jammu and Kashmir in early August, which had given it autonomy and allowed it to institute laws to maintain its status as India’s sole Muslim-majority state.

The Indian government then sought to suppress protest by sending thousands of troops to the region; cutting internet, cellphone and land-line connections; and arresting Kashmiri politicians. Pakistan downgraded diplomatic relations with India and cut off bilateral trade, and Pakistan’s prime minister said that he expected violence to ensue.

9. Argentina: The Argentinian stock market












SPMERVAL, -2.04%










fell more than 37% on Monday, after its business-friendly president Mauricio Macri lost a primary election to center-left opponent Alberto Fernandez by a 48% to 32% margin, sparking fears that Macri will lose the general election in October, and that Argentina will backslide into its free-spending ways that have led to numerous defaults and inflation crises in decades past.

Barron’s on MarketWatch: Argentina is facing a leadership crisis, and that’s a problem for the country’s markets

10. All the other trade spats: Other major economies have followed Trump’s lead in using trade barriers as tools to force policy changes abroad. South Korea and Japan have been mired in a trade battle with roots in a decades-long conflict over reparations for atrocities committed by Japan during its colonization of South Korea in the first half of the 20th century.

The U.S. and India, the world’s fifth largest economy, are also sliding closer to a trade war, after India retaliated in June against U.S. tariffs on steel and aluminum, raising duties on $1.4 billion in U.S. imports. Trump responded with attacks on the Indian government, writing in a tweet that “India has long had a field day putting Tariffs on American products. No longer acceptable!”

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