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US dollar up as China cuts interest rate

US stocks finished lower on Tuesday erasing morning gains as selling accelerated at the close of trading session. The dollar recovered some of its previous day loss, the ICE US Dollar index, a measure of the dollar’s strength against a basket of six currencies, closed up 0.8%. S&P 500 fell 1.4% to 1,867.62 , with all ten major sectors ending lower and utilities and telecoms leading the decliners. S&P 500 fell for the sixth straight session, 75 stocks ended with gains, three were unchanged and all the rest ended lower. S&P has lost 11% in the past week. JPMorgan cut its S&P 500 forecast for year-end to 2,150 from 2,250. Falling prices have reduced stock valuations, S&P 500 is trading now at 15 times expected earnings compared to around 17 for much of 2015 and just above a 10-year average of 14.7. Economic news were positive: US house prices, measured by Case-Shiller 20-city composite index rose 1% in June. Sales of new single-family homes rebounded in July after a sharp decline in June. Consumer confidence rose in August to the highest level since January due to a more favorable appraisal of the labor market. Today at 12:00 CET mortgage applications will be released in US. At 13:30 CET July durable goods order will be released. The tentative outlook is negative. At 15:30 CET US crude oil inventories will be released by Energy Information Administration.

European stocks rebounded on Tuesday with the Stoxx Europe 600 gaining 4.2%, recouping most of its 5.3% loss on Monday. The euro weakened 0.8% against the dollar. Germany’s DAX 30 jumped 5% to close at 10,128.12, wiping out Monday’s loss and recording a gain so far this week. Market sentiment was helped by the news the central bank of China reduced the one-year lending rate by 0.25% to 4.6% and cut the required reserve ratio - the minimum amount required to be held by banks, by 0.5% percent. Investors’ optimism was bolstered also by the Ifo survey’s results which showed German business climate and current assessment indexes for August came in better than expected. Chipmaker Infineon and copper producer Antofagasta were among big advancers, rising 10% and 8.7% respectively. Goldman Sachs cut their outlook on stocks and lowered three-month recommendation for European equities to neutral from overweight. Today at 11:40 CET ECB Executive Board member Praet will speak in Mannheim.

Nikkei rose 3.2% today as yen continued weakening and bargain hunting drove the prices up. Japanese stocks snapped six day losing streak, which had resulted in 13.6% loss in the index. Tomorrow at 00:50 CET financial data on foreign and domestic purchases of bonds and stocks will be released in Japan.

Chinese stocks closed lower today with Shanghai Composite Index falling 1.3% as investors booked profits after mid-session rebound.

Oil prices are edging up today after closing higher on Tuesday following declines prompted by market oversupply concerns. The decision by China’s central bank to cut interest rate and reserve requirement supported equity markets and alleviated concerns China’s economic slowdown will impact negatively oil demand from world’s second biggest oil consumer.

Gold is extending losses today after it fell to near a one- week- low on Tuesday as global equity markets stabilized and the US dollar strengthened.

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