US dollar weaker as equity markets extend losses - 1.9.2015

US stocks fell on Monday amid concerns Federal Reserve may raise interest rate at its September policy meeting. The dollar weakened, with the ICE US Dollar Index, a measure of the dollar’s strength against a basket of six currencies, losing 0.2%. The S&P 500 closed 0.8% lower at 1972.18, recording the sharpest monthly decline of 6.3% since May 2012. The Dow Jones Industrial Average lost 0.7%, ending August with a 6.6% loss, the biggest decline in one month since May 2010. Federal Reserve Vice Chairman Stanley Fischer on Saturday said US inflation would likely rebound as pressure from the dollar fades, allowing the Fed to raise interest rates gradually. Investors interpreted the comment at the global central banking conference in Jackson Hole, Wyoming as a sign that the Fed planned to raise interest rates in September. Recent market turmoil had led market participants to believe the Fed would delay interest rate hike till December. Morgan Stanley cut its 12-month outlook on the S&P 500 index for 2015 from 2275 by more than 3% to 2200, citing forecasts of lower growth and higher inflation, as well as expectations for six rate hikes by the Federal Reserve before the end of 2016. Trading volume was 7.8 billion shares on US exchanges, about 27% lower than the average in the past five sessions. Today at 14:45 CET August manufacturing PMI will be released by Markit. The outlook is neutral. AT 15:00 CET August construction spending and September ISM manufacturing index will be released. The tentative outlook is positive.

European stocks ended lower on Monday on concerns slowing China’s economy will weigh on global growth. Euro strengthened against the dollar, gaining 2.2% in August. The Stoxx Europe 600 fell 0.5%. The pan-European benchmark index ended the month 8.5% lower, recording the largest decline since August 2011 when the index fell nearly 10.5%. German DAX 30 fell 0.4%, tumbling 9.3% in August, suffering the biggest monthly loss since a near 20% plunge in August 2011. Today at 10:00 CET July unemployment rate will be released in euro-zone. The tentative outlook is neutral.

Nikkei ended 3.8% lower today while yen strengthened as investor confidence was undermined by official report China's manufacturing sector contracted at its fastest pace in three years in August, pointing to the possibility of further slowdown in the world’s second-largest economy. Market sentiment was hurt also by report Japanese companies slowed capital expenditures in the second quarter.

Today Reserve Bank of Australia kept the interest rate unchanged at 2%. Tomorrow at 2:30 CET Q2 GDP data will be released in Australia. The tentative outlook is negative.

Oil futures prices are falling today on profit taking and concerns over possible slowing of Chinese demand after report showed China’s official manufacturing PMI fell to 49.7 in August from 50.0 in July. Oil prices closed almost 9% higher on Monday after the Energy Information Administration report estimated June US crude oil output declined 1.1% from a revised May figure, totaling 9.3 million barrels- a-day.

Gold is rising today after Asian equities retreated on concerns China’s economy is slowing sharply. Gold prices closed lower yesterday as the likelihood of Federal Reserve interest rate hike in September limited the attractiveness of the safe haven metal. Gold advanced about 3.4% in August, recording the largest gains since January’s 8% surge.