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Us stocks once again end in deep red

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Capital Market
Last Updated : Aug 26 2015 | 12:48 PM IST

Utilities and telecoms saw the biggest losses

U.S. stocks relinquished all of their opening gains on Tuesday, 25 August 2015, to finish with sharp losses. The main indexes began trimming gains in afternoon trade, falling into negative territory ahead of the closing bell as selling accelerated in the final hour. The market began the day with a broad-based spike after most global stock markets rebounded during overnight action. Interestingly, the rebound did not include China's Shanghai Composite as the index lost 7.6%.

The Dow Jones Industrial Average which at session highs was up more than 400 points, ended with a loss of 204.91 points, or 1.3%, at 15,666.44. The Nasdaq Composite ended the day down 19.76 points, or 0.4% at 4,506.49. The S&P 500 turned big gains into losses and closed down 25.59 points, or 1.4%, at 1,867.61.

Utilities and telecoms saw the biggest losses. On a percentage basis, Tuesday's move marked the largest swing in the index, before closing negative, since October 2008 during the financial crisis.

The European and U.S. stock index rallies occurred even before China announced new monetary policy stimulus measures on Tuesday, including cutting its benchmark interest rate by 0.25% and lowering China banks' reserve requirement ratios by 0.5%. However, China's Shanghai stock index was down another 7% on Tuesday, while Japan's Nikkei stock index lost another 4% on the day. Indian and Australian stock markets were also lower. The Asian markets were closed when China's central bank announced its monetary policy easing moves. China's stock market is down more than 20% in less than a week.

The U.S. dollar index added on to its early gains following the upbeat data and is traded sharply higher on the day, which was also a negative for the precious metals markets.

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Emerging currency markets are still in turmoil early this week, which is by itself a very worrisome development for the world market place.

Adding to the uncertainty in the market place at present is whether or not the U.S. Federal Reserve will raise interest rates at its September FOMC meeting. After this week's extremely volatile price action in many markets, there are growing doubts the Fed will be able to make a rate hike in September, or even this year. However, Tuesday's upbeat U.S. economic data falls into the U.S. monetary policy hawks' camp, who want a U.S. rate hike sooner rather than later.

Bullion prices ended the U.S. day session solidly lower on Tuesday, 25 August 2015. Early selling pressure intensified following U.S. economic data that was better than expected. Strong gains in the U.S. stock market earlier in the day also pulled investor interest away from safe-haven gold. Gold futures settled near a one week low on Tuesday as news that China cut its benchmark interest rate helped stabilize global markets and bolster the U.S. dollar, prompting prices to log a decline for a second straight session.

Gold for December delivery fell by $15.30, or 1.3%, to settle at $1,138.30 an ounce on Comexthe lowest settlement since Wednesday. September silver ended 15.2 cents, or 1%, lower at $14.61 an ounce, extending Monday's 3.5% loss.

Crude oil futures settled back above $39 a barrel on Tuesday, 25 August 2015 bouncing back from their lowest level in 6 years, as China's decision to cut interest rates gave the market an extra boost. Prices were already rising as U.S. and European markets surged, making up much of Monday's rout. U.S. economic data Tuesday was upbeat, however, with a reading on August consumer confidence rising to its highest level since January.

West Texas Intermediate crude for October delivery climbed $1.07, or 2.8%, to settle at $39.31 a barrel on the New York Mercantile Exchange.

The late afternoon tumble occurred after the Treasury market closed for the day, but 10-yr note futures rallied after the cash close. The benchmark instrument settled on its low with the yield up 13 basis points at 2.13%, but safe-haven demand drove the yield to 2.09% after the cash close.

Economic data included Consumer Confidence, New Home Sales, Case-Shiller 20-city Index, and FHFA Housing Price Index: The Conference Board's Consumer Confidence Index increased to 101.5 in August from an upwardly revised 91.0 (from 90.9) while the consensus expected an increase to 93.1. The August jump in confidence wiped away all of the discomfort from July and returned the index past June levels (99.8) to the highest mark since January 2015.

Also, new home sales increased 5.4% in July to 507,000 from a downwardly revised 481,000 (from 482,000) while the consensus expected an increase to 511,000. Also, the Case-Shiller 20-city Home Price Index for June rose 5.0% against a 5.1% increase expected by the consensus. This followed the previous month's increase of 4.9%. The FHFA Housing Price Index for June rose 0.2%, which followed a revised increase of 0.5% in May (from 0.4%).

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while July Durable Orders (consensus -0.6%) will be reported at 8:30 ET.

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First Published: Aug 26 2015 | 10:38 AM IST

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