Australia

Australian shares are set to dip in line with Wall Street where stocks slipped on the first day of August.

ASX futures were down 21 points or 0.3% at 6880 as of 8.00am on Tuesday, pointing to a small fall at the open.

Overseas, major indexes spent much of Monday's session flitting between gains and losses before falling in the afternoon. The S&P 500 fell 0.3%. The Dow Jones Industrial Average shed 0.1%. The technology-focused Nasdaq Composite Index lost 0.2%.

US stocks mounted a furious recovery in recent weeks, boosted by positive signals from earnings and expectations that the Federal Reserve may not need to raise interest rates as aggressively as once thought, spurring a rally in government bonds alongside stocks.

"The market's beginning to price in the end of Fed tightening rather quickly, and I think it's going to be disappointed. I think the market's a bit ahead of itself here," said Thomas H. MacCowatt, partner at Williams Jones Wealth Management.

In commodity markets, Iron ore fell 1% to US$112.90, Brent crude oil declined 3.8% to US$100.03, while gold rose slightly 0.04% to US$1788.40.

In bonds markets, with the yield on Australian 2 Year government bonds was flat at 2.39% while the 10 Year steadied at 3.05%. Overseas, the yield on 2 Year US Treasury slipped slightly to 2.87% and the yield on the 10 Year US Treasury notes declined to 2.57%.

The Australian dollar rose to 70.25 US cents, up from 69.89 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies declined again to 97.25.

Asia

Chinese shares reversed early losses to end higher, helped by gains in auto stocks. The benchmark Shanghai Composite Index rose 0.2% to 3259.96, Shenzhen Composite gained 1.0% to 2202.49 and ChiNext advanced 2.4% to 2733.74. Auto stocks gained amid resilient demand for electric vehicles. BYD Co. added 3.2% and SAIC Motor rose 1.2%. "The resurgence in Covid infections (in cities including Shenzhen), turmoil in the domestic property market, high global inflation and weakening global demand outlook are all dampening China's recovery in 2H22," UOB analysts say in a note.

Hong Kong's Hang Seng Index ended flat at 20165.84, supported by auto stocks and lenders. HSBC Holdings gained 5.0% after posting a 62% increase in 2Q profit, while Hang Seng Bank added 2.9% despite a decline in quarterly profit. Auto makers also strengthened amid signs of policy support, with Geely Auto jumping 13% and BYD Co. up 3.6%. Among laggards, Alibaba Group fell 3.8% after the US SEC added it to a list of companies facing potential delisting. Property developers and managers weakened further. Jinke Smart Services slumped 37% after a loan agreement with its parent. Country Garden Services slid 10% and Country Garden Holdings retreated 4.0%.

Japanese stocks ended higher as several companies reported strong quarterly results despite uncertainty over the economic outlook. Nippon Sanso Holdings jumped 7.7% after first-quarter net profit rose 7.6% on year. MonotaRO surged 7.3% after first-half net profit rose 12% on year. The Nikkei Stock Average rose 0.7% to close at 27993.35. Investors were focusing on earnings and any geopolitical implications from House Speaker Nancy Pelosi's visit to Asia.

Europe

European markets rose after upbeat Asia trading and ahead of an expected broadly flat US open. The pan-European Stoxx Europe 600 gained 0.3%, and German DAX advanced 0.6% and the French CAC 40 climbed 0.5%, while Italy's FTSE MIB surged 1.6% amid reports that the Italian right faces pressure to say whether Russia was involved in the collapse of Mario Draghi's government.

"A busy week ahead includes the Reserve Bank of Australia and Bank of England interest-rate decisions, culminating in the US job report," IG analysts say in a note.

London’s FTSE 100 closed down 0.14% Monday amid raised tensions in Asia, with media reports suggesting that US House Speaker Nancy Pelosi is expected to visit Taiwan in defiance of China's warnings.

Melrose Industries was the index's biggest faller, down 5.5%, followed by Anglo American and Intertek Group, which closed 4% and 3.3% lower, respectively.

On the bright side, Pearson was the session's biggest gainer, up 13% on bigger-than-expected 1H sales and profit, followed by HSBC, up 6.1% after resisting calls to spin off its Asian business.

North America

US stocks closed slightly lower Monday to start a new month of trading after finishing July with their best month since 2020.

Major indexes spent much of Monday's session flitting between gains and losses before falling in the afternoon. The S&P 500 fell 0.3%. The Dow Jones Industrial Average shed 0.1%. The technology-focused Nasdaq Composite Index lost 0.2%.

US stocks mounted a furious recovery in recent weeks, boosted by positive signals from earnings and expectations that the Federal Reserve may not need to raise interest rates as aggressively as once thought, spurring a rally in government bonds alongside stocks.

"The market's beginning to price in the end of Fed tightening rather quickly, and I think it's going to be disappointed. I think the market's a bit ahead of itself here," said Thomas H. MacCowatt, partner at Williams Jones Wealth Management.

Last week, officials approved another 0.75-percentage-point interest-rate increase. But traders are now betting that the size of rate increases will be smaller for the rest of the year.

"This has been a very rapid repricing of bond and equity markets," said Edward Park, chief investment officer at UK investment firm Brooks Macdonald. "I fear, however, it might be a bit premature based on what was said out of the Federal Reserve last week."

Mr. Park noted that Monday's weakness in stock futures suggested investors are likely taking a breather after the S&P 500 finished Friday with a 9.1% gain for July. He added that traders are in "wait and see" mode ahead of Friday's jobs report. Economists surveyed by The Wall Street Journal expect the US economy to have added 250,000 jobs in July, down from 372,000 in June.

Strong employment is the remaining pillar propping up consumer sentiment and stopping the economy from seeing a "full-blown recession," said Aoifinn Devitt, chief investment officer of Moneta.

"We are probably well poised for another good end to the summer. I see a lot of the negative negative news has been baked in," Ms. Devitt said.

Not all investors are feeling optimistic after July's market rally, however.

"We expect to have more pain ahead, more downside from here, even if it may take a few weeks to materialize," said Chris Wilde, managing director at NEIRG Wealth Management.

Mr. Wilde noted the recent dip in the 10-Year real yield, which represents what investors earn from government bonds after adjusting for inflation, as a sign that the market remains in a "very tenuous spot." Enthusiasm among individual investors for riskier assets, such as big-name tech stocks, are also stopping the market from hitting a bottom, he said.

Investors' expectations for a less aggressive Fed have been evident in federal-funds futures, which are used by traders to place bets on the course of interest rates. Such futures on Monday morning showed a nearly 69% probability that the Fed will raise its key interest rate by half a percentage point in September, up from just 44% last week, according to CME Group. They also are assigning a smaller probability to a 0.75-percentage-point increase compared with a week ago.

Shifting expectations for central-bank policy for the rest of the year have scrambled other areas of financial markets in recent days, upending some trades that have flourished this year. The US dollar, for example, which has staged a prolonged rise in 2022, fell on Monday for a fourth consecutive session, with the WSJ Dollar Index losing 0.4%.

The Japanese yen, meanwhile, advanced again, rising 0.8% against the dollar. The yen's recent rise has challenged a popular trade on Wall Street this year: betting against the Japanese currency.

In the bond market, the yield on the 10-year US Treasury note traded at 2.605%, down from 2.642% Friday. The yield on the benchmark note has come down significantly from its closing high of 3.482% reached in June.

The yield on the two-year Treasury note, meanwhile, traded at 2.909%, compared with 2.897% Friday, to keep the so-called yield curve inverted. That market signal, which occurs when short-term Treasury yields trade higher than long-term yields, is often seen as a key predictor of a recession.

Among individual companies, Boeing gained $9.76, or 6.1%, to $169.07 after the plane maker temporarily avoided a strike at three defense manufacturing plants and cleared a regulatory hurdle for resuming deliveries of its 787 Dreamliner.

American depositary shares of Alibaba moved added 97 cents, or 1.1%, to $90.34 after the company said it would work to stay listed on the New York Stock Exchange. The Securities and Exchange Commission on Friday added Alibaba to a list of Chinese companies at risk of being delisted from the US exchanges if their auditors can't be inspected before spring 2024.

Shares of EVO Payments increased $6.37, or 23%, to $33.71 after Global Payments said it would buy the payments-technology company and pay $34 a share in an all-cash deal. Global Payments shares rose $5.66, or 4.6%, to $127.98.

Shares of PerkinElmer rose $7.70, or 5%, to $160.87 after it announced it will sell its applied, food and enterprise services business to private-equity firm New Mountain Capital for $2.45 billion in cash.