Australia

Australian shares are set to edge higher following a drop on Wall Street as investors worry about lingering inflationary pressures and protests in China related to the country’s Covid restrictions.

ASX futures were up 10 points or 0.13% at 7251 as of 77:00 am on Tuesday, pointing to a slight gain at the open.

US stocks pulled back Monday as widespread protests across China against the country's zero-Covid policy sparked worries among investors about the outlook for the world's second-largest economy and global growth.

The S&P 500 fell 1.50% in afternoon trading and the Dow Jones Industrial Average lost 1.41%, or 360 points. The Nasdaq Composite also declined 1.58%.

Stocks opened in the red. But the sell-off accelerated in the afternoon after comments from Federal Reserve officials indicating interest rates could be higher for longer as inflationary pressure persists. New York Fed President John Williams on Monday said "there is still more work to do" to bring down prices. St. Louis Fed President James Bullard also discussed elevated rates moving forward on Monday.

"After those Fed comments with a greater-than-anticipated hawkish sentiment, it's not surprising that we're seeing even more red than we did earlier," said Greg Bassuk, CEO of AXS Investments.

Investors are awaiting the Labor Department's November jobs data to be released Friday, which will likely factor heavily into the Fed's December interest-rate decision.

The US stock market had mounted a strong recovery in recent weeks on optimism that the Fed will soon slow its interest-rate increases, but the comments Monday and the weekend protests in several Chinese cities threaten to inject fresh volatility into the market.

China's economy is already on delicate footing, and the protests have raised concerns about what direction it takes from here. Strategists and investors say they are contemplating the risk that the protests could result in stronger lockdowns, potentially denting the economy even further.

In commodity markets, Brent crude oil fell 0.32% to US$83.36 a barrel, gold fell 0.82% to US$1,740.60.

In local bond markets, the yield on Australian 2 Year government bonds dropped to 3.12% while the 10 Year fell to 3.51%. Overseas, the yield on 2 Year US Treasury notes rose to 4.46% and the yield on the 10 Year US Treasury notes fell to 3.70%.

The Australian dollar hit 66.48 US cents down from the previous close of 67.48. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 99.39.

Asia

Chinese shares finished lower, dragged down by financial and energy companies as record-high Covid-19 infections and the spread of protests against strict pandemic rules soured sentiment. China Merchants Bank and Ping An Insurance both lost more than 3%, while Cnooc and PetroChina gave up more than 1% each. WuXi AppTec retreated 7.2% after its controlling shareholder said it planned to sell shares. But airlines bucked the downtrend, with Air China, China Southern Airlines and China Eastern Airlines rising 1.4%-2.8%. The Shanghai Composite Index fell 0.7% to 3078.55, the Shenzhen Composite Index weakened 0.5% and the ChiNext Price Index was 0.5% lower.

Hong Kong's Hang Seng Index fell 4.0% to 16874.57 in morning trade amid reports of protests in China due to the country's strict zero-Covid policy. "Mass protests would deeply tilt the scales in favour of an even weaker economy and likely be accompanied by a massive surge in Covid cases, leaving policymakers with a considerable dilemma," Stephen Innes, managing partner at SPI Asset Management, says in a note. Decliners include Country Garden Services, which falls 8.7%, JD.com, which sheds 7.0% and Li Ning, which drops 5.1%. Bucking the declines are casino stocks, which rise after the Macau government approved license extensions for all six registered casino operators. Wynn Macau leads the sector gains, up 12%.

In Japan, The Nikkei Stock Average closed 0.4% lower at 28162.83, tracking broad declines among other regional markets on worries over protests erupting in China's major cities. Consumer companies' stocks, which have China as one of their major markets, declined. Kose and Shiseido fell 0.5% and 1.2%, respectively, while baby products maker Pigeon slipped 1.5%. Non-ferrous metal stocks Nippon Steel declined 3.6% and Kobe Steel fell 3.0%. Political developments may also remain in focus after a Nikkei poll on Sunday showed support for Prime Minister Fumio Kishida's cabinet fell to a new low.

Europe

European stocks fell in closing trade, dented by concerns about protests in China over the country's strict Covid-19 restrictions. The Pan-European Stoxx Europe 600 dropped 0.7%, the German DAX declined 1.1%, and the French CAC 40 shed 0.7%

"European and US markets have followed their Asian counterparts lower today, with weekend unrest in China building on the Covid-fueled uncertainty that had been growing over recent weeks," IG analyst Joshua Mahony writes. The outcome of China's protests is uncertain with concerns growing over a drawn-out period of restrictions due to rising Covid cases, he says.

The FTSE 100 index fell 0.17% to 7474 as protests in China against Covid-19-related restrictions prompted a selloff in global markets. "With the rest of the world enjoying life and learning to live with Covid, China continues to double down on a strategy that has little chance of success without an accompanying vaccine program," CMC Markets chief market analyst Michael Hewson says in a note. Among the top fallers, insurer Admiral Group fell 4.4% followed by Persimmon, down 3.7% after a rating downgrade from UBS. On the back of lower commodity prices, oil-related stocks BP and Shell were down 1% and 0.3%.

North America

US stocks pulled back Monday as widespread protests across China against the country's zero-Covid policy sparked worries among investors about the outlook for the world's second-largest economy and global growth.

The S&P 500 fell 1.50% in afternoon trading and the Dow Jones Industrial Average lost 1.41%, or 360 points. The Nasdaq Composite also declined 1.58%.

Stocks opened in the red. But the sell-off accelerated in the afternoon after comments from Federal Reserve officials indicating interest rates could be higher for longer as inflationary pressure persists. New York Fed President John Williams on Monday said "there is still more work to do" to bring down prices. St. Louis Fed President James Bullard also discussed elevated rates moving forward on Monday.

"After those Fed comments with a greater-than-anticipated hawkish sentiment, it's not surprising that we're seeing even more red than we did earlier," said Greg Bassuk, CEO of AXS Investments.

Investors are awaiting the Labor Department's November jobs data to be released Friday, which will likely factor heavily into the Fed's December interest-rate decision.

The US stock market had mounted a strong recovery in recent weeks on optimism that the Fed will soon slow its interest-rate increases, but the comments Monday and the weekend protests in several Chinese cities threaten to inject fresh volatility into the market.

China's economy is already on delicate footing, and the protests have raised concerns about what direction it takes from here. Strategists and investors say they are contemplating the risk that the protests could result in stronger lockdowns, potentially denting the economy even further.

The demonstrations have been significant not only for their size but also their rarity: Open displays of anger are unusual in China, and having protests across several cities is especially significant.

"I just don't think [authorities] will want to look as though they are backing down in response to protests," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. "If you keep having rolling lockdowns, consumer demand will be dented, there will be an ongoing effect on supply chains...and there could be a drop in demand for key commodities."

Oil prices dropped, with Brent crude down 0.3% to $83.41 a barrel, putting it on pace for its fourth straight loss and lowest settle since January. It fell as low as $80.61 a barrel earlier in the session.

Energy companies fell along with oil prices. Diamondback Energy dropped 3.5%, Occidental Petroleum fell 2.1% and Exxon Mobil declined 2.5%.

The oil market "has corrected on the idea that it's not going to be a full-on reopening with demand surging in China," said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.

But oil's recovery off intraday lows on Monday is "reflective of the reality setting in now that China's still going to be on a gradual reopening trajectory," he said. "That should stabilize the markets here now that the expectations have reset for what that reopening process looks like."

Market participants are wrestling with how to ascertain the consequences of the unrest in China on economies around the world, particularly in Europe and the US, which are already seeing signs of slowing growth.

In another sign of the wide ripple effects from China, Apple could see a production shortfall of close to 6 million iPhone Pro units this year due to the unrest at the Chinese factory in Zhengzhou where most of the world's latest iPhone models are assembled, Bloomberg News reported. Apple shares declined around 3%.