San Francisco Frontiers - Stock markets mostly drop, dollar firms

Wall Street opened mostly lower after ending Monday with gains, including with the S&P 500 at a 16-month high.

"The party line coming into the month is much the same: the stock market looks overbought on a short-term basis and is due for a pullback," said market analyst Patrick O'Hare at Briefing.com.

"That's the party line. It doesn't mean the stock market will get in line with that line, but that's the prevailing driver of the weakness in the equity futures market this morning," he added.

European stock markets retreated, hit by weak manufacturing data across the region.

"European shares are flashing red amid the market caution with risk appetite taking another hit thanks to disappointing manufacturing activity data," noted Lukman Otunuga, senior market analyst at FXTM.

This offset optimism that other central banks would shortly follow Australia in bringing an end to the policy of raising interest rates, as inflation cools.

Australia left its key interest rate unchanged at 4.1 percent on Tuesday, the second pause in a row.

Analysts said that the Bank of England could carry out a final rate hike Thursday, while the Federal Reserve is increasingly seen as pausing in September.

The outlook is less clear for the European Central Bank.

The dollar rose against major rivals.

"The greenback has found renewed strength in recent days thanks to data highlighting the resilience of the world’s largest economy, where signs of disinflation have been offset by strength in consumption, suggesting that a severe recession can be avoided, even with interest rates at 5.5 percent," said market analyst Fawad Razaqzada at City Index and FOREX.com.

Major Asian stock markets closed mixed as investors struggled to maintain early gains fanned by hopes the Fed's interest-rate hiking campaign had run its course.

Positive data out of Washington in recent weeks, particularly falling inflation, has been compounded by China's recent promises of stimulus measures to kickstart growth, as the country's post-Covid recovery grinds to a halt.

Traders are now keeping a close eye on earnings this week from tech titans Apple and Amazon, and US jobs data at the end of the week that could provide an idea about the Fed's thinking.

"The challenges companies have endured -- stubborn inflation, weak markets, and sluggishness internationally -- are no longer headwinds," said Michael Wilson at Morgan Stanley.

"Now, we're not only seeing tailwinds heading into 2024, but we're getting less disruptive reactions in the stock market following earnings reports."

- Key figures around 1330 GMT -

New York - Dow: FLAT at 35,573.14 points

London - FTSE 100: DOWN 0.2 percent at 7,684.22

Frankfurt - DAX: DOWN 0.8 percent at 16,309.63

Paris - CAC 40: DOWN 0.9 percent at 7,433.13

EURO STOXX 50: DOWN 1.0 percent at 4,428.53

Tokyo - Nikkei 225: UP 0.9 percent at 33,476.58 (close)

Hong Kong - Hang Seng Index: DOWN 0.3 percent at 20,011.12 (close)

Shanghai - Composite: FLAT at 3,290.95 (close)

Euro/dollar: DOWN at $1.0979 from $1.0997 on Monday

Pound/dollar: DOWN at $1.2776 from $1.2834

Euro/pound: UP at 85.92 from 85.67 pence

Dollar/yen: UP at 143.18 yen from 142.28 yen

West Texas Intermediate: DOWN 0.8 percent at $81.13 per barrel

Brent North Sea crude: DOWN 0.8 percent at $84.78 per barrel

burs-rl/giv

B.Johnson--SFF