Hopes that the Federal Reserve has finished hiking interest rates has helped send markets higher in recent weeks
Hopes that the Federal Reserve has finished hiking interest rates has helped send markets higher in recent weeks AFP News

US and European stock markets mostly fell on Tuesday as investors reacted to macroeconomic data and corporate earnings, while the dollar firmed.

While the Dow eked out a modest gain, the other two major US indices retreated, joining European bourses in the red.

"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, of 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.

Survey data showing the US manufacturing sector contracted again in July also weighed on sentiment.

Major US companies moved in opposite directions after earnings reports, with Caterpillar surging and Uber retreating.

Meanwhile, European stock markets also pulled back, 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.

But the dollar's strength weighed on oil prices.

Traders are now keeping a close eye on earnings due this week from tech titans Apple and Amazon, as well as 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."

New York - Dow: UP 0.2 percent at 35,630.68 (close)

New York - S&P 500: DOWN 0.3 percent at 4,576.73 (close)

New York - Nasdaq: DOWN 0.4 percent at 14,283.91 (close)

London - FTSE 100: DOWN 0.4 percent at 7,666.27 (close)

Frankfurt - DAX: DOWN 1.3 percent at 16,240.40 (close)

Paris - CAC 40: DOWN 1.2 percent at 7,406.08 (close)

EURO STOXX 50: DOWN 1.3 percent at 4,407.54 (close)

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 $1.0985 from $1.0997 on Monday

Pound/dollar: DOWN at $1.2776 from $1.2835

Euro/pound: UP at 85.96 from 85.68 pence

West Texas Intermediate: DOWN 0.57 percent at $81.37 per barrel

Brent North Sea crude: DOWN 0.6 percent at $84.91 per barrel