Wall Street falls, oil prices end at 5-week lows
U.S. services sector activity unexpectedly flatlined in July with little change in orders and a further weakening in employment even as input costs climbed by the most in nearly three years, highlighting the uncertainty over the impact of President Donald Trump's tariff policy on businesses.
U.S. Treasury yields were mostly higher, but pared gains after data showed stalling activity in the services sector.
The Dow Jones Industrial Average (.DJI), opens new tab fell 0.14% to 44,111.74, the S&P 500 (.SPX), opens new tab gave up 0.49% to 6,299.19 and the Nasdaq Composite (.IXIC), opens new tab dropped 0.65% to 20,916.55.
Investors digested comments about tariffs from several companies, including Caterpillar (CAT.N), opens new tab which warned of an up to $1.5 billion hit in 2025.
The U.S. dollar steadied as investors raised bets the Federal Reserve would act to prop up the world's largest economy.
Gold prices turned higher, while oil retreated on rising OPEC+ supply and worries of weaker global demand.
On Monday, U.S. shares had rallied on generally positive earnings reports and increasing bets for a September rate cut from the Fed after disappointing jobs data last week.
The pan-European STOXX 600 (.STOXX), opens new tab index edged up 0.15%, Most regional bourses also traded higher, echoing the strength across Asia markets, where MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), opens new tab closed up 0.77%.
European earnings season was in full swing, with Diageo (DGE.L), opens new tab jumping 4.9% after forecasting flat 2026 sales despite U.S. tariffs.
"The removal of the uncertainty is one factor that is helping European markets, even if the tariff rate is probably a bit higher than what market participants or European politicians would have expected or hoped to see," said Amelie Derambure, senior multi-asset portfolio manager at Amundi.
"The question is whether bad news is bad news (economy slowing down) or it's good news (Fed moving towards rate cuts). Our view is that it depends on how bad is the data and what's priced in," Jefferies strategist Mohit Kumar said.
Trump said the United States would place a "small tariff" on pharmaceutical imports before hiking it to 150% within 18 months and eventually to 250% in an effort to boost domestic production.
The dollar index , which measures the greenback against a basket of currencies including the yen and the euro, rose 0.15% to 98.78. The euro was up 0.02% at $1.1572.
Odds for a September rate cut now stand at about 94%, according to CME Fedwatch, from a 63% chance seen on July 28. Market participants see at least two quarter-point cuts by the end of this year.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 3.9 basis points to 3.72%, from 3.681% late on Monday.
News that Trump could fill a governorship position at the Fed early added to worries about politicization of interest rate policy.
Trump again threatened to raise tariffs on goods from India from the 25% level announced last month due to its Russian oil purchases, while New Delhi called his attack "unjustified" and vowed to protect its economic interests.
"Whether the threat of secondary sanctions on India's financing of Russia is the core goal remains to be seen," strategists at ING said. "Or indeed, this move may be increased U.S. leverage on India to open up its domestic economy to agricultural imports or commitments to buy U.S. energy instead."
Oil prices dropped for a fourth day, with both benchmarks settling at their lowest in five weeks as concern mounted about economic growth and the potential for oversupply.
Brent crude futures settled 1.63% lower to $67.64 a barrel, while U.S. crude finished down 1.7% at $65.16.
The second-quarter U.S. earnings season is winding down, but investors are still awaiting results this week from companies including Walt Disney (DIS.N), opens new tab and Caterpillar (CAT.N), opens new tab.
Data on Tuesday showed business activity in the euro zone grew at a slightly faster pace in July than in June, but remained sluggish.
A separate UK survey showed British businesses recorded their largest drop in new orders in almost three years in July and cutting staff by the most in six months.
Data from Asia's two biggest economies showed resilience in their service sectors. In Japan, the S&P Global final services purchasing managers' index (PMI) to 53.6 in July from 51.7 in June for the strongest expansion since February. China's services activity last month at its fastest pace in more than a year.
Spot gold prices rose 0.19% to $3,379.12 an ounce, as U.S. gold futures settled 0.2% higher at $3,434.70.
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