Australia

Australian shares are set to dip as Nancy Pelosi touched down in Taiwan and increased global market uncertainty.

ASX futures were down 11 points or 0.2% at 6896 as of 8:00am on Wednesday, pointing to a slip at the open.

The Dow Jones Industrial Average dropped 402.23 points, or 1.2%, to 32396.17. The S&P 500 declined 27.44, or 0.7%, to 4091.19. The technology-heavy Nasdaq Composite slipped 20.22, or 0.2%, to 12348.76.

Mrs. Pelosi landed in Taiwan on Tuesday and was scheduled to meet later with Taiwanese officials, in the first visit by a House speaker to the democratically governed island since 1997. Beijing, which claims Taiwan as part of its territory, had warned Mrs. Pelosi not to go through with the trip. Chinese officials had threatened unspecified countermeasures should her visit proceed.

Mrs. Pelosi's visit came against a fragile backdrop for markets. The US economy is struggling with the twin threats of soaring inflation and rapidly rising interest rates -- part of the Fed's stated goal to fight rising prices even if it knocks economic growth.

In commodity markets, iron ore rose 0.4% to US$113.30, Brent crude oil slipped 0.2% to $US99.83 a barrel, gold edged up 0.1% to US$1,789.70.

In local bond markets, the yield on Australian 2 Year government bonds rose to 2.43% while the 10 Year fell to 2.97%. Overseas, the yield on 2 Year US Treasury notes rose to 3.05% and the yield on the 10 Year US Treasury notes declined to 2.75%.

The Australian dollar hit 69.17 US cents down from the previous close of 70.24. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies rose to 98.09.

Asia

Chinese shares ended lower, extending early losses amid tensions between the US and China over US House Speaker Nancy Pelosi's planned visit to Taiwan. The benchmark Shanghai Composite Index slid 2.3% to 3186.27, after touching a two-month low earlier in the session. The Shenzhen Composite fell 2.9% to 2138.17 and the ChiNext Price Index slipped 2.0% to 2678.62. "Along with Covid-19 and delisting risks in China, a mood of caution still seems to linger around Chinese equities for now," IG market strategist Yeap Jun Rong said in a note. Energy stocks fell, weighed by weak economic data out of China. China Coal Energy dropped 2.5%, while PetroChina and China Oilfield Services each declined 1.9%.

Hong Kong's Hang Seng Index lost 2.4% to 19689.21, its lowest closing level since mid-May as geopolitical concerns swirl ahead of US House Speaker Nancy Pelosi's planned visit to Taiwan. Chinese officials have warned of unspecified countermeasures over the visit. Sentiment toward the real-estate sector remained downbeat amid expectations of weak July property sales, with Country Garden Holdings dropping 6.5% and Longfor Group ending 4.7% lower. Tech shares also retreated. Alibaba Group slid 2.8%, declining for a fifth straight session. Auto makers reversed the gains made in the previous session. Great Wall Motor fell 6.8%, XPeng gave up 5.9% and BYD Co. was 3.0% lower.

Japan’s Nikkei 225 declined to 1.4%.

Europe

European markets mostly fell ahead of a likely lower US open. The pan-European Stoxx Europe 600 dropped 0.3% and the French CAC 40 and German DAX retreated 0.2%.

"US earnings season has been better than feared, helping markets to rally and this may continue with a further barrage of updates Tuesday," IG analysts say in a note. "The host of earnings, including Starbucks, Uber, AMD and Caterpillar in the US more than offsets today's quiet macro-economic calendar."

London’s FTSE 100 closed down 0.06% on Tuesday, with European markets slipping back "as the rising uncertainty created by US House Speaker Nancy Pelosi's trip to Taiwan has served to keep markets on edge," Michael Hewson at CMC Markets said.

Taylor Wimpey was the day's biggest faller, closing 6.2% down, followed by Barratt Developments and Berkeley Group, down 5.6% and 5%, respectively. Meanwhile, Haleon was the day's biggest riser, closing up 4.3%, followed by BP and Standard Chartered which rose 2.8% and 2.6%, respectively. BP shares jumped after reporting 2Q results which beat analysts' expectations.

North America

US stocks fell on Tuesday as US House Speaker Nancy Pelosi's visit to Taiwan added to geopolitical tensions and Federal Reserve officials indicated that their fight against inflation was still going strong.

The Dow Jones Industrial Average dropped 402.23 points, or 1.2%, to 32396.17. The S&P 500 declined 27.44, or 0.7%, to 4091.19. The technology-heavy Nasdaq Composite slipped 20.22, or 0.2%, to 12348.76.

Mrs. Pelosi landed in Taiwan on Tuesday and was scheduled to meet later with Taiwanese officials, in the first visit by a House speaker to the democratically governed island since 1997. Beijing, which claims Taiwan as part of its territory, had warned Mrs. Pelosi not to go through with the trip. Chinese officials had threatened unspecified countermeasures should her visit proceed.

Asian stocks sold off. In China, the benchmark Shanghai Composite dropped 2.3%, while Hong Kong's Hang Seng Index fell 2.4%.

Mrs. Pelosi's visit came against a fragile backdrop for markets. The US economy is struggling with the twin threats of soaring inflation and rapidly rising interest rates -- part of the Fed's stated goal to fight rising prices even if it knocks economic growth.

Stocks have rebounded in recent weeks on hopes that the worst of inflation and rate rises could be over. But comments from Fed officials on Tuesday suggested that such enthusiasm might be premature.

San Francisco Fed President Mary Daly said in an interview with CNBC that the Fed was "nowhere near" done increasing interest rates. Separately, Chicago Fed President Charles Evans expressed hope that the US central bank could slow its pace of rate rises, but indicated that another 0.75-percentage-point hike in September "could also be OK."

"Even if you think the inflation dragon has been slain there is still a lot to worry about," said Altaf Kassam, head of investment strategy for Europe, the Middle East and Africa at State Street Global Advisors.

"There are still too many unknowns out there. Markets are going to be more volatile because of the more data-driven approach adopted by central banks, and valuations aren't so incredibly low that you'd say it is time to buy," he said.

Investors also were keeping a close eye on corporate earnings, which so far have largely performed better than feared.

Pinterest shares jumped $2.32, or 12%, to $22.31 after activist investor Elliott Management confirmed it was the social-media company's biggest investor and Pinterest's new chief executive said he would focus on profitability.

Uber rallied $4.65 per share, or 19%, to $29.25 after its revenue more than doubled, signaling the ride-hailing company's efforts to trim its losses were working.

Caterpillar tumbled $11.35 a share, or 5.8%, to $183.51, weighing on the Dow, after the equipment manufacturer's sales figures missed analysts' forecasts. JetBlue shares sank 55 cents, or 6.4%, to $8.04 after the airline reported a loss in the second quarter.

Government bond prices fell on Tuesday, sending yields higher, after jitters over Mrs. Pelosi's trip had earlier sent investors scurrying to assets considered havens. The yield on the benchmark 10-year US Treasury note rose to 2.740% after sinking to 2.605% on Monday, its lowest level since April. Bond yields and prices move in opposite directions.

Earlier, bond markets flashed a warning sign as the yield curve between three-month Treasury bills and 10-year Treasury notes briefly inverted for the first time since the start of the pandemic -- an indicator that the Fed says has the best record of predicting a recession. The difference in the yields declined to minus 0.001 percentage point on Tuesday before edging back into positive territory, according to Tradeweb.

While Mrs. Pelosi's arrival in Taiwan didn't immediately provoke any strong responses from Beijing, it fueled worries that the already strained US-China relationship could worsen, investors said.

An escalation of tensions could cause global investors to dump Chinese assets again just after many had been gradually warming to them following previous bouts of market turmoil, said Daryl Liew, head of portfolio management at REYL Singapore. "This geopolitical event is putting a huge dent on that," he said.