Scoreboard: Yellen caution

The US Federal Reserve chair, Janet Yellen, has referred to stretched valuations for smaller stocks in social media and biotechnology sectors. Yellen also noted that the economy still needs support: "Although the economy continues to improve, the recovery is not yet complete." Yellen continued to highlight the considerable slack in the job market.

In US economic data, retail sales rose by 0.2 per cent in June, short of forecasts for a 0.6 per cent gain while sales excluding autos rose by 0.4 per cent. Import prices rose 0.1 per cent in June but export prices fell by 0.4 per cent.

European shares fell on Tuesday with investors concerned that German's key ZEW survey of investor sentiment fell for a seventh straight month. The FTSEurofirst 300 index eased by 0.4 per cent with the German Dax down by 0.7 per cent while the UK FTSE fell 0.5 per cent. Australia's major miners were flat in London trade with shares in BHP Billiton down by 0.1 per cent while Rio Tinto rose by 0.1 per cent.

US sharemarkets were mixed on Monday. While the blue chip Dow Jones index was flat, the technology-heavy Nasdaq fell in response to Janet Yellen's comments. The Dow Jones index rose by 5 points or less than 0.1 per cent with the S&P 500 index lower by 0.2 per cent while the Nasdaq lost 24 points or 0.5 per cent. Shares in Intel rose 2 per cent after the bell on a solid earnings result.  

US treasury prices were little changed on Tuesday as investors weighed testimony by Janet Yellen and soft economic data. US 2-year yields were up 1 point to 0.48 per cent while US 10-year yields were flat near 2.556 per cent.

Major currencies were softer against the US dollar in the European and US sessions on Tuesday. The euro held between $US1.3560 and $US1.3625, closing US trade near $US1.3565. The Aussie dollar eased from highs near US93.95c to lows near US93.45c before ending the US session near US93.70c. And the Japanese yen eased from 101.46 yen per US dollar to JPY101.72, ending US trade near JPY101.68.

World oil prices fell on Tuesday in response to softer German and US economic data and a firmer greenback. Brent crude fell by US96c or 0.9 per cent to $US106.02 a barrel and the US Nymex price fell by US95c a barrel or 0.9 per cent to $US99.96 a barrel. 

Base metal prices were reasonably steady on Tuesday with gains or losses not exceeding 1 per cent. Zinc was down 0.5 per cent while lead and nickel also eased but aluminium rose by 1 per cent. Gold prices fell in response to a firmer greenback. The Comex gold futures quote fell by $US9.60 or 0.7 per cent to $US1,297.10 per ounce. Iron ore was up US10c a tonne to $US98.00 a tonne on Tuesday.

Ahead: Data on dwelling starts is released. In China, economic growth (GDP) data is released with June monthly data. In the US, the Federal Reserve chair, Janet Yellen, delivers the second day of testimony to Congress. Producer prices and industrial production figures are released.

Craig James is chief economist at Commsec.