The Dallas Fed Manufacturing Index contracted at a slower pace in July. Business activity improved from -17.5 to -2 in July. Across the sub indices new orders, production and employment all recorded healthy gains.

US congressional leaders are still unable to reach an agreement to prevent the government defaulting on its debt payments. Democrats and Republicans are now pushing for separate budget proposals in Congress.

European shares fell on Monday for the first time in five sessions. Banking stocks led the declines on ongoing concerns about European sovereign debt. Moody´s cut Greece´s credit rating further into junk status and said it was almost certain to confirm that the new EU rescue package would still classify as a debt default. The STOXX Europe 600 Banking Index fell 2.8pct The FTSEurofirst index fell by 0.4pct while the German Dax rose 0.3pct and the UK FTSE fell by 0.2pct.

US sharemarkets fell in light volumes on Monday. Investors remained cautious after policymakers failed to reach an agreement on raising the US debt ceiling. The VIX or ´´fear gauge´´ jumped 10.5pct. Strong earnings reports continued to offset the weakness. According to Thomson Reuters of the 154 S&P500 companies reported so far 75 per cent have beaten expectations. The Dow Jones fell by 88pts or 0.7pct with the S&P 500 down by 0.6pct and the Nasdaq lower 16pts or 0.6pct.

US treasuries fell on Monday (yields higher) as investors sold US debt following the breakdown of bipartisan talks to raise the debt ceiling. US 2yr yields rose by 1pt to 0.408pct and US 10yr yields rose by 3pts to 3.003pct.

The US dollar weakened against major currencies on Monday after US political leaders failed to reach a deal on raising the US debt ceiling. The Euro hit early highs near US$1.4405 before falling to lows near US$1.4325, ending the US session at US$1.4370. The Aussie dollar rose from US107.90c to US108.75c, ending US trade near US108.45c. And the Japanese yen strengthened from 78.50 yen per US dollar to JPY78.05, before ending US trade near JPY78.30.

Benchmark crude oil prices fell on Monday as investors remained wary of risky assets following the lack of agreement on raising the US debt ceiling. Nymex crude oil fell by US67c or 0.7pct to US$99.20 a barrel and London Brent crude fell by US73c to US$117.94 a barrel.

Base metal prices were mostly weaker on the London Metal Exchange on Monday, with the exception of Aluminium which rose 1.2pct. Other metals fell between 0.2-1.1pct. And the gold price rose again on Monday to near record highs on continued inaction on the US debt ceiling. Comex gold rose by US$10.70 an ounce to US$1,612.20.

Ahead: In Australia, no economic data is released. Reserve Bank Governor Stevens delivers a speech. In the US, home prices, new home sales and the Richmond Fed index are released.