World shares singed by stubborn inflation and slow China growth

World shares struggled to gain ground on Monday as fading chances for early interest rate cuts globally soured the mood and Chinese markets returned from holiday with only muted gains. Reuters reported

A holiday for U.S. markets made for thin trading, while the latest surge in tech stocks is set to be tested by results from AI star Nvidia (NVDA.O), opens new tab on Wednesday. MSCI’s broadest index of world shares (MIWD00000PUS), opens new tab and Europe’s broader index of stocks (STOXX), opens new tab both lay flat around 1035 GMT.
“The mixed economic data released lately has put us in a transition period and we are waiting for the data to tell a consistent story,” said James Rossiter, head of global macro strategy at TD Securities.
A red-hot U.S. CPI print on Tuesday followed by another upside surprise in producer prices on Friday gave investors concern on persistent inflation, augmented by a weaker retail sales report, suggesting slower economic momentum. However, U.S. labour market numbers have continued to show jobs churning out at a strong clip and elevated wage growth.
In Asia, Japan’s Nikkei (.N225), opens new tab ended flat on Monday, pressured by chip-related shares following a slump in their U.S. counterparts late last week. Chinese blue chips (.CSI300), opens new tab finished up just over 1%, enjoying tourism revenues during the Lunar New Year holiday which surged by 47% on a year earlier as more than 61 million rail trips were taken.
The country’s central bank skipped a chance to cut rates again on Sunday, which will likely limit downward pressure on the yuan, but with deflation looming analysts see plenty of scope for further policy stimulus.
The same cannot be said for the United States as high readings on producer and consumer prices saw markets sharply scale back pricing for rate cuts.
Bruce Kasman, global head of economics at JPMorgan, warned the Federal Reserve’s favoured measure of core personal consumption inflation could now jump by 0.5% in January. Only a week ago, markets were hoping for a rise of just 0.2%.
“While it is premature to place significant weight on noisy January data, risks have shifted in the direction that core inflation and labour market conditions both surprise the Fed in a hawkish direction in the first half of 2024,” Kasman wrote in a note. Futures dropped, implying a 28% chance rates will be cut in May.
HANGING ON NVIDIA: The surprise on inflation means the minutes of the Fed’s last policy meeting out this week will now look dated, but any talk about the timing of potential cuts will be noted. There are plenty of Fed speakers out this week to comment on the outlook, with Fed Vice Chair Philip Jefferson and Governor Christopher Waller of particular interest.
The market sea change on rates saw two-year Treasury yields spike to a new 2024 high of 4.72% on Friday before steadying at 4.65%. Treasury futures were little changed on Monday with the cash market closed. S&P 500 futures were flat, while Nasdaq futures added 0.22% helped by hopes Nvidia could somehow beat already stratospheric expectations.
The chipmaker’s stock has surged 46% so far this year and accounted for more than a quarter of the S&P 500’s gains. There is reason for optimism given that of the 80% of S&P 500 reporting so far, 75% have beaten forecasts. Higher bond yields were underpinning the dollar at 149.95 yen , though the threat of Bank of Japan intervention to prop up the yen has so far capped the currency pair at 150.88.
The dollar index was a touch firmer, while the euro was steady on the day at around $1.0774. The rise in yields took no shine off of non-yielding gold, which rose 0.3% to around $2,018 an ounce <XAU=>. Oil prices were softer as concerns about demand tussled with the threat of supply disruptions in the Middle East. Brent slipped 76 cents to $82.71 a barrel, while U.S. crude for April fell 51 cents to $78.91 per barrel.

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