World shares flattened by stubborn inflation and slow China growth

World shares struggled to climb on Monday after the chances of early interest rate cuts globally receded and Chinese markets recorded modest gains on their return from the lunar New Year break. A holiday for U.S. markets made for thin trading, and results from AI star Nvidia on Wednesday could challenge the latest surge in tech stocks. MSCI's broadest index of world shares and Europe's broader index of stocks both traded around 0.05 per cent as of 13:53 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," James Rossiter, head of global macro strategy at TD Securities, said. A red-hot U.S. CPI print on Tuesday followed by another upside surprise in producer prices on Friday left investors anxious inflation will persist. A weaker retail sales report, suggesting slower economic momentum augmented their concerns.

However, U.S. labour market numbers have continued to show plentiful jobs and elevated wage growth. In Asia, Japan's Nikkei ended flat on Monday, pressured by chip-related shares following a slump in their U.S. counterparts late last week. Chinese blue chips opens new tab finished up just over 1 per cent after tourism revenues during the Lunar New Year holiday surged by 47 per cent compared with a year earlier as more than 61 million rail trips were taken.

The country's central bank skipped another chance to cut rates on Sunday, limiting downward pressure on the yuan, but as deflation looms, analysts see scope for further policy stimulus. The same cannot be said for the United States as high readings on producer and consumer prices led markets to scale back pricing for rate cuts. "The risk to the rally is a stronger pick-up in inflation leading to higher yields," said Alain Bokobza head of global asset allocation in a Societe Generale note.

Non-recessionary rate cuts pushing up yields and a slowing of Nasdaq growth might drive volatility, which the note said was likely in the second half of this year. Futures dropped, implying a 28 per cent chance rates will be cut in May.

HANGING ON NVIDIA

The surprise on inflation means the minutes of the Fed's last policy meeting this week will 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 2024 high of 4.72 per cent on Friday before steadying at 4.64 per cent. Treasury futures were little changed on Monday with the cash market closed. S&P 500 futures ticked up by 0.1 per cent, while Nasdaq futures added 0.21 per cent, helped by hopes Nvidia could somehow beat already stratospheric expectations.

The chipmaker's stock has surged 46 per cent 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 per cent of S&P 500 reporting so far, 75 per cent have beaten forecasts. Higher bond yields underpinned the dollar at 149.99 yen, though the possibility 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 tipped lower on the day at around $1.0770. The rise in yields did not prevent non-yielding gold from firming 0.2 per cent to around $2,015 an ounce. Oil prices eased as doubts about demand tussled with the threat of supply disruptions in the Middle East. Brent slipped 12 cents to $83.35 a barrel, while U.S. crude for April rose 11 cents to $79.30 per barrel.