Shares are on the rise ahead of the US inflation test

MILAN, Jan 12 (Reuters) – World shares held on to modest gains on Thursday on cautious optimism that U.S. data will confirm that inflation is softening, while the yen rose on a report Japan will this month review the side effects of its ultra-light. Policy.

An MSCI gauge of world shares (.MIWD00000PUS) rose 0.2% to a four-week high by 0831 GMT ahead of U.S. core price inflation (USCPFY=ECI) which is expected to have eased to an annual 5.7% in December from 6% a month earlier. Overall inflation from month to month is zero (USCPI=ECI).

Bonds rallied, also reflecting hopes of softer inflationary pressures, and the US dollar was near a seven-month low against a basket of currencies. Europe’s STOXX 600 (.STOXX) stock benchmark rose 0.4% to its highest since April 2022.

The data due at 1330 GMT is set to have a major impact on markets by shaping expectations for the speed of rate hikes in the world’s largest economy. Markets have priced in better-than-even odds that the Federal Reserve will raise interest rates by 25 basis points, rather than 50, at its February meeting.

“Both the worst and best days for the S&P 500 in 2022 came on days with a CPI release. As such, it is inevitable that today’s US CPI has the ability to shape the next month,” wrote Deutsche Bank strategist Jim Reid.

“Recent releases have seen two downside surprises on the CPI in a row for the first time since the pandemic, raising hopes that the Fed may achieve a soft landing after all,” he added.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.1% after climbing to a seven-month high, while Japan’s Nikkei (.N225) was flat.

S&P 500 futures were largely flat after gains for Wall Street indexes on Wednesday. Boston Federal Reserve Bank President Susan Collins told the New York Times that she was leaning toward a 25 basis point hike.

Optimism for a more benign interest rate outlook and an increase in demand as China emerges from strict COVID restrictions kept oil prices near one-week highs.

Brent crude futures topped $83 on Thursday before retreating slightly to trade flat on the day at $82.67 a barrel.

US Treasuries contributed slightly to Wednesday’s gains, sending benchmark 10-year yields down 4.4 basis points (bps) to 3.514%. The German 10-year yield, the benchmark for the eurozone, fell 7 bps to 3.509%.

CHINA HOPE

Along with hopes that Western central banks will be more lenient, investors are also betting on a recovery in China to help global growth, and eyeing a potential policy shift in Japan.

The Bank of Japan stunned markets last month by widening the band around its 10-year bond yield target, a move that triggered a sudden rise in yields and a jump in the yen.

On Thursday. Japan’s Yomiuri newspaper reported that the BOJ will review the side effects of Japan’s ultra-easy settings sooner than expected – at next week’s policy meetings – and that it may take further steps to correct distortions in the yield curve.

The yen rose as much as 0.9% and was last at 131.75 per dollar. Ten-year Japanese government bond futures fell to near eight-year lows.

Currency markets elsewhere held their breath ahead of US CPI data while China’s reopening kept a bid under Asia’s currencies. The dollar index rose 0.1% to 103.23, not far from a seven-month low of 102.93 this week. The yuan was trading near five-month highs of 6.7555 per dollar.

China on Thursday reported a fall in consumer prices in December and a larger-than-expected fall in factory prices – underscoring weak demand – which investors are betting will recover in the coming months.

“It’s not enough for China to come out of COVID to really turn the whole world economy around,” said Steven Wieting, investment strategist and chief economist at Citi Global Wealth Investments. “But it actually weighs in the opposite direction.”

Reporting by Danilo Masoni in Milan and Tom Westbrook in Singapore

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