Global shares eased on Tuesday as investors took profit on the gains from the past two weeks after comments from two Federal Reserve officials injected a note of caution over the U.S. rate outlook, knocking equities, commodities and other risk assets.
The MSCI All-World index (.MIWD00000PUS) eased 0.1%, but remained in sight of Monday's three-week high, while the dollar - a gauge of investor risk appetite - held steady against a basket of major currencies.
In the past six weeks, even as cases have surged around the country, China has dismantled its zero-COVID policy, which has given markets a bumpy ride as investors have weighed up the economic benefits of reopening against the impact to activity from the wave of infections.
Adding to that has been a sense of optimism that inflation has peaked, especially in the United States, and, as such, the Fed will not have to raise rates as much as many had feared.
"The market is trying to get one step ahead of the Fed, but it’s not actually listening to what it's saying. And the Fed is being quite clear with its message - that rates are going to push higher and they’re going to stay higher for longer," CityIndex strategist Fiona Cincotta said.
"If we look at expectations of inflation later this week - the big focus – core inflation is still expected to remain high. It doesn't matter which way you look at it. It's still higher than the target the Fed is aiming for," she said.
Consumer price data, which is due on Thursday, is expected to show headline inflation slowed to 6.5% in December from 7.1% in November.
The data could be key to setting expectations for what happens with rates at the Fed's next policy meeting and beyond.
San Francisco Fed President Mary Daly told the Wall Street Journal she would pay close attention to Thursday's data and both 25- and 50-basis point hikes were options for her. Atlanta Fed President Raphael Bostic said his "base case" was for no rate cuts this year or next.
"The main theme overnight was cautiousness in the equity space as stocks pared gains after hawkish comments from two Fed officials. Raphael Bostic and Mary Daly said the Fed would likely hike (interest) rates to above 5% and hold them there for some time," Commerzbank said in a note.
