Global shares cautiously higher with U.S. inflation in focus

NEW YORK: Global shares rose on Tuesday ahead of a key U.S. inflation report and speeches by Federal Reserve officials to gauge the outlook for interest rates in the world's largest economy.

European shares rallied throughout the morning, with the pan-European STOXX 600 up 0.5%, hovering near its highest in a year, while London's FTSE 100 hit new record highs. MSCI's All-World index, which has risen about 8% since the start of the year, gained 0.3% on the day.

Wall Street futures edged higher, with those for the Nasdaq 100 up 0.3%, while those on the S&P 500 gained 0.2%. Economists expect headline U.S. consumer price inflation to have risen by 6.2% in the year to January, versus a rise of 6.5% in December. Month-on-month, inflation is expected to have risen 0.5% from December.

"I'd be surprised if there is a surprise from those numbers," said Patrick Armstrong, chief investment officer at Plurimi Wealth. "Higher gasoline prices, higher used car prices are probably going to be the driver of the higher month-on-month, but the base effect should keep the number still looking good aesthetically. And I think that will give (Fed Chair Jerome) Powell the reason to keep up his slowing pace of hikes and getting towards the end of his hikes."

Analysts have said Tuesday's report could look more inflationary following annual changes to the methodology to give more weight to real estate. A number of regional Fed presidents, including Richmond's Thomas Barkin and Philadelphia's Patrick Harper, are set to deliver speeches later in the day.

Two-year Treasury note yields, which hit three-month highs on Monday as investors priced in the prospect of U.S. rates staying higher for longer, eased 3 basis points to 4.499%. Risk markets show investors are pricing in an end to central banks' interest rate rises even though some data points, including stellar U.S. job growth numbers, have started to temper these expectations.

This has sown the idea that the global economy will hold up better than previously expected in what will likely be a higher-for-longer interest rate environment. Traders now see U.S. rates peaking at 5.19% in July.

The dollar fell for a second day. Sterling put in a particularly strong performance against the U.S. currency, rising 0.5% to $1.2205, while the euro rose 0.2% to $1.0749. "On the one hand, methodological changes are causing uncertainty and are making the interpretation more difficult, on the other hand it is already emerging that due to adjusted seasonal factors current inflation momentum seems to have fallen less than had originally been expected," said Esther Reichelt, FX analyst at Commerzbank.

"The main uncertainty for the USD outlook seems to be to what extent the Fed itself was surprised by the current data or whether the recent data is still in line with the 'bumpy' ride of disinflation expected by the Fed." The dollar eased 0.2% against the Japanese yen to 132.165 yen, after gaining 0.8% the previous day.

On Tuesday, the Japanese government named academic Kazuo Ueda as its pick for central bank governor, a surprise choice that could expedite an end to its yield-control policy. In the oil market, Brent crude futures fell 1% to $85.71 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped 1.5% to $78.96.

Gold rose 0.2%, drawing strength from a touch of weakness in the dollar, to trade at $1,857.84 an ounce.