Global stocks steady at start of busy week, China skips rate cut

Global stocks held broadly steady on Monday, as U.S. markets closed for a holiday, and Chinese equities fell slightly after the country’s central bank unnerved investors by skipping an expected rate cut.

MSCI’s world stock index was slightly lower in European trading. It has fallen around 0.35% so far this year after rallying 20% in 2023.

China’s CSI 300 index fell to its lowest since 2019 but finished 0.1% lower as investors digested the central bank’s decision to leave its medium-term policy rate unchanged on Monday, defying expectations for a cut.

Despite Monday’s sleepy start, investors are set for a busy week with data on Chinese fourth-quarter growth, UK inflation, and U.S. retail sales all due on Wednesday.

They will also be listening closely to central bank officials, especially the Federal Reserve’s Christopher Waller, whose dovish turn in late November helped to send markets soaring and who speaks on Tuesday.

Europe’s STOXX 600 index was down 0.3% on Monday as a rise in euro zone bond yields dented the appeal of stocks. It ended the previous week virtually unchanged.

Britain’s FTSE 100 was 0.2% lower and Germany’s DAX was off by 0.3%.

Traders expect around 165 basis points of rate cuts from the Fed this year, and see an 80% chance of them starting in March, according to money market pricing.

“The first half of January has shown a dislocation between rate expectations and data in the U.S.,” said Francesco Pesole, currency strategist at ING.

“The two most important data points for the Federal Reserve, labour and CPI inflation figures, both came in hotter than expected.” Pesole said “strong words from the Fed” might be needed to restrain some of the heavy rate-cut bets.

Futures for the S&P 500 were down 0.1%, with U.S. markets shut for Martin Luther King, Jr. Day, meaning Treasury trading was closed.

Germany’s benchmark 10-year bond yield rose about 6 basis points to 2.2% after the European Central Bank’s chief economist said cutting rates too fast may be self-defeating.

Japanese stocks continued to shine, with the Nikkei 225 index hitting a new 34-year high above 36,000. The market has been buoyed by falls in the yen and U.S. bond yields in recent days.

The focus of world leaders and executives gathering for the 54th World Economic Forum meeting this week in Davos, Switzerland, will be global politics.

However, markets showed a limited reaction to the victory of the ruling Democratic Progressive Party in Taiwan over the weekend, a result which displeased Beijing.

The U.S. Republican Iowa caucus will be run in frigid weather later on Monday. At the same time concern is running high of a broadening of the Middle East conflict.

The euro was treading water at $1.095, while the dollar index held steady at around 102.5.

Oil prices has drawn support from disruptions to shipping in the Red Sea, though doubts about demand this year have limited the rally [O/R].

Brent crude oil was last down 1% at $77.54 a barrel, down from a two-week high of $80.75 on Friday.