By Amanda Cooper LONDON (Reuters) – Global shares rose on Monday despite Beijing’s refusal to consider easing its zero-tolerance policy on COVID-19, diverting investor flows away from the dollar ahead of potentially pivotal consumer inflation data this week. Risk assets rallied on Friday on speculation that China was preparing to ease pandemic restrictions, but over the weekend health officials reiterated their commitment to a “dynamic clearance” approach to COVID cases as soon as they appear. “We can question whether there is any truth to the China story, but the market is quite happy to give it credibility for now, despite the big denials,” said Jeremy Stretch, head of G10 currency strategy at CIBC Capital Markets. The dollar came under pressure for a second day as traders latched on to the idea that China could ease some of its restrictions after the government said on Monday it would make it easier for citizens to enter and leave the capital. The dollar fell against other major currencies, pushing the pound up 0.8% to $1.1457 and the euro up 0.2% to near parity at $0.9980. and Nasdaq futures edged higher, rising 0.2 percent and 0.3 percent, respectively. The biggest macroeconomic risk event this week will be the October US consumer price index (CPI), which could affect investors’ expectations about the likely path of the Federal Reserve’s monetary policy. Fed Chairman Jerome Powell last week played down speculation that the central bank could slow the pace of its rate hikes, saying rates would likely stay higher for longer. On Friday, the October jobs report showed much faster-than-expected job growth but slower wage growth and an increase in the unemployment rate, suggesting that labor market tightness may be easing. AVERAGE PREDICTIONS For Thursday, median forecasts are for annual inflation to slow to 8.0% and core inflation to ease to 6.5%. “If we can see a moderation in the core CPI, which I think might hint at that a little bit, but I think if we see that, it will encourage that correction to go a little further,” CIBC’s Stretch said. Speculation that China, the world’s biggest consumer of commodities, may open its economy rose 7% on Friday in its biggest one-day rally since 2009, while oil rose more than 4%.[MET/L] [O/R] Four Federal Reserve policymakers said on Friday they would consider a smaller rate hike at their next policy meeting, sounding less hawkish than Chairman Jerome Powell. There are at least seven Fed officials scheduled to speak this week, which should help improve the outlook for interest rates with markets now leaning narrowly toward a half-point rate hike next month to 4.25-4. 5%. “I don’t think the market will do much ahead of the US inflation data,” said Massimiliano Maxia, senior fixed income specialist at Allianz (ETR:) Global Investors. “Markets expect a (Fed) rate hike of 50 bps in December and 25 bps early next year, but are poised to change their view very quickly if consumer price numbers surprise to the upside,” he added. Two-year bond yields, the most sensitive to inflation and interest rate expectations, were last up 6 basis points on the day at 4.711%, from Friday’s 2007 peak. Also of note will be the US mid-term elections on Tuesday, where Republicans could win control of one or both houses of Congress and lead to a stalemate on fiscal policy. Meanwhile, oil retreated, surrendering some of last week’s gains. fell 0.7% to $97.96 a barrel, the same as $91.91 a barrel.
