World share prices and bond yields edged lower on Monday as investors digested a lower-than-expected growth target from China and the focus turned to testimony from Federal Reserve Chairman Jerome Powell and U.S. jobs data this week.
China set this year's growth target at around 5%, at the low end of expectations and below last year's target of around 5.5%.
European stocks dropped after an initial rise, with the pan-European STOXX 600 index down 0.2% by 1227 GMT, while S&P 500 futures also inched lower.
Government bonds rallied, with the yield on 10-year Treasuries, which moves inversely to its price, down 4 basis points to 3.92%, after last week's spike above 4%.
Oil prices also dropped by more than 1%, another reflection of disappointment with China's growth target.
Kristoffer Kjær Lomholt, head of FX, corporate research and chief analyst at Danske Bank, said Monday's market sentiment "is dominated by the modest, revised growth target in China highlighting a diminished likelihood of more stimulus,"
"The announcement may disappoint some investors, but on the other hand, it could ease some fears of a strong inflationary impact from China," Lomholt added.
Still, the recent run of data, which has significantly reduced expectations of a recession, has been strong enough to keep investors relatively optimistic.
The STOXX index was still near its highest since February 2022 and MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5%.
Focus was firmly on central banks, ahead of a key speech by Fed Chairman Powell and policy decisions this week from Japan, Australia and Canada.
Markets have become resigned to a higher peak interest rate from the Fed, but are hoping it will stick with quarter-point increases, rather than half-point hikes.
San Francisco Fed President Mary Daly on Saturday reiterated rates may have to go up, but set a high bar for moving back to half-point increases.
The stage is set for Powell's testimony to Congress on Tuesday and Wednesday, where he will no doubt be quizzed on whether larger hikes are needed.
Much, however, might depend on what the February U.S. payrolls report reveals on Friday. Forecasts are centred on a more modest increase of 200,000 after January's 517,000 jump led markets to reprice their interest rate expectations, but risks are on the upside.
That will be followed by the February inflation report on March 14.
"Powell's testimony comes before the payrolls and inflation numbers, therefore, he is likely to avoid committing to a policy path," said Jan Nevruzi, an analyst at NatWest Markets.
"Payrolls are due on the final day when Fed officials can publicly discuss monetary policy, but CPI will be released during the blackout period," he added. "If we end up in a situation where the jobs and inflation numbers present a conflicting view, the outcome of the Fed meeting could become even harder to predict."
The dollar index, which measures the performance of the U.S. currency against six others, was in wait-and-see mode, last flat at at 104.63, while the euro held at $1.0640 , just off a recent seven-week low.
CENTRAL BANK FLURRY
The Fed is hardly alone in warning of further tightening.
In an interview released over the weekend, European Central Bank President Christine Lagarde said it was "very likely" it would raise interest rates by 50 basis points this month and the bank had more work to do on inflation.
In contrast, decisions after March must be based on data, governing council member and Portuguese central bank Governor Mario Centeno said, stressing the importance of taking into account the economic forecasts the bank will release in March.
This week, Australia's central bank is expected to lift its rates by 25 basis points on Tuesday, while the Bank of Canada is seen pausing having raised rates at a record pace of 425 basis points in 10 months.
Then, Friday marks the final policy meeting for Bank of Japan (BOJ) Governor Haruhiko Kuroda before Kazuo Ueda takes the reins in April, and all eyes are on the fate of its yield curve control tool.
The BOJ jolted markets in December when it unexpectedly widened the allowed trading band for 10-year bond yields to between -50 and +50 basis points.
So far, Ueda has sounded dovish on the outlook for policy which has kept the yen on a softer trend. The yen started the week down 0.2% after touching a three-week low of 137.10 last week.
Gold was last down 0.2% at $1,850 an ounce but still traded above last week's lows, benefiting from a pullback in bond yields.
(Reporting by Yoruk Bahceli and Wayne Cole; Editing by Shri Navaratnam, Shounak Dasgupta and Alexander Smith)