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Asian markets struggled again Friday and the dollar held gains as rate hike expectations grew, with traders now focusing on a key US jobs report later in the day.
Oil prices rose on fading expectations for an Iran nuclear deal anytime soon, but they remained under severe pressure from a range of issues including the strengthening dollar, Covid lockdowns in China, and worries about a demand-sapping recession.
Healthy readings on US factory activity, unemployment claims and private jobs creation indicated the world's top economy remained strong despite rising interest rates and four-decade-high inflation.
But analysts said the figures were a case of "good news in bad news" as they would give the US Federal Reserve more room to keep tightening monetary policy, with officials lining up to commit to beating inflation even if that causes a recession.
Bets are increasing on a third successive 75-basis-point increase at its September meeting.
OANDA's Edward Moya warned Fed officials could even start considering rising into 2023, with inflation data later this month becoming increasingly important.
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"If the economy remains resilient over the next few months, the Fed-funds futures market might believe the Fed won't be done tightening at the end of year," he wrote in a commentary.
"Markets might start pricing in a February rate hike as well, if pricing pressures don't show further signs of easing with the September 13th inflation report."
Wall Street ended with a late rally, with the Dow and S&P 500 snapping a four-day retreat, though the Nasdaq extended its losing streak. European markets fell again after record inflation figures ramped up expectations the European Central Bank will announce a big increase in costs next Thursday.
Asia continued to wobble, though there were some positives.
Tokyo, Hong Kong, Sydney, Wellington and Taipei fell, while Shanghai, Seoul, Manila and Jakarta edged up.
Meera Pandit at JPMorgan Asset Management said the near-term outlook was not positive.
"We don't have a lot of reasons to be bullish in this type of environment for the next couple of weeks and months," she told Bloomberg Television.
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With US rates expected to keep rising, the dollar has rallied to highs not seen for decades including against the pound and euro,
On Thursday, it broke 140 yen for the first time since 1998.
Expectations are that it could strengthen further as the Bank of Japan keeps rates ultra-low to kickstart the economy, while analysts said an intervention to prop up the yen was unlikely as the effects would be brief.
The rising greenback was adding to downward pressure on oil, which is priced in dollars, while demand hopes were dealt a hefty blow Thursday by news that China had effectively locked down around 20 million people in Chengdu to fight a Covid outbreak.
The closure of the tech manufacturing hub follows a similar shutdown of Shanghai, which sent shockwaves through the economy, and has battered hopes for a recovery in the world's number-two economy.
"Lockdowns/mass testing continues to impede stimulus efforts to revive the economy, with announced stimulus to date unlikely to gain much traction if the zero-Covid policy continues," said National Australia Bank's Tapas Strickland.
"Given Chengdu is also a production hub for high tech manufacturing," global supply chains will likely continue to be disrupted, he added.
Crude, which has lost all the gains made in the aftermath of Russia's February invasion of Ukraine, rose Friday after US officials said they had received a new response from Iran on reviving a nuclear deal but that it was not "constructive".
Key figures at around 0300 GMT
Tokyo - Nikkei 225: DOWN 0.2 percent at 27,604.37 (break)
Hong Kong - Hang Seng Index: DOWN 0.7 percent at 19,461.46
Shanghai - Composite: UP 0.1 percent at 3,186.68
Dollar/yen: DOWN at 140.12 yen from 140.20 yen on Thursday
Euro/dollar: UP at $0.9960 from $0.9947
Pound/dollar: UP at $1.1546 from $1.1542
Euro/pound: UP at 86.26 pence from 86.16 pence
West Texas Intermediate: UP 1.3 percent at $87.72 per barrel
Brent North Sea crude: UP 1.2 percent at $93.43 per barrel
New York - Dow: UP 0.5 percent at 31,656.42 (close)
London - FTSE 100: DOWN 1.9 percent at 7,148.50 (close)
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