Markets take fresh hit on rate hike worries

Asian equities fell again Monday on growing expectations that US interest rates will go much higher and for longer than previously thought.

While inflation has been trending down for several months, data showing the jobs market remained very tight in January indicated the world's top economy was still robust.

The employment reading led a number of Federal Reserve officials to insist that there was still plenty of work to do before they were happy they had prices under control.

"These comments were particularly noteworthy given that they explicitly pushed back against the narrative of rate cuts by year end, which markets had started to assume would be coming fairly soon," said Michael Hewson at CMC Markets.

The release Tuesday of the January US consumer price index is in focus, with a stronger-than-forecast reading likely to further weigh on sentiment.

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"An upside surprise can move through risk assets like a wrecking ball after a slowdown in recent inflation readings has sparked a fresh bout of optimism among investors for a potential 'soft landing'," said SPI Asset Management's Stephen Innes.

Asian markets struggled after Wall Street endured its worst week in two months.

Hong Kong, Tokyo, Seoul, Singapore, Sydney, Taipei, Manila, Mumbai and Wellington were all in the red, although Shanghai, Jakarta and Bangkok saw gains.

"An inverted (government bond) yield curve, declining PMI surveys, and a rash of highly publicised corporate layoffs -- all traditional warning signs of a potential recession," Innes said.

"And when taken together, perhaps, even more than a warning signal suggesting it would not take much for the US economy and hence the market to fall off the cliff."

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Fears that rates will go even higher -- with some even predicting six percent from the current 4.50-4.75 percent -- are fanning concerns the Fed will tip the economy into recession.

Standard Chartered's Eric Robertsen said: "The more the (Fed policy board) is compelled to extend the rate-hiking cycle and postpone rate cuts, the more likely it is that the US will experience a hard landing, requiring more aggressive rate cuts later."

Concerns about the economic outlook weighed on oil prices, after both main contracts jumped more than two percent Friday in reaction to Russia's decision to slash output.

The move came after a Western price cap that was imposed on exports in retaliation for Moscow's invasion of Ukraine.

However, the commodity remains supported by optimism about China's growth outlook as it emerges from years of economically painful zero-Covid measures.

"In the short term, I suspect prices are going to remain fairly range-bound due to the first-quarter surplus," said Warren Patterson of ING Groep.

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"As we approach mid-year, we expect the market to tighten, which should push prices toward $100."

Key figures around 0700 GMT

Tokyo - Nikkei 225: DOWN 0.9 percent at 27,427.32 (close)

Hong Kong - Hang Seng Index: DOWN 0.6 percent at 21,069.59

Shanghai - Composite: UP 0.7 percent at 3,284.16 (close)

Euro/dollar: DOWN at $1.0672from $1.0684 on Friday

Pound/dollar: UP at $1.2056 from $1.2051

Euro/pound: DOWN at 88.53 pence from 88.56 pence

Dollar/yen: UP at 132.15 yen from 131.42 yen

West Texas Intermediate: DOWN 1.2 percent at $78.77 per barrel

Brent North Sea crude: DOWN 1.1 percent at $85.47 per barrel

New York - Dow: UP 0.5 percent at 33,869.27 (close)

London - FTSE 100: DOWN 0.4 percent at 7,882.45 (close)

Source: AFP