Asia: Markets pick up but traders worry over looming rate hikes

ASIAN markets bounced on Tuesday on bargain-buying after suffering a series of losses over fears the Federal Reserve will push interest rates higher than expected and for longer than feared as it battles stubborn inflation.

The gains tracked advances on Wall Street, though investors will be keeping a wary eye on several data releases this week that will provide a fresh snapshot of the US economy.

Recent figures showing a robust jobs market and inflation not coming down as quickly as hoped have spooked traders this month as they bet on more Fed rate hikes, wiping out most of January’s equities rally.

“It’s becoming increasingly clear to the market that the Federal Reserve is not yet finished with rate hikes,” Seema Shah, at Principal Asset Management, said.

“Relentless monetary tightening will eventually weigh on both the economy and earnings – a headwind that will, inevitably, renew and extend the equity market drawdown.”

In early trade, Shanghai, Tokyo, Sydney, Seoul, Singapore, Wellington, Manila and Jakarta were all well in the green.

Hong Kong was given an extra boost from news that the government will drop a long-running mask requirement from Wednesday, removing the last of its Covid rules that have dealt a severe blow to the city’s economy.

Some commentators said that with more Fed hikes now priced into valuations, equities could see a period of gains.

“Investors are debating whether January’s inflation reflation was just another temporary bump in the road as the economy adjusts to a post-pandemic world,” SPI Asset Management’s Stephen Innes said.

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“Indeed one look at Brent oil prices struggling to hold on to the US$82 handle doesn’t precisely reignite worrisome inflationary fires.

On currency markets the pound held on to Monday’s gains that came on the back of an agreement between Britain and the European Union on an overhaul of trade rules in Northern Ireland.

Crude prices struggled to rebound from losses sparked by concerns over the impact on demand from the Fed’s rate hike campaign Edward Moya at Oanda said prices had been initially helped by “the halting of a Russian pipeline to Poland, but that was unable to help shake off demand worries”.

“Oil seems like it will stay heavy as both tensions between the (United States and China) and recession worries grow.”

He added that West Texas Intermediate should be supported around US$70 but could pick up on signs of improving demand. AFP