Asian markets fluctuate with rates set to go higher

Hopes the Fed will cut interest rates by the end of the year have been replaced by a realisation that they will likely go higher for longer than expected to fight inflation. ©AFP

Hong Kong (AFP) - Asian markets swung Tuesday, with traders trying to gauge the outlook for the US economy as they price in more interest rate hikes than previously feared.

With Wall Street closed Monday for Presidents' Day there were few catalysts for regional investors, with focus on the release later in the week of minutes from the Federal Reserve's most recent policy meeting.

After data this month showed the jobs market continues to boom and prices continue to rise well above the Fed's target, several Fed officials have lined up to warn borrowing costs will need to go much higher for longer.

Some have even suggested they were open to lifting rates 50 basis points next month, twice as much as expected by markets.

That has dealt a blow to hopes the central bank would stop hiking soon and even begin cutting rates before the end of the year, while the prospect of tighter policy has fanned fears of a recession.

Chuck Cumello, of Essex Financial Services, told Bloomberg Radio: "We're in for a more volatile ride and I think the market is finally waking up to rates are going to stay higher for longer."

In early trade, Asian markets were mixed.

Hong Kong dipped along with Tokyo, Sydney, Taipei, Manila and Wellington, while Shanghai, Seoul, Singapore, Jakarta and Bangkok edged up.

After enjoying a strong January, markets have stuttered this month as hopes for a rate cut subside, while SPI Asset Management's Stephen Innes said dealers were also still assessing China's reopening.

"Since the Chinese New Year holiday ended in late January, interest rates have been higher (and) the dollar has staged a modest rebound.As a result, regional equities have softened," he said in a commentary.

"Some of these moves reflect a hawkish repricing of Fed expectations based on more robust growth and inflation data.But regional weakness also appears to reflect scepticism about the likely strength of China's recovery, based on the recent underperformance of Chinese equities."

Oil prices were also mixed as worries about higher interest rates and a possible recession played off against hopes that China's reopening will fuel a surge in demand.