Asian markets mostly fall 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Hopes the Fed will cut interest rates by the end of the year have been replaced by a realisation that they will likely go higher for longer than expected to fight inflation.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 lower Tuesday, with traders trying to gauge the outlook for the US economy as they price in more interest rate hikes than previously predicted.

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 than was previously expected.

Some have even suggested they were open to lifting rates by 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.The prospect of tighter policy has also 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 (the idea that) rates are going to stay higher for longer."

Hong Kong led losses, shedding more than one percent, while Tokyo, Sydney, Singapore, Jakarta, Bangkok and Wellington were also down.

Shanghai, Seoul, Taipei and Manila edged up and Mumbai was flat.

After enjoying a strong January, markets stuttered this month as hopes for a rate cut subsided.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.