Asian markets mixed in nervous trade ahead of US inflation data

HONG KONG, China  -Asian equities were mixed Tuesday as investors geared up for the release of crucial US inflation data later in the day.

After a bright January, traders have endured a shaky couple of weeks as they contemplate the prospect of more Federal Reserve interest rate hikes aimed at cooling a still-robust US economy.

The main blow came from a blockbuster jobs report earlier in the month that led several central bank officials to insist they will keep tightening monetary policy until they have brought prices under control.

The consumer price index is forecast to have dipped to 6.2 percent last month from 6.5 percent in December, according to Bloomberg.

That is still well above the Fed’s target of two percent, and analysts said a higher read on the CPI could spark a hefty sell-off on markets, with traders already worried the United States could tip into recession.

“I would expect to see a little more apprehension, even anxiety, in the run-up to the release after the jobs report left investors on edge,” said OANDA’s Craig Erlam.

“In an ideal world, slack would be gradually appearing in the labour market as inflation steadily fell to two percent, allowing the Fed to take its foot off the (brake). As soon as one of these isn’t playing ball, the other has to up its game.

“A slight setback could be a major blow and leave at least two more hikes, maybe more, on the cards.”

Wall Street provided a healthy lead with all three main indexes ending more than one percent higher, but Asian traders struggled to maintain momentum after a strong start.

Tokyo rose along with Shanghai, Sydney, Seoul, Taipei, Mumbai and Jakarta.

Hong Kong was dragged down by another drop in Chinese tech firms, while there were also losses in Singapore, Manila and Bangkok.

Wellington was barely moved as traders tracked developments after New Zealand was pounded by a strong cyclone that forced the government to declare a national state of emergency.

London, Paris and Frankfurt all opened on the front foot.

Strategists at Morgan Stanley warned equities could suffer sharp losses this year, however.

“While the recent move higher in front-end rates is supportive of the notion that the Fed may remain restrictive for longer than appreciated, the equity market is refusing to accept this reality,” the group, led by Michael Wilson, wrote in a note.

They saw the S&P 500 suffering a rollercoaster ride before ending the year almost five percent below Friday’s close.

“The risk-reward is as poor as it’s been at any time during this bear market,” Wilson said. “The reality for equities is that monetary policy remains in restrictive territory in the context of an earnings recession that has now begun in earnest.”

The yen ticked up slightly against the dollar Tuesday as Japanese Prime Minister Fumio Kishida nominated respected economics professor Kazuo Ueda to take the helm at the Bank of Japan.

Ueda will be tasked with kickstarting the torpid economy while also facing pressure to join international peers in tightening monetary policy after years of ultra-loose measures.

The bank last year made small adjustments that allowed the yield of government bonds to move in a wider band, which sent the yen surging, though it has made no more changes since then.

The nomination came as data showed Japan’s gross domestic product expanded at a lower-than-expected 0.2 percent in the last quarter of 2022.

Saori N. Katada, an international relations professor at the University of Southern California, told AFP: “This is probably the hardest job at the worst time to take up. Professor Ueda is very brave to accept it.”

Japan’s easy-money policies have become “extreme… and no one knows how to get out of it”, as sudden policy pivots could “jeopardise fiscal sustainability”, she said