Investors fear a higher-than-forecast inflation reading could spark another market sell-off

Hong Kong (AFP) - Most markets rose Tuesday but investors moved cautiously ahead of US inflation data later in the week, after a jobs report suggested the Federal Reserve would likely need to continue its sharp interest rate hikes to tame runaway prices.

A rally across global markets from June lows appeared to have hit the buffers after Friday’s forecast-busting employment reading showed the world’s top economy remained resilient but meant more monetary tightening was on the cards.

There had been a hope that recent weak data – including one showing the economy contracted for two straight quarters – would allow the bank to take its foot off the pedal in lifting borrowing costs, and possibly begin cutting in 2023.

Now, investors are on edge ahead of Wednesday’s figures, with some observers warning that an above-estimate reading on inflation, which is already at a four-decade high, could spur another sharp market sell-off.

There is a growing expectation that central bank interest rate hikes will go too far and tip the global economy into recession.

Saira Malik, at investment manager Nuveen, told Bloomberg Television the losses could kick in when investors realise “the Fed is not going to pivot on interest-rate hikes in early 2023, inflation should remain pretty persistent and rate hikes should continue”.

Wall Street provided a glum lead as tech firms took a hit following a disappointing earnings report from chip giant Nvidia caused by lower-than-expected gaming income, which was seen as a warning that the end of the downturn was still some way off.

“While it’s tempting to buy into the narrative that we’ve seen the lows of the year, none of the price action thus far serves to support that conclusion,” said CMC Markets analyst Michael Hewson.

“Nvidia’s profit warning merely serves to underline the challenges facing, not only the tech sector, but the wider global economy.”

Asian equities fluctuated in the morning but improved as the day progressed.

Shanghai, Sydney, Seoul, Wellington, Taipei, Bangkok, Jakarta and Manila were in positive territory but Tokyo fell.

Hong Kong reversed a morning rally led by developers after the government denied claims it was considering removing an extra stamp duty for mainland Chinese buying property in the city.

London was slightly higher in the morning, though Paris and Frankfurt edged down.

Oil prices fell and remain around six-month lows as recession fears mount and traders fret over the impact on demand. They are also keeping tabs on Iran nuclear talks after the European Union submitted a “final text” at negotiations to salvage a 2015 deal.

An agreement could open the way for Tehran to resume sales of crude on international markets, partly helping to plug a hole left by the ban on Russian exports following the invasion of Ukraine.

However, OANDA’s Edward Moya said that “it seems unlikely a breakthrough will happen anytime soon. Tehran seems like they are willing to negotiate, but an imminent decision to agree to the EU’s proposal seems unlikely”.

- Key figures at around 0810 GMT -

Tokyo - Nikkei 225: DOWN 0.9 percent at 27,999.96 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 20,003.44 (close)

Shanghai - Composite: UP 0.3 percent at 3,247.43 (close)

London - FTSE 100: UP 0.1 percent at 7,486.01

Euro/dollar: UP at $1.0209 from $1.0194 Monday

Pound/dollar: UP at $1.2083 from $1.2079

Euro/pound: UP at 84.49 pence from 84.35 pence

Dollar/yen: DOWN at 134.94 yen from 134.98 yen

West Texas Intermediate: DOWN 0.8 percent at $90.01 per barrel

Brent North Sea crude: DOWN 0.8 percent at $95.93 per barrel

New York - Dow: UP 0.1 percent at 32,832.54 (close)