strong services sector data raised expectations federal reserve push rates percent nex

Asian and European markets tumble as Fed worries offset Covid easing in China

Most Asian and European markets fell on Tuesday and the dollar rose as fresh fears that the US Federal Reserve will push interest rates higher than hoped overshadowed growing optimism about China’s economic reopening.

After a strong start to the week in Asia, traders recorded a sharp decline on Wall Street, which came on the heels of data showing a jump in activity in the US services sector last month.

The news – combined with bigger-than-expected print on Friday about November’s jobs and wage hikes – dented optimism that the Fed’s monetary-tightening campaign is finally paying off, which would give her room to take a less aggressive approach in the new year.

Markets had risen ahead of the jobs numbers after a surprise drop in inflation and comments from Fed Chief Jerome Powell that the bank was likely to raise rates at a slower pace.

“The extraordinary news from the vast services-based US economy is devastating for market participants eager to see evidence of US economic disintegration,” said Stephen Innes of SPI Asset Management.

“In the wake of Friday’s jobs report, which indicated that rumors of the US economic crisis were greatly exaggerated, the market immediately moved into a ‘good news is bad’ mode, which saw investors stomping the field of accommodating pins.”

Bets have risen that borrowing costs will rise 5% next year – from the current 3.75 to 4.0% – before the bank shuts down, with no cuts until 2024.

All three major Wall Street indexes lost more than 1% and Asia has struggled to maintain its recent momentum.

Hong Kong fell after rising about 15% in the past week as China eased strict Covid containment measures.

Also in red are Sydney, Seoul, Singapore, Wellington, Mumbai, Bangkok, Taipei and Jakarta.

Shanghai just moved up while Tokyo went up. Manila grew more than three percent as banks were buoyed by a rise in inflation that beat forecasts which raised expectations of a rise in interest rates.

London, Paris and Frankfurt have all slipped into the open.

The dollar extended most of Monday’s gains after the release of services data. The Australian dollar was among the biggest losers after the country’s central bank raised interest rates to a decade high, but less than expected.

The mood in Asia remains broadly positive amid the prospect of China rolling back some of the tough measures that have been in place for nearly three years and have hammered the gigantic economy.

But analysts said the country likely won’t see a complete end to its zero-Covid policy for several months.

Oil prices rose on Tuesday, after falling heavily in the previous two days, on expectations that a reopening will boost demand at the world’s largest commodity importer.

Key figures around 0820 GMT

Tokyo – Nikkei 225: +0.2% to 27,885.87 (closed)

Hong Kong – Hang Seng Index: DOWN 0.4% to 19,441.18 (close)

Shanghai – Composite: PLATE at 3,212.53 (closed)

London – FTSE 100: DOWN 0.1% to 7,562.19

Euro/dollar: DOWN to $1.0490 from $1.0495 on Monday

Dollar/yen: up to 136.90 yen from 136.78 yen

Pound/Dollar: US to $1.2200 from $1.2186

Euro/Pound: DOWN to 85.99 pence from 86.06 pence

West Texas Intermediate: +0.8% to $77.53 a barrel

Brent crude oil from the North Sea: +0.9% to 83.44 dollars a barrel

New York – Dow: DOWN 1.4% to 33,947.10 (close)