Asian markets were mixed Tuesday as concerns about the impact of surging oil prices on inflation offset data indicating a slowing US economy that could allow the Federal Reserve to slow its interest rate hikes.
Crude held on to Monday’s surge of more than six percent that came after top producers announced a surprise output cut, providing a fresh headache to central bankers as they battle inflation.
Regional investors were given a positive lead from Wall Street, where the S&P 500 and Dow chalked up healthy gains after a closely watched gauge of US factory activity from the Institute for Supply Management (ISM) missed forecasts and showed a fifth consecutive month of contraction.
Analysts said the figures suggested the world’s top economy was showing signs of slowing down and could give the Fed room to ease up on its rate hiking cycle.
Eyes are now on US jobs data due Friday will provide the latest snapshot of the economy and the effects of monetary tightening.
Last month’s turmoil in the banking sector had increased bets that monetary policymakers would pause their tightening early, while news Friday that US inflation — as judged by the Fed’s favoured measure — eased further in February had given dealers an extra spring.
However, OPEC’s shock weekend announcement of a production cut of more than a million barrels a day sent inflation fears soaring again as oil prices jumped more than six percent.
“The services ISM equivalent on Wednesday will, realistically, be more telling about the state of the US economy (and inflation) than (Monday’s) release,” said National Australia Bank’s Ray Attrill.
“But that hasn’t stopped markets from lifting (their) US recession probabilities, something to which higher oil prices were already contributing earlier Monday.”
Fed St Louis president James Bullard told Bloomberg News that the move could make the bank’s task harder, but added: “Whether it will have a lasting impact I think is an open question.”
In early trade, Asia markets fluctuated.
Tokyo, Shanghai, Singapore, Seoul and Wellington were in the green but there were losses in Hong Kong after five days of gains.
Sydney was down ahead of a Reserve Bank of Australia interest rate decision. Manila and Jakarta also fell.
And while equities have enjoyed a positive few weeks, JPMorgan Chase’s Marko Kolanovic warned that they “are set to weaken for the remainder of the year” owing to lingering concerns over the banking sector, oil shocks, and slowing growth.
– Key figures around 0230 GMT –
Tokyo – Nikkei 225: UP 0.2 percent at 28,243.97 (break)
Hong Kong – Hang Seng Index: DOWN 0.9 percent at 20,232.50
Shanghai – Composite: UP 0.3 percent at 3,305.32
West Texas Intermediate: UP 0.4 percent at $80.74 per barrel
Brent North Sea crude: UP 0.4 percent at $85.23 per barrel
Dollar/yen: UP at 132.74 yen from 132.35 yen Friday
Euro/dollar: DOWN at $1.0892 from $1.0908
Pound/dollar: DOWN at $1.2403 from $1.2420
Euro/pound: UP at 87.81 pence at 87.79 pence
New York – Dow: UP 1.0 percent at 33,601.15 (close)
London – FTSE 100: UP 0.5 percent at 7,673.00 (close)