San Francisco Frontiers - Markets see post-rout calm as traders await Fed hike

Trading floors saw a sea of red at the start of the week after data showed US consumer prices soared at their fastest pace in four decades last month, confounding hopes they were stabilising and putting pressure on officials to act.

The news ramped up bets that the central bank would hike interest rates at a steeper and faster pace than expected as it struggles to retain credibility.

Before Friday's data, the Fed had been tipped to lift borrowing costs by half a point when its policy meeting ends Wednesday but investors are now widely anticipating a three-quarter point increase, with some even suggesting one percentage point.

The moves fuelled worries that the tighter monetary conditions will deal a blow to the US economy and potentially send it into recession next year.

Still, many observers say acting now is the only option available to policymakers if they want to rein in prices and prevent stagflation.

"The sooner they are going to be clear about how quickly they are going to raise rates and what is an acceptable rate of inflation for them, the sooner markets will calm down," Wincrest Capital's Barbara Ann Bernard told Bloomberg Television.

And StoneX Financial's Matt Simpson added: "A bullish outcome for risk-appetite is the well-telegraphed 75-basis-point hike, conviction from the Fed that they’ll manage a soft landing, alongside a downwardly revised CPI forecast for good measure".

But he warned that a half-point increase "could inadvertently weigh on sentiment as markets are concerned the Fed aren’t taking inflation seriously enough".

While most of Wall Street and Europe ended down, they saw less turbulent action than Friday and Monday.

In Asia markets were mixed with some seeing a pick-up on bargain-buying.

Hong Kong and Shanghai enjoyed some healthy buying after data showed an improvement in Chinese retail sales and factory output last month thanks to an easing of Covid restrictions in major cities.

The readings lifted hopes that government support can help lift the world's number two economy out of its torpor.

Singapore and Mumbai were also in positive territory, while Tokyo, Sydney, Seoul, Taipei, Manila, Bangkok and Jakarta slipped.

London, Paris and RFrankfurt rose at the open, with traders following The European Central Bank after it said policymakers would hold an exceptional meeting Wednesday to "discuss current market conditions".

The announcement saw the euro rally against the dollar on hopes for details on how officials will tackle the eurzone's embattled bond market. Observers are predicting the single currency could rise back above $1.05.

While there is a little calm ahead of the Fed announcement, commentators warn that uncertainty will continue to course through trading floors for some time.

Strategist Louis Navellier said markets could go one of two ways after the meeting.

"The big unknown is will the market have a relief rally thinking that inflation is finally being seriously addressed and will therefore be tamed sooner than feared?

"Or will the move create new sellers from fears that the Fed is panicking and may hasten a recession by overshooting as it chases inflation?

"Either way, rates will be rising in an attempt to slow demand in order to slow inflation and further volatility is almost guaranteed."

In company news, the management agency of K-pop supergroup BTS plunged by a quarter in Seoul after the band announced they were taking an indefinite break.

The seven members, who have generated billions of dollars for South Korea's economy, made the shock announcement on Tuesday.

On Wednesday morning the band's label HYBE collapsed about 27 percent, wiping $1.6 billion off its market valuation.

- Key figures at around 0720 GMT -

Tokyo - Nikkei 225: DOWN 1.1 percent at 26,326.16 (close)

Hong Kong - Hang Seng Index: UP 1.0 percent at 21,271.14

Shanghai - Composite: UP 0.5 percent at 3,305.41 (close)

London - FTSE 100: UP 0.5 percent at 7,221.50

Euro/dollar: UP at $1.0469 from $1.0420 late Tuesday

Pound/dollar: UP at $1.2028 from $1.1993

Dollar/yen: DOWN at 134.66 yen from 135.33 yen

Euro/pound: DOWN at 87.03 pence from 86.84 pence

Brent North Sea crude: UP 0.3 percent at $121.54 per barrel

West Texas Intermediate: UP 0.3 percent at $119.25 per barrel

New York - Dow: DOWN 0.5 percent at 30,364.83 (close)

W.Thompson--SFF