San Francisco Frontiers - Markets mostly fall as early Fed rate hike rally fades

Traders tracked a strong performance on Wall Street at the Asia open as the US central bank move signalled it is intent on fighting runaway prices, while its boss Jerome Powell said such big moves would not be commonplace.

The 0.75 percentage point increase -- the biggest in nearly 28 years -- had been expected after data Friday showed inflation at its highest since 1981, as the Ukraine war supply chain snarls sent energy and food costs spiralling.

Powell said it was "essential" to lower inflation, and policymakers "have both the tools we need and the resolve it will take to restore price stability on behalf of American families".

He stressed that the goal is to achieve that without derailing the US economy but acknowledged there was always a risk of going too far.

In his post-meeting news conference, he told reporters the move was "an unusually large one" but he did not expect "moves of this size to be common".

While the lift was bigger than the 50 basis points flagged before Friday's figures, it was welcomed as a sign the Fed was on the case and helped push down Treasury yields -- a key guide to future rate expectations.

The 75 basis points hike "is a solid showing that will, all else being equal, serve to improve Fed credibility and leave monetary policy slightly less behind the inflationary curve", said BMO Capital Markets strategists Benjamin Jeffery and Ian Lyngen.

However, after chasing higher in the first few hours of the day, Asia lost momentum in the afternoon.

Tokyo, Singapore, Seoul, Wellington, Manila and Jakarta held up, but Shanghai, Sydney, Taipei, Mumbai and Bangkok were all in negative territory.

Hong Kong led the losses after a big gain Wednesday and as investors there contemplated a sharp rate hike in the city owing to its monetary policy link to the United States.

European markets tumbled in the morning, with London traders awaiting a Bank of England policy meeting that is expected to see it hike rates for a fifth straight time.

"Powell must be pretty pleased with his press conference and the market reaction as he delivered what I would interpret as a 'dovish' 75 basis point hike," said SPI Asset Management's Stephen Innes.

But he added: "The Fed now needs the data to play along for the ride and inflation to not surprise on the upside again. If it does, 75 basis points for July and September will be quickly repriced."

"The much taller order for stocks to return to any semblance of bullish form would likely require an improbable upbeat mix of a seamless China growth recovery, a convincing deceleration of US inflation, and much softer oil prices."

- Recession fears -

Other analysts were also wary about the outlook, with some concerned that the Fed measures could tip the world's top economy into recession.

"The volatility in bond markets is definitely not over," Jasmin Argyrou, of Credit Suisse Private Bank, told Bloomberg Television. "The likelihood is that policy rates in the US may need to go to a more restrictive stance than even the market is pricing in."

On currency markets the dollar resumed its upward march across the board to multi-year highs against its peers as the gap between the monetary policies of the Fed and other central banks widens.

The euro was particularly under pressure, having enjoyed a little respite Wednesday after the European Central Bank said at an emergency meeting that it would act to ease stress on sovereign debt markets and design a new instrument to ward off a fresh crisis in the eurozone.

Borrowing costs in some eurozone countries are rising faster than in others as the ECB tightens its monetary policy, but officials said they would prevent such "fragmentation" that occurred during the region's debt crisis a decade ago.

Oil prices ticked up a day after taking a hit from demand worries caused by new Covid containment measures in China and data showing a surge in US production.

The black gold was helped by a warning from the International Energy Agency that global supplies -- hammered by the Ukraine conflict -- will struggle to meet demand next year.

- Key figures at around 0810 GMT -

Tokyo - Nikkei 225: UP 0.4 percent at 26,431.20 (close)

Hong Kong - Hang Seng Index: DOWN 2.2 percent at 20,845.53 (close)

Shanghai - Composite: DOWN 0.6 percent at 3,285.38 (close)

London - FTSE 100: DOWN 1.4 percent at 7,171.26

Dollar/yen: UP at 134.28 yen from 133.69 yen late Wednesday

Euro/dollar: DOWN at $1.0394 from $1.0457

Pound/dollar: DOWN at $1.2071 from $1.2181

Euro/pound: UP at 86.08 pence from 85.80 pence

West Texas Intermediate: UP 0.2 percent at $115.58 per barrel

Brent North Sea crude: UP 0.3 percent at $118.82 per barrel

New York - Dow: UP 1.0 percent at 30,668.53 (close)

D.Parker--SFF