San Francisco Frontiers - Stocks tank, dollar rises as traders prepare for big rate hikes

The services sector data showed the world's top economy remained resilient in the face of surging prices and borrowing costs, highlighting the job the Federal Reserve has in taming inflation while trying to prevent a recession -- a goal many observers doubt can be achieved.

The reading added to the gloom blanketing trading floors as investors face a range of headwinds including a worsening energy crisis in Europe, Russia's war in Ukraine and Chinese economic woes caused by Covid-19 lockdowns.

"Overall, the (services) survey paints a picture of solid activity in the services sector of the US economy supported by wages growth suggesting the Fed still has more work to do in order to cool the economy," said National Australia Bank's Rodrigo Catril.

All three main indexes on Wall Street finished in the red Tuesday as they reopened after a long weekend, with expectations growing that the Fed will announce a third successive 75 basis-point rate hike later this month.

Several top Fed officials -- including head Jerome Powell -- have lined up in recent weeks to say their main focus is bringing inflation down from four-decade highs, even if that means tipping the economy into recession.

The prospect of more big rate hikes has sent the dollar soaring this year, and on Wednesday it hit a new 24-year high of 143.71 yen, leading to speculation the Bank of Japan will step in to support its currency.

The euro remained lodged below parity with the dollar, even as the European Central Bank prepares to ramp up rates, having done so in July for the first time in eight years.

And the greenback was also pushing towards a 37-year peak against sterling, which saw a brief rally Tuesday on reports new UK Prime Minister Liz Truss was planning a £130 billion ($150 billion) package to freeze energy bills.

The losses in New York were tracked by Asia, where Hong Kong, Tokyo, Sydney, Seoul and Taipei all lost at least one percent. Singapore, Wellington and Manila also fell, though Shanghai and Jakarta edged up.

"The September swoon is in play as a resilient economy paves the way for more Fed tightening," said OANDA's Edward Moya.

"Stocks are going to struggle because too much of the (US) economy is doing well. The dovish pivot and the end of interest rate hikes with the December (Fed meeting) is not how this will play out."

Expectations that leading economies will tip into recession, China's lockdown of millions across the country and the stronger dollar continue to push oil prices lower, with both main contracts down more than one percent Wednesday.

Bets on a plunge in demand have seen the commodity tank about 20 percent in recent months, putting them below the levels seen just before Russia invaded Ukraine and sent prices skyrocketing.

And while concerns remain about supplies, OANDA's Moya added: "The short-term crude demand outlook appears to be poised for another wave of China Covid-related lockdowns.

"Despite some better-than-expected US services data, global growth isn't looking good at all and that is trouble for crude prices."

- Key figures at around 0230 GMT -

Tokyo - Nikkei 225: DOWN 1.0 percent at 27,362.83 (break)

Hong Kong - Hang Seng Index: DOWN 1.4 percent at 18,943.18

Shanghai - Composite: UP 0.2 percent at 3,249.72

Euro/dollar: DOWN at $0.9892 from $0.9905 on Tuesday

Pound/dollar: DOWN at $1.1480 from $1.1519

Dollar/yen: UP at 143.40 yen from 142.80 yen

Euro/pound: UP at 86.16 pence from 85.97 pence

West Texas Intermediate: DOWN 1.6 percent at $85.50 per barrel

Brent North Sea crude: DOWN 1.2 percent at $92.69 per barrel

New York - Dow: DOWN 0.6 percent at 31145.30 (close)

London - FTSE 100: UP 0.2 percent at 7,300.44 (close)

N.Wilson--SFF