Asian and European markets mixed Tuesday in cautious trade as investors grew increasingly concerned about the Federal Reserve's plans to wind back its financial support measures and lift interest rates within months.

While the fast-spreading Omicron coronavirus variant plays on nerves, traders are now coming to terms with the imminent end to the pandemic era of ultra-cheap cash, which helped the economic recovery and fanned a global rally for nearly two years.

A pick-up in consumer activity, surging wages, supply chain snarls and rising energy costs are combining to push inflation in several countries to highs not seen for a generation, ramping up pressure on central bankers to act before it gets out of control.

Several countries have already started hiking borrowing costs but all eyes are on the US Federal Reserve as it tees up its first move, with commentators predicting that to come in March, after it has finished winding in its bond-buying programme. That could be followed by two or three more by the end of the year, they say.

In remarks released ahead of his Senate confirmation hearing on Tuesday, boss Jerome Powell said the bank was ready to act.

"We will use our tools to support the economy and a strong labour market and to prevent higher inflation from becoming entrenched," his opening statement said.

"We can begin to see that the post-pandemic economy is likely to be different in some respects. The pursuit of our goals will need to take these differences into account."

Data on Friday showed fewer jobs than expected were created in December but there were plenty of openings and wages soared, suggesting further upward pressure on prices is likely.

Traders are now cautiously awaiting the release of US inflation figures on Wednesday, which could play a major role in the Fed's thinking.

OANDA's Jeffrey Halley said: "Given how cautious the (policy board) has been over the past two years, to the point of appearing snail-like, I am struggling to see them hitting the panic button right now.

"As such I am struggling to pencil in a March hike just as the Fed taper finishes, although I don't disagree with three hikes across all of 2022. I am definitely disagreeing with four hikes. As such, I do believe we may be approaching 'peak Fed-fear' for now."

The prospect of higher rates has rattled US markets at the start of the year. The Nasdaq is already down more than four percent as tech firms are more susceptible owing to their reliance on debt to drive growth.

While the tech-heavy index inched up slightly Monday, the S&P 500 and Dow closed in the red, though late dip-buying helped them recover from early steep losses.

Asia also suffered, with Tokyo returning from a long weekend break to end lower, while Shanghai, Sydney, Manila Wellington and Jakarta also slipped.

Singapore, Taipei, Mumbai and Bangkok rose while Hong Kong and Seoul were flat.

London, Paris and Frankfurt rose in early business.

"We think eventually this market will shift back toward growth, but we still got some wood to chop there; the valuations haven't corrected," Lori Calvasina of RBC Capital Markets told Bloomberg Television.

"This is a repricing. It's painful, it has a little bit more ways to go."

- Key figures around 0820 GMT -

Tokyo - Nikkei 225: DOWN 0.9 percent at 28,222.48 (close)

Hong Kong - Hang Seng Index: FLAT at 23,739.06 (close)

Shanghai - Composite: DOWN 0.7 percent at 3,567.44 (close)

London - FTSE 100: UP 0.6 percent at 7,487.64

Dollar/yen: UP at 115.27 yen from 115.20 yen late Monday

Euro/dollar: UP at $1.1344 from $1.1337

Pound/dollar: UP at $1.3613 from $1.3575

Euro/pound: DOWN at 83.33 pence from 83.42 pence

West Texas Intermediate: UP 1.0 percent at $79.00 per barrel

Brent North Sea crude: UP 0.9 percent at $81.57 per barrel

New York - DOW: DOWN 0.5 percent at 36,068.87 (close)

dan/rbu

BANQUE ROYALE DU CANADA

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Asian markets mixed as attention turns to US jobs
Hong Kong (AFP) Jan 7, 2022
Asian equities were mixed Friday as investors battled to instigate a recovery after this week's volatile start to the new year, with the release of key US jobs data later in the day taking centre stage. News that the Federal Reserve is planning a more aggressive campaign to fight surging inflation rattled global traders, who have enjoyed almost two years of cheap cash that has helped push some markets to record or multi-year highs. The Fed's decision to remove the support put in place at the sta ... read more