HONG KONG: Asian markets enjoyed a much-needed bounce on Tuesday, tracking Wall Street’s late rally as investors gird themselves for another big interest rate hike by the Federal Reserve (Fed) this week, though fears of a recession remain elevated.

Global equities have taken a severe blow in recent weeks as central banks struggle to rein in stubbornly high inflation, Russia continues its war in Ukraine and China’s economic woes darken the mood across trading floors.

With the main concern being that sharp increases in borrowing costs would cause recessions in major economies, this week will be a minefield for traders with several countries, including the United Kingdom, which is tipped to announce more tightening.

The Fed’s decision, however, is the main focus after figures last week showed that prices are still rising at rates not seen since the early 1980s.

Most observers expect the United States central bank to announce a third successive 75-basis-point lift, though there are some who have flagged a possible 1-percentage-point move.

And there is speculation that the increases would not stop until the rate is above 4 percent, still some way from the current 2.25 percent to 2.75 percent.

“We expect central bank tightening, and a fading of supply chain pressures to moderate job growth and core inflation,” JPMorgan Chase & Co said, tipping it to end at 4.25 percent by early next year.

“In turn, we anticipate this will allow the Fed and other central banks to pause” in the first half of 2023, strategists including Marko Kolanovic and Nikolaos Panigirtzoglou said.

In a sign of expectations that rates would continue to rise for some time, the two-year Treasury yield is on course to break 4 percent for the first time since 2007.

It is also much higher than the 10-year yield, which is called an inversion and considered a key pointer to a recession.

‘Pessimism remains elevated’

The outlook remains downbeat, with Oanda’s Edward Moya warn

ing that the lows of June could be seen again.

“Pessimism for equities remains elevated as the US economy appears to have a one-way ticket toward a recession as the Fed is poised to remain aggressive,” he said in a note. “The risks for a retest of the summer lows could easily happen if the Fed remains fully committed [to] their inflation fight.”

CMC Markets analyst Michael Hewson said “the main factor spooking markets right now is how much higher will rates have to go, and will there be any more

profit warnings” from firms, such as that from US shipping giant FedEx last week.

Still, Asian markets closed in the green on Tuesday.

Hong Kong rose more than 1 percent with tourism-linked firms boosted by news that the city’s government was considering bringing an end to the hotel quarantine rules that have helped hammer its economy.

Sydney and Mumbai were also up more than 1 percent, while Tokyo returned from a long weekend to post healthy gains. Shanghai, Seoul, Singapore, Taipei, Manila, Wellington, Bangkok and Jakarta also ended higher.

London enjoyed early gains after a special public holiday for the funeral of Queen Elizabeth 2nd, with Paris and Frankfurt also on the front foot.

On currency markets, the dollar held its strength ahead of the expected rate hike.

And while a jump in Japanese inflation to an eight-year high will cause a headache for the Bank of Japan, officials there are expected to maintain their ultra-loose policy to support the world’s third-largest economy despite the yen sitting at 24-year lows against the dollar.

The sterling was also struggling to bounce back even as the Bank of England lined up another big increase.

Oil prices edged up, but gains were capped by the strong dollar and worries about the economic outlook, while traders were also keeping tabs on Iran nuclear talks that could see Tehran resume crude sales.