Asian markets see rare rally but caution rules as Fed hike nears

Asian markets enjoyed a much-needed bounce on Tuesday, tracking Wall Street's late rally as investors gird themselves for another big Federal Reserve interest rate hike this week, though fears of a recession remain elevated.

Global equities have taken a severe body blow in recent weeks, as central banks struggle to rein in stubbornly-high inflation and Russia continues its war with Ukraine.

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

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

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

There is also some speculation that the rises will not stop until the rate is above four per cent, still some way off from the current 2.25 - 2.75 per cent.

"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 per cent 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, said strategists including Marko Kolanovic and Nikolaos Panigirtzoglou.

The outlook remains downbeat for some time, with Edward Moya at OANDA warning 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 towards 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."

Still, Asian markets were on the up on Tuesday.