Asian markets were mixed Tuesday as investors battled to maintain a global rally, with inflation continuing to niggle owing to a pick-up in oil prices while a top Federal Reserve official pressed for a series of sharp interest rate hikes. However, optimism was given a boost by data indicating China’s crucial manufacturing sector was improving, helped by the easing of some strict Covid containment measures in major cities including Shanghai. With Wall Street closed for a holiday there were few catalysts to help extend the gains enjoyed in recent days, allowing inflation and borrowing costs to take centre stage. Crude prices built on Monday’s advance after the European Union reached a deal on a partial embargo of Russian imports as part of a punishment for its invasion of Ukraine. Brent broke above $122 for the first time in two months and WTI was sitting around $117 as European chiefs said the latest sanction would ban purchases of Russian oil delivered by sea, though there would be a temporary exemption for pipelines. While widely expected, the agreement adds further upside to crude just as China begins to ease Covid restrictions in Shanghai and Beijing, raising the likelihood of a jump in demand from the world’s number two economy. The lift in oil prices will help fan already elevated inflation and pile further pressure on central banks to tighten monetary policy to prevent it running out of control. In a sign of the struggle policymaker’s face, German prices are rising at their fastest pace ever while Spain has topped forecasts. In the United States, the chances of an extended period of rate hikes were increased after Federal Reserve Governor Christopher Waller said he favoured half-point hikes “for several meetings” until inflation slows towards the bank’s 2pc target. He added that his goal was in line with market expectations, which is about 2.75pc in December. Joe Biden is due to hold talks with Fed boss Jerome Powell on Tuesday to discuss the inflation situation. US jobs data Friday will provide an update on the state of the US economy in light of soaring prices and rising rates. The prospect of a period of rates rising higher for longer lifted the dollar against the euro, pound and yen as well as other currencies. In Asia, there was some much-needed cheer from data showing China’s manufacturing shrunk in May at a slower rate than expected. The Purchasing Managers’ Index (PMI) — a key gauge of manufacturing activity — hit 49.6 last month, improving from April’s 47.4, which was the worst reading since early 2020. However, the reading remained stuck below the 50-point mark separating growth from contraction and showed the world’s number two economy was still struggling. Jeffrey Halley at OANDA said: “A less worse than expected set of data has prompted a modest rally in China equities today, holding the promise of an accelerating recovery in June if the virus situation remains benign.” However, he warned: “That’s a big if.” Hong Kong and Shanghai rose more than one percent, while Seoul, Singapore, Taipei, Jakarta, Bangkok and Wellington also advanced. Tokyo, Sydney, Mumbai and Manila fell. In early trade, London edged up at the open but Paris and Frankfurt dipped. However, AXA Investment Managers’ Chris Iggo warned that another 10-15pc retreat for stocks could still be a possibility. “The mood is temporarily better in markets,” he said, adding that “I think the worst is over for bond markets but picking the bottom in equities is trickier.”