On Monday, Asian shares experienced a decline, while gold prices surged, as escalating tensions in the Middle East, triggered by Iran’s retaliatory attack on Israel, heightened concerns of a broader regional conflict, leaving traders apprehensive.
The dollar reached a fresh 34-year high against the yen due to growing expectations that persistent inflationary pressures in the United States would result in prolonged higher interest rates.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped by 0.7% following Iran’s deployment of explosive drones and missiles towards Israel over the weekend, in response to a suspected Israeli attack on its consulate in Syria on April 1.
The threat of an all-out conflict between the long-standing rivals in the Middle East, potentially involving the United States, has left the region on edge. U.S. President Joe Biden assured Prime Minister Benjamin Netanyahu that the U.S. would not participate in a retaliatory strike against Iran.
Israel, however, stated that “the campaign is not over yet.”
Market jitters prevailed across Asia on Monday amidst the escalating geopolitical tensions. Japan’s Nikkei slid by 1%, while Australia’s S&P/ASX 200 index witnessed a decrease of nearly 0.5%. Hong Kong’s Hang Seng Index also fell by 0.63%.
Amid the flight to safety, gold prices surged by more than 0.5% to $2,356.39 an ounce, keeping the dollar firm. However, oil prices exhibited little reaction to the news, with Brent crude futures slightly lower at $90.23 per barrel, and U.S. West Texas Intermediate crude futures falling to $85.36 a barrel.
Despite the ongoing geopolitical tensions, U.S. stock futures saw a slight increase following Friday’s heavy selloff on Wall Street, driven by underwhelming results from major U.S. banks.
In Europe, EUROSTOXX 50 futures edged up by 0.22%, while FTSE futures slipped by 0.5%.
China, on the other hand, stood out with stocks moving higher after the country’s securities regulator issued draft rules aimed at bolstering the supervision of company listings, delistings, and computer-driven program trading.
U.S. Treasury yields remained near recent highs as traders adjusted their expectations for the pace and scale of rate cuts from the Federal Reserve this year. The benchmark 10-year yield stood at 4.5605%, while the two-year yield hovered near 5%.
The outlook for U.S. interest rates has shifted significantly, with futures now indicating approximately 44 basis points worth of easing expected this year, down from the 160 bps that were priced in at the beginning of the year. This adjustment has propelled the dollar to a 34-year peak of 153.85 yen on Monday, while the euro and sterling remained near five-month lows.