Asia stocks slip, gold firm as Mideast conflict grips markets
Asian shares fell and gold prices rose yesterday as risk sentiment took a hit after Iran's retaliatory attack on Israel stoked fears of a wider regional conflict and kept traders on edge.
The dollar scaled a fresh 34-year high against the yen on growing expectations that sticky inflationary pressures in the US will keep rates there higher for longer.
MSCI'S broadest index of Asia-pacific shares outside Japan fell 0.7 per cent after Iran launched explosive drones and missiles at Israel late on Saturday, in retaliation for a suspected Israeli attack on its consulate in Syria on April 1.
The threat of open warfare erupting between the arch Middle East foes and dragging in the US has left the region on tenterhooks. US President Joe Biden warned Prime Minister Benjamin Netanyahu the US will not take part in a counter-offensive against Iran.
Israel said "the campaign is not over yet".
A sense of nervousness swept over markets in Asia yesterday amid the escalating geopolitical tensions, with Japan's Nikkei sliding 1 per cent, while Australia's S&P/ASX 200 index lost nearly 0.5 per cent.
Hong Kong's Hang Seng Index was down 0.63 per cent.
The flight to safety sent gold up more than 0.5 per cent to US$2,356.39 an ounce and kept the dollar firm.
Oil prices, however, hardly reacted to the news, as traders had largely priced in a retaliatory attack from Iran that would likely further disrupt supply chains. That saw Brent crude futures peaking at $92.18 a barrel last week, the highest level since October.
The Dow dropped one-and-aquarter percent, the S&P 500 shed nearly one-and-a-half percent and the Nasdaq tumbled one-point-six per cent.
Brent was last 0.24 per cent lower at $90.23 per barrel, while US West Texas Intermediate crude futures fell 0.35 per cent to $85.36 a barrel.
"The key risks for the global economy are whether this now escalates into a broader regional conflict, and what the response is in energy markets," said Neil Shearing, group chief economist at Capital Economics.
"A rise in oil prices would complicate efforts to bring inflation back to target in advanced economies, but will only have a material impact on central bank decisions if higher energy prices bleed into core inflation."
US stock futures ticked higher, after a heavy selloff on Wall Street on Friday as results from major US banks failed to impress.
S&P 500 futures and Nasdaq futures each rose about 0.4 per cent.
EUROSTOXX 50 futures tacked on 0.22 per cent, while FTSE futures slid 0.5 per cent.
China, however, was an outlier, with stocks pushing higher after the country's securities regulator issued draft rules on Friday to strengthen the supervision of company listings, delistings and computer-driven programme trading.
Market participants took the move as a positive signal to improve China's ailing stock market and protect investors' interests.
The country's blue-chip CSI300 index rose nearly 2 per cent, while the Shanghai Composite index gained 1.2 per cent.
Rate rethink
Elsewhere, US Treasury yields held near their recent highs as traders pared back their expectations of the pace and scale of rate cuts from the Federal Reserve this year.
The benchmark 10-year yield last stood at 4.5605 per cent, while the two-year yield held near the 5 per cent level and was last at 4.9269 per cent.
A continued run of resilient US economic data, particularly last week's hotter-than-expected inflation report, has added to the view that US rates could remain higher for longer, and that a Fed easing cycle is unlikely to commence in June.
Futures now point to about 44 basis points worth of easing expected this year, a huge pullback from the 160 bps that was priced in at the start of the year.
That sea change in the rate outlook has in turn sent the dollar on a tear, pushing it to a 34-year peak of 153.85 yen yesterday.
The euro and sterling were similarly pinned near five-month lows.