Written by Lei Wee
SINGAPORE (Reuters) – Asian shares fell on Monday, gold prices tumbled as risk sentiment took a hit after Iran's retaliatory attacks on Israel raised concerns about escalating regional conflict and alarmed traders. Rose.
The dollar has hit a new 34-year high against the yen, as there is a growing expectation that interest rates will remain high for a long time due to persistent inflationary pressures in the United States.
Asian markets started this week on a cautious note. MSCI's broadest range of Asia-Pacific stocks outside Japan comes after Iran launched explosive drones and missiles toward Israel late Saturday in retaliation for Israel's alleged attack on its Syrian consulate on April 1. The index fell 0.7%.
This was Iran's first direct attack on Israeli territory.
The region is under tension as war breaks out between arch-enemies in the Middle East and threatens to involve the United States. US President Joe Biden has warned Prime Minister Benjamin Netanyahu that the US will not participate in a counterattack against Iran.
“The operation is not over yet,” Israel said.
Japan's Nikkei Stock Average fell more than 1%, and Australia's S&P/Australian Stock Exchange 200 Index fell 0.6%.
Hong Kong's Hang Seng Index fell 0.8%.
Rising tensions also led to a flight to safety, with gold rising 0.51% to $2,356.39 an ounce, with the safe-haven dollar also gaining significantly, extending its 1.6% rise from last week. [GOL/]
However, oil prices showed little reaction to the news as traders were largely pricing in a retaliatory attack from Iran that would likely cause further disruption to supply chains. This pushed Brent crude oil futures to $92.18 a barrel last week, the highest level since October.
Brent crude oil recently fell 0.5% to $90.01 a barrel, while U.S. West Texas Intermediate crude oil futures fell about 0.6% to $85.13 a barrel. [O/R]
Neil Shearing, group chief economist at Capital Economics, said: “The key risks to the global economy are whether this turns into a broader regional conflict and what the reaction will be in energy markets.”
“While higher oil prices will complicate efforts to bring inflation back on target in advanced economies, it will only have a material impact on central bank decisions if higher energy prices spill over into core inflation. ”
Meanwhile, U.S. stock futures rose following a sharp selloff on Wall Street on Friday after unimpressive results from major U.S. banks. [.N]
S&P 500 futures and Nasdaq futures each rose 0.15%.
“Geopolitical news will be a big part of the story,” said Chris Weston, head of research at Pepperstone.
“The market is really trying to understand what's going on. Their visibility into price risk in this market is a bit of an issue, and I think without that visibility you're going to see higher volatility. That's what we're aiming for. “
Reconsidering fees
Elsewhere, U.S. Treasury yields remained near recent highs as traders rolled back expectations for the pace and size of the Federal Reserve's rate cuts this year. [US/]
The benchmark 10-year bond yield last time was 4.5277%, and the 2-year bond yield remained around the 5% level, from 4.8966% last time.
Continued resilient US economic data, especially the better-than-expected inflation report released last week, could keep US interest rates high for an extended period, with the Fed's easing cycle starting in June There is a growing view that the possibility of this happening is low.
Futures markets currently predict about 50 basis points (bp) of easing this year, a significant drop from the 160 basis points expected at the beginning of the year.
The big change in the interest rate outlook, in turn, sent the dollar plummeting, pushing it to a 34-year high of 153.69 yen on Monday.
The euro and pound were similarly locked near five-month lows. [FRX/]
“We have updated our forecasts for the US FOMC, pushing back the start of the rate cut cycle from the previous July date to September 2024,” Commonwealth Bank of Australia senior economist Christina Clifton said.
“For the first three months of 2024, U.S. CPI was stronger than expected. It takes less than 0.2% per month for interest rates to rise, as the Fed is confident that inflation can remain sustainably low. We expect that a series of inflationary outcomes will be required, but there is no need to remain at a restrictive level. ”
A number of Fed policymakers are scheduled to speak this week, including Chairman Jerome Powell, who could provide further clarity on the future direction of U.S. interest rates.
The world's largest cryptocurrency continued to break records this year thanks to new spot Bitcoin exchange-traded fund inflows and speculation of an impending Fed rate cut, but changes in interest rate expectations halted Bitcoin's ferocious rally. Ta.
Bitcoin was last down more than 2% at $65,536, after dipping below $62,000 on Sunday. [FTX]
(Reporting by Lei Wee in Singapore; Editing by Lincoln Feast and Jamie Freed)
