Asian Shares Slump as Gold Prices Rise Amidst Escalating Tensions
Risk Sentiment Dampens as Iran’s Retaliatory Attack Sparks Fear of Conflict
Asian shares took a hit and gold prices surged on Monday following Iran’s retaliatory attack on Israel, intensifying concerns about a broader regional conflict and keeping traders on edge.
The dollar reached a fresh 34-year high against the yen, driven by expectations of sustained inflationary pressures in the United States maintaining higher interest rates.
Markets in Asia opened cautiously, with MSCI’s Asia-Pacific shares outside Japan dropping 0.7% after Iran’s explosive drones and missiles targeted Israel in response to a suspected attack on its consulate in Syria.
The escalating tensions between Iran and Israel have raised fears of a wider conflict, with U.S. President Joe Biden warning against American involvement in a potential counter-offensive.
Stocks in Japan and Australia fell, while Hong Kong’s market slumped amidst the growing uncertainty.
Flight to Safety Boosts Gold Prices and Dollar
The heightened geopolitical risks prompted a surge in gold prices by 0.51% to $2,356.39 per ounce, alongside a rally in the safe-haven dollar.
Despite the turmoil, oil prices remained relatively stable, as the market had already factored in potential supply disruptions from Iran’s retaliatory actions.
Brent crude prices dipped slightly, while U.S. West Texas Intermediate crude futures also saw a modest decline.
Neil Shearing, group chief economist at Capital Economics, highlighted the risks posed by the conflict on the global economy and energy markets.
U.S. Rate Expectations Shift Amidst Strong Economic Data
U.S. Treasury yields held near recent highs as expectations of rate cuts from the Federal Reserve diminished, following robust economic indicators and higher-than-expected inflation reports.
The dollar surged to a 34-year peak against the yen, while the euro and sterling languished near multi-month lows.
Futures now indicate a significantly reduced expectation of rate cuts this year, reflecting a shift in market sentiment towards prolonged higher interest rates in the U.S.
Chair Jerome Powell and other Fed officials are scheduled to provide further insights on the future trajectory of U.S. interest rates in the coming week.
Bitcoin Rally Halts Amidst Rate Speculation
The rally in bitcoin paused as rate expectations shifted, with the cryptocurrency falling by more than 2% to $65,536 after reaching record highs earlier in the year.
The impact of changing rate forecasts on bitcoin’s price dynamics underscores the interconnectedness of financial markets and economic policies.
