SINGAPORE- Asian shares fell and gold prices rose on Monday 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 United States will keep rates there higher for longer.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.7 percent 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 United States 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 on Monday amid the escalating geopolitical tensions, with Japan’s Nikkei sliding 1 percent , while Australia’s S&P/ASX 200 index lost nearly 0.5 percent .
Hong Kong’s Hang Seng Index was down 0.63 percent .
The flight to safety sent gold up more than 0.5 percent to $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.
Brent was last 0.24 percent lower at $90.23 per barrel, while US West Texas Intermediate crude futures fell 0.35 percent 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.”
