SINGAPORE – Asian shares slumped and gold prices rose on April 15 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 US 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.

Markets in Asia began the week on a cautious footing. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.7 per cent after Iran had, late on April 13, launched explosive drones and missiles at Israel in retaliation for a suspected Israeli attack on its consulate in Syria on April 1.

That marked Iran’s first direct attack on Israeli territory.

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 Israeli Prime Minister Benjamin Netanyahu the US will not take part in a counter-offensive against Iran. Israel said “the campaign is not over yet”.

Japan’s Nikkei slid 1.1 per cent, while Australia’s S&P/ASX 200 index lost 0.5 per cent. Hong Kong’s Hang Seng Index slumped 0.7 per cent.

Chinese stocks gained after renewed regulatory support from Beijing shielded the market from a broader sell-off hitting Asia. The CSI 300 Index jumped 1.9 per cent after China’s State Council on April 12 pledged to tighten stock listing criteria, crack down on illegal share sales and strengthen the supervision of dividend payouts.

In Singapore, the Straits Times Index was down 1.1 per cent as of the midday break on April 15.

The escalating tensions also sparked a flight to safety that sent gold rising 0.6 per cent to US$2,357.79 an ounce as of 11.14am on April 15 in Singapore.

Gold has surged by almost 20 per cent since mid-February in a rally that’s taken many investors by surprise as investors lowered their expectations for the scope and pace of Federal Reserve cuts to interest rates in 2024. That would typically be a headwind for bullion, as it doesn’t pay interest.

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 US$92.18 a barrel last week, the highest level since October.

Brent was last 0.5 per cent lower at US$90.01 per barrel, while US West Texas Intermediate crude futures fell roughly 0.6 per cent to US$85.13 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, meanwhile, ticked higher, after a heavy selloff on Wall Street on April 12 as results from major US banks failed to impress.

S&P 500 futures and Nasdaq futures each rose 0.15 per cent.

“Geopolitical headlines are going to be very much there,” said Mr Chris Weston, head of research at Pepperstone.

“The market is really trying to understand what’s going on. Their visibility to price risk in this market has become a bit more troublesome, and I think when you don’t have that visibility, you do get higher volatility. That’s kind of where we are.”

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 US Federal Reserve in 2024.

The benchmark 10-year yield last stood at 4.5277 per cent, while the two-year yield held near the 5 per cent level and was last at 4.8966 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 50 basis points worth of easing expected in 2024, a huge pullback from the 160 basis points that was priced in at the start of 2024 .

That sea change in the rate outlook has in turn sent the dollar on a tear, pushing it to a 34-year peak of 153.69 yen on  April 15.

A slew of Fed policymakers are due to speak this week, including chair Jerome Powell, who could give further clarity on the future path of US interest rates.

The shift in rate expectations has halted Bitcoin’s blistering rally, after the world’s largest cryptocurrency repeatedly notched fresh records in 2024 thanks to flows into new spot bitcoin exchange-traded funds and expectations of imminent Fed cuts.

Bitcoin was last more than 2 per cent lower at US$65,536, after falling below US$62,000 on April 14. REUTERS