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Asian Shares Drop and Gold Prices Rise Amid Geopolitical Tensions

On Monday, Asian shares took a hit while gold prices surged as risk sentiment soured following Iran’s retaliatory strike on Israel, raising concerns of a broader regional conflict. The escalating tensions kept traders on edge, contributing to a decline in MSCI’s broadest index of Asia-Pacific shares outside Japan by 0.7%.

Iran’s deployment of explosive drones and missiles on Saturday, in response to a suspected Israeli attack earlier in April, intensified fears of open warfare in the Middle East. President Joe Biden’s assurance to Prime Minister Benjamin Netanyahu that the U.S. would not participate in a counter-offensive against Iran added to the apprehension gripping the region.

Markets across Asia reflected this nervousness, with Japan’s Nikkei sliding 1%, Australia’s S&P/ASX 200 index losing nearly 0.5%, and Hong Kong’s Hang Seng Index down 0.63%.

Investors sought refuge in safe-haven assets, driving gold prices up by more than 0.5% to $2,356.39 per ounce, while the dollar remained strong.

Despite the geopolitical turmoil, oil prices saw minimal movement, as traders had largely anticipated Iran’s retaliatory action. Brent crude futures, which hit a peak of $92.18 a barrel last week, dropped to $90.23 per barrel, while U.S. West Texas Intermediate crude futures fell to $85.36 a barrel.

Neil Shearing, Group Chief Economist at Capital Economics, emphasized the potential impact of escalating tensions on the global economy, particularly on energy markets and inflation.

Meanwhile, U.S. stock futures edged higher following a significant sell-off on Wall Street fueled by underwhelming results from major U.S. banks. S&P 500 futures and Nasdaq futures each rose approximately 0.4%.

In Europe, EUROSTOXX 50 futures gained 0.22%, while FTSE futures declined 0.5%. However, China stood out as stocks rallied on the back of draft rules issued by the country’s securities regulator aimed at strengthening market supervision.

Elsewhere, U.S. Treasury yields remained near recent highs as traders adjusted their expectations for Federal Reserve rate cuts amid robust economic data, including last week’s higher-than-expected inflation report. Futures now indicate a significant reduction in expected rate cuts for the year.

The dollar surged to a fresh 34-year high against the yen, while the euro and sterling hovered near five-month lows. Kristina Clifton, Senior Economist at Commonwealth Bank of Australia, revised forecasts for the timing of interest rate cuts by the Federal Open Market Committee (FOMC), citing stronger-than-expected U.S. CPI data.

The shift in rate expectations also impacted bitcoin, halting its rapid ascent amid expectations of imminent Fed cuts. The cryptocurrency fell over 3% to $65,010, influenced in part by the prevailing risk-off sentiment.

Source – Reuters

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