Asian equities plummeted and gold prices climbed on Monday after Iran's retaliatory attack on Israel raised worries of a regional confrontation and jittered traders.
Expectations that US inflationary pressures will keep rates higher for longer sent the dollar to a 34-year high against the yen. MSCI's broadest index of Asia-Pacific equities outside Japan (.MIAPJ0000PUS), opens new tab declined 0.7% after Iran fired explosive drones and missiles at Israel late Saturday in retaliation for a suspected Israeli attack on its Syria embassy on April 1.
The region is on edge about the possibility of outright battle between the arch Middle East adversaries and the US. Benjamin Netanyahu was cautioned by U.S. President Joe Biden that the U.S. will not counter-attack Iran.
Japan's Nikkei (.N225), fell 1% on Monday as global tensions escalated, while Australia's S&P/ASX 200 index (.AXJO) fell roughly 0.5%.
The dollar held steady while gold rose 0.5% to $2,356.39 an ounce on the run to safety. The revelation had little impact on oil prices because traders had already priced in an Iranian retaliation that would disrupt supply chains.
Brent crude futures reached $92.18 a barrel last week, the most since October. Wall Street's main indexes fell on Friday, following a week of higher-than-expected inflation and jobs data that shifted investors' interest rate decrease expectations.
“The big risks for the global economy are whether this now escalates into a broader regional conflict, and what the response is in energy markets," said Capital Economics group chief economist Neil Shearing.
"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."
Follow for more updates