HONG KONG (AFP) – Oil prices rallied and equities fell yesterday as reports said explosions had been heard in Iran and Syria, fuelling fears of an escalation of the Middle East crisis.
The reports followed another batch of data indicating the United States (US) economy remained in rude health and compounded concerns that the Federal Reserve will hold off cutting interest rates this year or even hike them again.
Iran’s Fars news agency reported “three explosions” were heard near Qahjavarestan, near Isfahan airport and the 8th Shekari army airbase.
ABC and CBS News reported the strikes had been carried out by Israel, quoting US officials.
The news sent shivers through markets, with crude briefly surging as much as four per cent on worries about supplies from the oil-rich region, while fears of a regional conflict saw equities tumble.
However, the gains were pared as Iran appeared to play down the matter.
Asia equities fell but were well off their early lows.
Tokyo plunged more than two per cent and there were also losses in Hong Kong, Sydney, Shanghai, Singapore, Seoul, Wellington, Manila, Mumbai, Bangkok and Jakarta.
London, Paris and Frankfurt were also in the red.
The rush for safety also saw the yen rally against the dollar and gold jump back past USD2,400, while US Treasuries climbed.
“It is now clear that the escalating shadow warfare between Israel and Iran… has finally ignited the powder keg in the Middle East, and we have moved decisively out of the shadows and into the glaring light of open conflict,” said Stephen Innes of SPI Asset Management.
The mood among traders was already downbeat as they contemplated the prospect of the Fed staying pat on interest rates this year following data showing jobless claims came in below expectations while a gauge of business activity hit a two-year high.
Meanwhile, Atlanta Fed boss Raphael Bostic said inflation is “too high” and he felt there was no need to cut borrowing costs until later in the year.
“I’m comfortable being patient,” he added.
New York Fed chief John Williams and governor Michelle Bowman also said they saw fewer reductions than expected, if at all, this year.
Michael Landsberg of Landsberg Bennett Private Wealth Management said: “We are firmly in the camp of no rate cuts in 2024.
“We believe investors should prepare for a higher-for-longer regime when it comes to both inflation and interest rates.”
