Share markets have fallen as the inflationary jolt from surging oil prices threatens to raise living costs and interest rates around the globe, while investors desperate for liquidity flee to the US dollar.
Crude oil futures soared almost 30 per cent to almost $US120 ($A171) a barrel on Monday – one of its biggest one-day jumps on record – threatening to raise costs of products from petrol to jet fuel.
Brent crude futures were last up almost 13 per cent at $US104.5 ($A149.0) a barrel, while US futures were up 12 per cent at $US101.8 ($A145.1).
Iran named Mojtaba Khamenei to succeed his father Ali Khamenei as supreme leader, signalling that hardliners remained firmly in charge a week into the war with the US and Israel.
That was unlikely to be welcomed by US President Donald Trump, who had declared the son “unacceptable”.
With hostilities continuing in the Middle East and tankers unable to cross the Strait of Hormuz amid the threat of Iranian drone attacks, investors were bracing for a long stretch of higher energy costs.
Investors await Washington’s response, said Helima Croft, head of global commodity strategy at RBC Capital Markets.
“With no clear definition of what winning looks like, it is hard to forecast whether this will be a multi-week or multi-month conflict.”
The news was sobering for Japan, a major importer of oil and gas, with the Nikkei closing down 5.2 per cent after a 5.5 per cent drop last week.
China, another big oil importer, albeit with a huge stockpile of crude, saw its blue-chip index fall roughly one per cent.
China on Monday said inflation had already picked up in February before the current oil spike, with consumer prices rising 1.3 per cent on the year.
This is not necessarily a negative development, given the country has long struggled with disinflation.
The wave of market selling swept Wall Street as S&P 500 futures shed one per cent, while Nasdaq futures were down more than one per cent.
European shares tumbled to their lowest in more than two months on Monday, with the pan-European STOXX 600 down 1.63 per cent in a third session of losses.
The benchmark index shed 5.5 per cent last week, its worst weekly performance in almost a year.
In bond markets, the risk of rising inflation outweighed safe-haven considerations to shove yields higher globally.
Yields on 10-year Treasury notes rose five basis points to 4.175 per cent, up from a trough of 3.926 per cent just a week ago.
Interest rate futures slipped as investors feared the risk of higher inflation would make it harder for the Federal Reserve to ease policy, though disappointing jobs numbers seemed to argue for stimulus.
Data on US consumer prices due on Wednesday is forecast to show the annual rate holding at 2.4 per cent in February.
The Fed’s preferred measure of core inflation due on Friday is forecast to hold at 3.0 per cent, well above the central bank’s 2.0 per cent target, and analysts see a risk of an even higher number.
The danger of energy-driven inflation has led markets to wager the next move in rates from the European Central Bank could be up, possibly as early as June.
For the Bank of England, markets have shifted to pricing just a 40 per cent chance of one more easing, compared with two cuts or more before the Middle East conflict started.
Nervous investors sought the liquidity of dollars while shunning currencies from countries that are net energy importers, including Japan and much of Europe.
The dollar strengthened 0.4 per cent to trade at 158.385 yen, outweighing safe-haven demand and pushing gold down 1.2 per cent to $US5,106 ($A7,280) an ounce.
The euro slipped 0.5 per cent to $US1.1557 ($A1.6477).
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