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Asian stocks are following Wall Street’s decline as tensions escalate in the Middle East

HONG KONG (AP) — Asian shares retreated Monday as worries about potentially escalating tensions in the Middle East roiled financial markets, sending investors looking for safer places to put their money.

U.S. futures rose and oil prices fell despite tensions in the Middle East, where an attack late Saturday marked the first time Iran has ever launched a military attack on Israel, despite decades of enmity dating back to the 1979 Islamic Revolution in the country.

A barrel of U.S. benchmark oil fell 41 cents to $85.25 per barrel. Brent crude, the international standard, lost 24 cents to $90.21. Slower demand from China, combined with forecasts that supply growth will outpace demand, has kept prices in check.

“While the drone strike has made headlines, its immediate impact on global markets, particularly on oil prices and inflation concerns, may be muted,” said Stephen Innes, managing partner at SPI Asset Management, in a commentary . “The precision and limited lethal impact of Iran’s response suggest a strategic approach aimed at minimizing damage rather than escalating tensions.”

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The Japanese benchmark Nikkei 225 fell 1% to 39,114.19 in morning trading.

In currency trading, the U.S. dollar rose to 153.71 Japanese yen from 153.07 yen, hitting another 34-year high, as investors focused on the traditional haven currency. The euro cost $1.0650, up from $1.0635.

Australia’s S&P/ASX 200 fell 0.6% to 7,743.80. South Korea’s Kospi fell 1.1% to 2,653.06.

Hong Kong’s Hang Seng fell 0.5% to 16,633.37, while the Shanghai Composite gained 1.4% to 3,062.73. Elsewhere in Asia, Taiwan’s Taiex was 1% lower and India’s Sensex fell 1% as the country prepared for a lengthy national election process.

Monday’s pullback followed a decline on Wall Street Friday after a mixed start to the earnings reporting season.

The S&P 500 fell 1.5% to 5,123.41 on Friday, capping its worst week since October, when a huge rally began on Wall Street. The Dow Jones Industrial Average fell 1.2% to 37,983.24, and the Nasdaq composite fell 1.6% from the previous day’s high to 16,175.09.

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JPMorgan Chase was one of the heaviest weights in the market, falling 6.5% despite posting stronger profits for the first three months of the year than analysts expected. The nation’s largest bank gave a forecast for a major revenue source this year that fell below Wall Street’s estimate and called for only modest growth.

Companies are always under pressure to make bigger profits. But the situation is particularly acute amid concerns that the other key lever that drives stock prices, interest rates, may not provide much support in the short term.

A flurry of reports this year show that both inflation and the economy as a whole remain hotter than expected. That is forcing traders to scale back their forecasts for how many times the Federal Reserve will cut its key interest rate this year. Traders are largely betting on just two cuts, according to CME Group data, down from forecasts of at least six at the start of the year.

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U.S. stock indexes were already hitting records, partly due to expectations for such cuts. Without easier interest rates, companies will have to make bigger profits to justify their stock prices, which critics say appear overpriced by several measures.

At the same time, government bond yields in the bond market fell and the price of gold rose, which is typical of investors flocking to investments considered safer.

The yield on the 10-year government bond fell to 4.51% from 4.58% at the end of Thursday.

Adding to the nervousness was a preliminary report showing that sentiment among U.S. consumers is slumping. It’s an important update because U.S. consumer spending is the main driver of the economy.

Perhaps more worrying was that American consumers are becoming more pessimistic about inflation. Their inflation forecasts for the next twelve months reached the highest level since December. Such expectations could ignite a self-fulfilling prophecy, whereby purchases designed to get ahead of higher prices only fuel inflation.

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