MSCI’s broadest index of Asia-Pacific shares outside Japan shed 1.2 per cent

Share markets slid on Monday in Asia as fighting broke out between Iran and the US, lifting oil prices.

Brent futures jumped 2.8 per cent to $90.60 a ​barrel after Iran and US struck each other on Sunday.

In New Zealand, inflation threat is expected to spur central bank to hike rates for a second straight meeting on Wednesday, while the Bank of Canada is seen on hold, given the damage a trade war with the US could do to the economy.

Higher yields combined with geopolitical stress to push Nikkei down 1.6 per cent, while South Korean stocks dropped 2.2 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan shed 1.2 per cent.

Chinese blue chips eased 0.7 per cent as the official manufacturing purchasing managers’ index (PMI) picked up to 49.8 in August from 49.2 in July, pointing to activity that remains subdued.

Elsewhere, the resulting Middle East risk to inflation kept bond markets on edge after U.S. central bank Chair Kevin Warsh emphasised on Friday the central bank had work to do to control inflation.

Markets reacted by lifting the probability of a September rate increase to 57 per cent, shoving short-term Treasury yields sharply higher and flattening the curve.

We continue to expect that a hike won’t come until December, though agree that the September meeting is live, said Michael Feroli, chief US economist at JPMorgan.

Moreover, regardless of the exact timing of hikes, Warsh’s speech suggested a chair more willing to translate his concern about inflation into a policy tightening, Feroli said.

Key to the chance of an early hike will be the outcome of Friday’s August payrolls report and consumer price data due on September 11.