Asian stocks fell and oil prices climbed Tuesday on growing fears of a wider war in the Middle East after Israel's army chief vowed a response to Iran's unprecedented attack on his country at the weekend.
The selling came after Wall Street's three main indexes tanked in response to forecast-beating US retail sales data that reinforced the view that the world's top economy remained in rude health and further dented hopes for interest rate cuts this year.
Traders were also digesting a mixed bag of figures showing Chinese growth easily beat expectations in the first three months of the year but retail sales and industrial production came in well below par.
All eyes are on the Middle East after Tehran fired hundreds of missiles and drones at its regional enemy, saying the attack was retaliation for an April 1 strike on the consular annex of its Damascus embassy that killed seven Revolutionary Guards including two generals.
While air defence systems destroyed the vast majority of the barrage and Iran said "the matter can be deemed concluded", Israel's army chief General Herzi Halevi sounded a note of warning, fuelling worries of a dangerous escalation.
"This launch of so many (Iranian) missiles, cruise missiles, and UAVs into the territory of the State of Israel will be met with a response," Halevi told troops at the Nevatim military base, which was hit in Iran's Saturday barrage.
However, he added that the military would not be distracted from its war against Hamas in Gaza.
Warren Patterson, at ING Groep, said the prospect of a response by Tel Aviv "means that this uncertainty and tension will linger for quite some time".
"The more escalation we see, the more likely we are to see oil supply from the region impacted."
Oil prices rose in Asian trade, having slipped Monday on hopes for a de-escalation following US calls for Israeli Prime Minister Benjamin Netanyahu to "take the win" and forgo a counterattack.
In early trade, Tokyo, Hong Kong, Shanghai, Seoul, Singapore, Taipei, Wellington, Manila and Jakarta were all sharply down.
Investors appeared to ignore figures showing China's economy grew 5.3 percent in the first three months of the year, well above the 4.6 percent predicted in an AFP survey of analysts.
However, other data reinforced worries about the outlook, with industrial production and retail sales coming in well below forecasts, ramping up worries about the prospects for the next quarter.
"China data appears to be strong on the headline, but the details are weak, said Saxo's Charu Chanana.
"This would suggest that the economy needs more support, and markets will continue to position for a weak yuan."
The losses in Asia followed a big sell-off on Wall Street, which was dragged down by tech giants including Amazon, Apple and Alphabet.
That came after figures showed March retail sales beat expectations in yet another indication that the US economy remains strong despite two-decade-high interest rates.
The reading followed news that inflation came in above estimates for the third time in a row last month, while jobs creation was also much stronger than forecast, putting pressure on the Federal Reserve to hold off cutting interest rates.
Investors are now betting on just two reductions this year, compared with six pencilled in at the beginning of January.
And UBS has warned that borrowing costs could even go up if inflation is not brought under control.
"If the (economic) expansion remains resilient and inflation gets stuck at 2.5 percent or higher, there would be real risk the (Fed policy board) resumes raising rates again by early next year," said UBS strategists including Jonathan Pingle and Bhanu Baweja.
Meanwhile, San Francisco Fed boss Mary Daly said there was no rush to reduce rates just yet, adding that she wanted to be confident inflation was coming down to the bank's two percent target.
Treasuries hit new year-to-date highs Monday after the retail sales report.
With rates seen staying higher for longer, the dollar continued to strengthen, and briefly hit a new 34-year high of 154.45 yen, putting the focus on Japanese authorities amid speculation they will step in to support the currency.
Finance Minister Shunichi Suzuki said Tuesday that "we are closely monitoring the latest developments".
Tokyo - Nikkei 225: DOWN 2.1 percent at 39,405.58 (break)
Hong Kong - Hang Seng Index: DOWN 1.5 percent at 16,346.71
Shanghai - Composite: DOWN 1.5 percent at 3,011.12
West Texas Intermediate: UP 0.9 percent at $86.14 per barrel
Brent North Sea Crude: UP 0.8 percent at $90.80 per barrel
Dollar/yen: UP at 154.36 yen from 154.24 yen on Monday
Euro/dollar: DOWN at $1.0608 from $1.0626
Pound/dollar: DOWN at $1.2423 from $1.2449
New York - Dow: DOWN 0.7 percent at 37,735.11 (close)
London - FTSE 100: DOWN 0.4 percent at 7,965.53 (close)
