MSCI’s Asia Pacific Index dropped the most in three months as shares from Hong Kong to Japan and South Korea slumped. Futures contracts for US stocks steadied in Asian trading after the S&P 500 erased earlier gains and fell more than 1% in a volatile session.

China’s slew of economic data was mixed as growth beat expectations in the first quarter, bolstering expectations the government can hit its ambitious annual target. The nation’s retail sales and industrial output numbers both fell short of estimates. 

The offshore yuan held morning losses as officials unexpectedly weakened its defense as pressure from a resurgent dollar and poor sentiment pressured it toward a policy red line.

Elsewhere, a gauge of emerging-markets currencies fell to a year-to-date low.

“Looks like a mixed bag,” says Vey-Sern Ling, managing director at Union Bancaire Privee. “First-quarter GDP growth is obviously better than expected but March retail sales and industrial output misses will raise some concerns for the second quarter.” 

Treasuries steadied on Tuesday after bond yields jumped to new year-to-date highs on stronger-than-expected retail sales data. Oil gained as Israel vowed to respond to an unprecedented attack by Iran, keeping tensions elevated in the Middle East.

“Stocks began to violate uptrends and pull back,” said Craig Johnson at Piper Sandler. “Interest rates are expected to stay higher for longer. A more cautious and tactical approach is favored as earnings season gets under way.” 

Elsewhere, the Japanese yen remained under pressure, after surging to a new 34-year low against the dollar overnight. The increasing risk that authorities in Tokyo may intervene in the market to stem the drop still lingers, after Japan’s finance minister warned that he’s ready to take all available measures in the foreign exchange market if needed. 

Fear gauge

Volatility perked up, with the premium for one-month put options to protect against a pullback in US equities hitting the highest since October. Wall Street’s “fear gauge” — the VIX — hit levels unseen this year. The S&P 500 broke below 5,100, dropping to the lowest in almost two months. The tech-heavy Nasdaq 100 slid over 1.5%. Both gauges breached their 50-day moving averages — seen as a bearish signal by several chartists. Banks outperformed on a surprise profit from Goldman Sachs.

Treasury 10-year yields spiked on Monday, while those on two-year notes came close to 5%. Bonds were also under pressure as JPMorgan Chase & Co. and Wells Fargo & Co. tapped the US high-grade bond market, the first in a likely parade of bond sales from banks after results. 

US retail sales rose by more than forecast in March and the prior month was revised higher, showcasing resilient consumer demand that keeps fueling a surprisingly strong economy. As long as a robust labor market supports household demand, there’s a risk that inflation will become entrenched.

“If the S&P 500 is going to avoid its first three-week losing streak since last September, investors will need to move past concerns that rate cuts will be delayed because of sticky inflation,” said Chris Larkin at E*Trade from Morgan Stanley. “In the near-term, that could come down to the tone set by the first full week of earnings season, but geopolitical tensions in the Middle East remain a wild card.”

In commodities, West Texas Intermediate advanced in Asia after reclaiming its $85 mark on Monday. Top Israeli military officials reiterated the country has no choice but to answer Iran’s weekend attack. Gold was steady in early trading.