Equity markets tumbled in Asian trade Tuesday following steep losses on Wall Street as investors grow increasingly worried about a surge in inflation that could force central banks to wind back their ultra-loose monetary policies earlier than forecast.
All eyes are on the release this week of crucial data on US retail sales and consumer prices, with expectations for a sharp rise as the world's top economy reopens and vaccines allow people to return to a sense of normality.
A massive miss on US jobs creation last week that indicated the recovery was not going to be as smooth as thought provided some relief from those fears but a rally in commodities—particularly widely used copper and iron ore—has markets concerned that costs will spiral.
Signs that this is having an effect were seen in data from China that showed prices paid at the country's factory gates rose last month at their fastest pace in four years.
Those worries continue to hover over trading floors, despite repeated assurances from the Federal Reserve that it will stick to its huge bond-buying and record-low interest rate position for as long as needed until it has unemployment tamed and inflation is running consistently hot.
While Fed bosses have said they see inflation coming in high for a few weeks owing to the low base of comparison from last year, a high reading would ramp up pressure on policymakers to make sure they do not let it get out of hand.
"Inflationary concerns will dominate the focus this week, but the base effects are widely priced in and this upcoming reading will likely only serve as a baseline," said OANDA strategist Edward Moya.
And there is a feeling that the issue will dog markets for some time, even as investors are confident the global economy is well on the recovery path.
"We're going to see volatility definitely over the next couple of months" given uncertainty over the path of growth, Kristen Bitterly, of Citi Private Bank, told Bloomberg TV.
Nervousness ahead of the US data sent traders rushing for the doors Monday. The Dow snapped a three-day streak of records and the S&P 500 lost more than one percent, while the Nasdaq shed 2.6 percent with tech firms considered vulnerable to higher borrowing costs.
And Asia followed the lead, with Tokyo and Taipei each dropping more than three percent, while Hong Kong was off more than two percent. Sydney and Seoul retreated more than one percent, and there were also losses in Shanghai, Singapore, Wellington, Manila, Mumbai, Bangkok and Jakarta.
- Key figures around 0450 GMT -
Tokyo - Nikkei 225: DOWN 3.2 percent at 28,577.01
Hong Kong - Hang Seng Index: DOWN 2.2 percent at 27,982.21 (break)
Shanghai - Composite: DOWN 0.3 percent at 3,398.59 (break)
Euro/dollar: UP at $1.2144 from $1.2128 at 2100 GMT
Pound/dollar: UP at $1.4129 from $1.4117
Euro/pound: UP at 85.95 pence from 85.88 pence
Dollar/yen: UP at 108.84 yen from 108.77 yen
West Texas Intermediate: DOWN 0.7 percent at $64.47 per barrel
Brent North Sea crude: DOWN 0.7 percent at $67.84 per barrel
New York - Dow: DOWN 0.1 percent at 34,742.82 (close)
London - FTSE 100: DOWN 0.1 percent at 7,123.68 (close)