European shares fell on Monday, while U.S. government bonds were under pressure as traders weighed weak economic data and the prospect of an imminent rate hike.

The regional Stoxx Europe 600 fell as much as 3% before recovering losses to trade 1.2% lower.

A closely watched survey showed Chinese manufacturing activity slowed last month at the sharpest pace since February 2020, as the coronavirus lockdown took a toll on the country’s economy.

China’s official purchasing managers’ index was 47.4 last month, up from 49.5 in March, according to data released over the weekend. Any number below 50 indicates a contraction.

The Caixin China General Manufacturing Report, a private survey, also pointed to a slowdown in China’s sprawling manufacturing sector. “Further tightening of Covid-19 restrictions in China led to a markedly faster decline in output and new business early in the second quarter,” the report said.

Meanwhile, the S&P Global Eurozone Factory Purchasing Managers’ Index fell to a 15-month low in April as production growth nearly stalled.

Chris Williamson, S&P Global Chief Business Economist, said: “Not only are companies reporting that the war in Ukraine and the new lockdown in China have exacerbated persistent parts shortages, but higher prices and heightened uncertainty about the economic outlook are also hitting demand.” .

In a sign of concerns about the global economy, Brent crude, the international oil benchmark, fell 3 percent to $103.98 a barrel.

On Wall Street, the benchmark S&P 500 struggled to find direction after the open, as did the tech-heavy Nasdaq Composite. The choppy trade followed a 3.6% and 4.2% drop in the two indexes in the previous session.

The Nasdaq fell 13.3% overall in April, its biggest monthly drop since 2008, at the height of the global financial crisis. It was the worst month for the benchmark S&P since the market turmoil in early 2020.

The Nasdaq’s sell-off in recent weeks comes as traders ramp up bets on the Federal Reserve to tighten monetary policy to stem a surge in inflation, which hit an annual rate of 8.5% in March, the fastest pace in 40 years. once. . Ahead of the Fed’s much-anticipated policy meeting on Wednesday, markets are expecting a more than half a percentage point rise in interest rates, followed by a similarly-sized hike at the next two meetings. The current main interest rate range is 0.25% to 0.5%.

Higher rates could dampen the appeal of more speculative companies whose expected profit streams have been flattered by low borrowing costs during the pandemic.

The prospect of tighter monetary policy also prompted investors to sell government bonds. The yield on the 10-year U.S. Treasury note – seen as a proxy for global borrowing costs – rose 0.08 percentage point to 2.97% on Monday. Bond yields rise as prices fall.

The U.S. dollar index, which measures the greenback against a basket of six other currencies, rose 0.5 percent after surging to a 20-year high last week.