Stocks, U.S. futures and commodities sank Monday as investors weigh China’s worsening Covid situtation and the potential for more aggressive interest-rate increases dragging on growth. Treasury yields retreated.

A sell-off deepened in Asia, where MSCI Inc.’s Asia-Pacific gauge fell for the sixth session in seven with declines in Japan, Hong Kong and China. S&P 500 and Nasdaq 100 futures contracts dropped in a sign of further weakness as traders ratchet up expectations for steep policy tightening to tame inflation.

Treasuries paused the rout of the past week that roiled markets trying to gauge how high yields can go. The dollar extended an advance as investors opted for safe havens. Crude fell below $100 a barrel — after sliding for the third week in four — as China lockdowns amplify demand fears.

China ordered mandatory Covid tests in a district of Beijing and locked down some areas of the capital as policy makers raced to prevent a repeat of the outbreak that’s hobbled Shanghai for weeks. The offshore yuan fell to the lowest since April 2021 after the daily fixing was in line with forecasts.

Federal Reserve Chair Jerome Powell endorsed a 50 basis-point increase next month and at least one more such move, outlining his most bold approach yet to reining in surging prices. Stronger tightening signals from the European Central Bank are also undermining risk appetite.

“There has been little to avert the investor pessimism as inflation and interest rate expectations start to bite,” Geir Lode, head of global equities at Federated Hermes Ltd., said in a note. “In particular due to the uncertainty of the macro environment, expectations are low with regard to forward estimates and guidance, building on lowered expectations from the previous quarter.”

Investors are keeping a close watch on any policy measures from China as assets there are under pressure from the nation’s steadfast adherence to its Covid-zero policy.

“The fundamentals of the Chinese economy remain quite solid,” Jenny Zeng, AllianceBernstein co-head of Asia Pacific fixed income, said on Bloomberg Television. “The worry is the current policy support that the government has already put in place may not be effective because of the Covid policies as activities are subdued.”

The war in Ukraine continues to provide an uncertain backdrop for the markets. U.S. Secretary of State Antony Blinken and Defense Secretary Lloyd Austin arrived in Kyiv for talks as Russia’s war on Ukraine enters its third month.

The euro erased gains made after Emmanuel Macron’s win on a pro-business, pro-Europe platform in the French election removed a key risk for markets. Markets in Australia and New Zealand are closed for holidays Monday.

Events to watch this week:

  • Tech earnings include Alphabet, Meta Platforms, Amazon, Apple
  • EIA oil inventory report, Wednesday
  • Australia CPI, Wednesday
  • Bank of Japan monetary policy decision, Thursday
  • U.S. 1Q GDP, weekly jobless claims, Thursday
  • ECB publishes its economic bulletin, Thursday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.7% as of 10:43 a.m. in Tokyo. The S&P 500 fell 2.8%
  • Nasdaq 100 futures fell 0.7% The Nasdaq 100 fell 2.7%
  • Topix index fell 1.5%
  • Kospi index lost 1.5%
  • Hang Seng Index fell 2.6%
  • Shanghai Composite Index lost 2.1%

Currencies

  • The Japanese yen was at 128.59 per dollar
  • The offshore yuan was at 6.5525 per dollar, down 0.4%
  • The Bloomberg Dollar Spot Index rose 0.1%.
  • The euro was at $1.0791

Bonds

  • The yield on 10-year Treasuries fell four basis points to 2.86%

Commodities

  • West Texas Intermediate crude fell 2.6% to $99.42 a barrel
  • Gold was at $1,931.29 an ounce