By Danilo Masoni

MILAN (Reuters – Shares dropped and the dollar held at near-highs in holiday-thinned trades on Monday as worries about economic growth lingered prior to an expected U.S. interest rate hike this week. This was after data revealed that COVID-19 lockdowns slowed China’s factory activity.

MSCI’s benchmark global stocks index was 0.3% lower at 0811 GMT. It happened because European and Asian share prices fell before the Federal Reserve decision. Also, Wall Street suffered steep losses following Friday’s disappointing Amazon (NASDAQ) update.

Risk appetite was also affected by data that showed a slower pace of contraction in China’s factory activity. Volumes were however reduced due to the closure of London, most Asian markets and all of Asia for holidays.

Pan-European Index fell 1.2% to end a 3-day winning streak. South Korea’s was down 0.1% while its index declined 0.3%.

China saw a decline in factory activity as a result of COVID-19 lockdowns, which halted production and disrupted supply lines in China, the second-largest country.

On Monday, a survey showed that manufacturing in the euro area was slowing down as manufacturers struggled to find raw materials. Demand suffered from high prices and worries about the future.

There are concerns of a severe slowdown for global growth in Q2, as central banks across the globe begin to tighten their policy to reduce inflation. This is due to the increased violence in Ukraine.

Investors anticipate the Fed raising rates by 50 basis point on Wednesday. However, there is uncertainty about how hawkish Jerome Powell’s comments will follow the decision.

UniCredit’s Tullia Bucco, led by Tullia Bucco, stated that “a 50p increase in Fed Fund target rate and the announcement regarding the commencement of quantitative tightening seem to be a done thing.”

They added that “Market participants remain uncertain about whether the Fed’s big step forward in its policy-tightening process would be accompanied with dovish or neutral statements from Powell.”

UniCredit estimates that around 250 basis points rate increases have been priced in by the money markets before the year ends. This, UniCredit claims, reduces the possibility of hawkish surprises.

Wall Street experienced its biggest drop in 2020 as Amazon reported a grim quarterly report. Investors already concerned about increasing interest rates were also worried by the largest increase in monthly inflation rate since 2005.

U.S. equity forwards rebounded on Monday, sending Nasdaq higher between 0.8% – 0.6%

U.S. Treasury yields rose in European morning trade but remained below the peak reached last week.

The benchmark 10-year yield rose 0.4 basis point to 2.941% after reaching 2.981% as of April 20.

As investors prepared for the Fed rate increase, the dollar slipped back to its almost two-decade peak and the euro fell to $1.05

Last time the euro was seen at 103.32, with little change over the course of the day. At $1.0536, the euro fell 0.1%.

As concerns over China’s slow economic growth linger, oil prices dropped. However, this offsets the risks associated with supply stress due to a possible European ban on Russian crude.

After talks this weekend between EU member countries and the European Commission, two EU diplomats stated that the European Union was moving towards a ban of Russian oil imports at the end of 2012.

The price of a barrel fell by 0.9% to $106 and then dropped 1% to $103.69.

The increased U.S. yields caused gold prices to fall as demand for zeroyield bullion grew.

The price of an ounce was $1,883.66 less than it was a year ago.