Asian and European markets fell in holiday-thinned trade on May 2 following another tech-led rout on Wall Street, with focus on the US Federal Reserve’s (Fed) expected interest rate hike this week.

Adding to the dour mood was official data showing Chinese manufacturing activity shrank last month at its fastest pace since the start of the pandemic owing to Covid-19 lockdowns in the country’s biggest cities.

The government’s refusal to shift from its zero-Covid policy and strict containment measures is fanning fears about the key driver of global growth.

Trading floors around the world have been buffeted for months by a perfect storm of crises including China’s lockdowns, surging inflation, Fed plans to hike rates, elevated oil prices and the Ukraine conflict.

All eyes are on the US central bank’s policy meeting this week, which is expected to see it hike borrowing costs by half a point – the most since 2000 – and follow it with several more increases before the end of the year.

And now some analysts are predicting it could even announce a three-quarter-point increase at some point as it battles more than 40-year-high inflation.

However, with some commentators warning rates could go as high as three per cent, there are also worries the Fed could be too heavy-handed and tip the US economy into recession.

Fed boss Jerome Powell “could cement the view that 50 [basis points] is the new 25, but more worrying for stock pickers, there are lots of QE to unwind”, said SPI Asset Management’s Stephen Innes, referring to the quantitative easing bond-buying programme used by the Fed to keep rates low.

“So, the question is, how much of the impact of the balance sheet runoff” has been priced in.

The prospect of higher borrowing costs has been compounded by a sharp slowdown in China, with lockdowns in the biggest cities including Shanghai slamming output and snarling supply chains.

Official data at the weekend showed that the country’s manufacturing activity shrank the most it has since February 2020, and the near future does not look promising as officials shut down cinemas and gyms over the May Day holiday.

Beijing on April 29 further flagged plans to provide support to the economy and signalled an easing of a painful tech crackdown. But the announcement follows several other recent pledges and traders are yet to see any concrete measures, with most wanting to see a softer approach to controlling the virus.

“We remain deeply concerned about growth,” Nomura Holdings economists said in a note.

“Despite the raft of policy measures announced by the Politburo meeting [on April 29], we still believe markets should remain focused on the development of the pandemic and the corresponding zero-Covid strategy. All other policies are of secondary importance.”

On equity markets, Tokyo, Seoul, Mumbai, Manila and Wellington all fell.

Sydney also retreated, though Qantas rose more than two per cent after saying it would launch the world’s longest non-stop commercial flight between Sydney and London by the end of 2025.

Paris and Frankfurt sank at the open, though US futures were in positive territory.

London, Hong Kong and mainland Chinese markets were closed along with those in Taipei, Singapore, Bangkok and Jakarta.

The struggles in China, the world’s biggest crude importer, led to a drop in prices of the commodity on demand concerns, offsetting worries about supplies from Russia caused by the Ukraine conflict.

EU talks to scale back imports of oil from Russia, following embargoes by the US and Britain, continue to provide support.

“But further gains will be limited to weaker oil demand prospects from China due to the continued expansion of lockdowns and mass testing across the region,” added SPI’s Innes.