On Monday morning, stock indexes in the Asia-Pacific region declined after unexpected data on inflation in the United States, which increased the likelihood of tightening monetary policy by the US Federal Reserve.

Japan’s Nikkei 225 index fell 2.57% by 22:46 ET (02:46 GMT).

South Korea’s KOSPI index fell 2.77%.

Hong Kong’s Hang Seng index fell 2.63%.

The Chinese Shanghai Composite index fell by 1.01%, and the Shenzhen Component — by 0.85%.

Investors are also concerned that the resumption of severe restrictions due to the spread of COVID-19 in China could damage the global economy and supply chains. Beijing’s most populous Chaoyang district announced 3 rounds of mass testing on Sunday, as clusters of COVID-19 outbreaks were detected there.

The Australian market is closed due to the holiday.

The US consumer price index, published on Friday, rose by 8.6% year-on-year in May, reaching a new high in 40 years, reinforcing investors’ fears about a recession caused by tightening monetary policy.

The yield on short-term Treasury bonds has risen sharply, and the yield on 30-year Treasury bonds is lower than the yield on 5-year bonds due to fears of a recession.

Many investors expect an interest rate hike in the US by half a point this week, as well as in July and September, while some investors are betting that an even bigger rate hike — by 75 basis points – is possible at the Federal Reserve’s June meeting.

The inflation data is a tipping point that forces the Fed to switch to a higher speed, accelerating the tightening of monetary policy,” Jefferies strategist Aneta Markowska said in a note, raising the forecast for a rate hike this week by 75 basis points.

“Inflation has not peaked, it has not even reached a plateau. It is still accelerating, and this will probably be the case in June as well.

In addition, traders continue to worry about the situation with coronavirus in China. The country is struggling with new outbreaks of the pandemic after the easing of some restrictive measures, which prompts investors to think about the return of all restrictions on movement.

“This means that the previous optimism about the resumption of China’s work may also take a pause, as the resumption of mass inspections in Beijing and Shanghai seems to bring the risks of COVID-19 to the fore again,” IG analyst Yeap Jun Rong told the Associated Press.