A benchmark of the region’s shares fell around 0.3%, with notable weakness in Hong Kong and Alibaba Group Holding one of the biggest contributors to the decline there. Contracts for US indexes retreated slightly following a mixed session on Wall Street.

Treasuries steadied after being at the centre of the action in the US hours. Policy-sensitive two-year yields reversed gains of as much as 11 basis points Monday and ended six basis points lower after a measure of US factory activity contracted by more than expected. That came after figures earlier in the day showed China’s manufacturing activity unexpectedly eased.

While such data is tempering inflation concerns despite expected energy hikes after the cartel’s production cut, it also shows the darkening economic outlook is spreading to Asia.

One test for the region comes in Australia later on Tuesday, with the central bank to decide whether to raise interest rates for an 11th consecutive meeting or pause its most aggressive tightening cycle since 1989. Economists are divided over which way the Reserve Bank of Australia will go while traders have been positioning for rates to stay on hold.

“The RBA has been dovish of late and could potentially become more hawkish and back flip in light of OPEC+ production cuts, which may result in the Australian dollar whipsawing higher,” a team of strategists at Saxo Capital Markets, including Charu Chanana, wrote in a note. 

In the US, Federal Reserve Bank of St Louis president James Bullard told Bloomberg Television that OPEC+’s decision to cut output was unexpected and an increase in oil prices could make the Fed’s job of lowering inflation more challenging. “Whether it will have a lasting impact I think is an open question,” he said.

As the possibility of a recession looks more likely, the upcoming earnings season may be the first of challenging quarters.

“We would expect to have a cap on future market appreciation in the short term here in the States,” Karen Robbins, senior vice president for wealth management at UBS, said on Bloomberg Television. OPEC+’s oil output cut is going to be a real issue for the Fed, prompting the central bank to raise rates again in May, Robbins said.

JPMorgan Chase & Co strategist Marko Kolanovic reiterated the bank’s underweight call on equities in a note to clients, warning that “stocks are set to weaken for the remainder of the year” as headwinds from banking turbulence, oil shocks, and slowing growth linger.

Australian bond yields dropped, with both the three-year and 10-year maturities down about four basis points. The Australian dollar was little changed after a 1.5% gain on Monday and a gauge of greenback strength was up fractionally after a 0.4% decline.

Meanwhile, the Hong Kong Monetary Authority bought the local dollar for the first time since mid-February after the currency slid past the weak end of its trading band. South Korean inflation eased more than expected in March, reducing pressure on the central bank to resume policy tightening.

Further into the week, the US government’s monthly employment report will be released Friday and will give a fuller picture of the job market. Swaps linked to Fed interest-rate expectations showed a quarter-point hike in May as more likely than not.

In commodities, West Texas Intermediate advanced toward $81 a barrel and Brent moved past $85 after both rallied more than 6% on Monday. Gold traded lower. BM/DM