Weak Chinese trade data and the debt limit deadlock, which sparked a dramatic sell-off in short-dated U.S. Treasury bonds, had traders on edge on Tuesday, sending share markets down.

Investors were focused on Wednesday’s U.S. inflation data, which might influence market pricing for rate reduction later in the year.

After MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.88%, Europe’s broad STOXX 600 index (.STOXX) fell 0.55% but was still around mid-April’s 14-month high.

Onshore Chinese blue chips fell 0.86% (.CSI300) and Hong Kong (.HSI) 2.12% after Chinese trade data showed an unexpected decline in imports and slower export growth, underlining the struggles facing the world’s second-largest economy despite the lifting of COVID-19 curbs in December.

“When it comes to the Chinese market, you have the question coming from investors now about the strength of the recovery,” said Frank Benzimra, Societe Generale’s Hong Kong-based head of Asian stock strategy.

“So when you have some trend data which is not as good as people expect, it raises doubts,” he added.

After big Swedish landlord SBB (SBBb.ST) canceled preparations for rights offering over liquidity problems that prompted S&P to reduce its credit rating to junk, the European subindex (.SX86P) fell more than 2%. SBB’s shares have been down 25% in the previous two sessions.

S&P 500 E-mini futures fell 0.34%.

The U.S. curve’s short end saw most bond market movement.

As investors sold bonds that would mature near the U.S. debt ceiling, 1-month Treasury bill rates surged 15 bps to 5.61%, and 2-month T-bill yields rose 13 bps to 5.26%.

Treasury Secretary Janet Yellen warned on Monday that failing to extend the $31.4 trillion federal debt ceiling would cripple the U.S. economy and devalue the dollar as the world’s reserve currency.

“Failure to raise the debt ceiling would be a major risk to the economy and markets, and even a ‘close call’ in 2011 resulted in significant underperformance of equities versus bonds,” Morgan Stanley wrote.

After Federal Reserve Chair Jerome Powell emphasized last week that policy choices will be “driven by incoming data” and signaled a rate hike halt, Wednesday’s U.S. consumer inflation report is also important.

However, Friday’s strong payroll data lowered investors’ expectations for the Fed’s first rate decrease.

Money markets forecast two quarter-point rate cuts by year-end, maybe three.

In April, economists predicted a small decrease in core inflation to 5.5% yearly, matching February’s low since 2021.

The 10-year Treasury yield fell from a one-week high to 3.5%, while the German 10-year yield was 2.318%.

The euro fell 0.25% to $1.09775 on the risk-off tone.

After rising overnight from within its trading range, the dollar index barely changed at 101.53.

Oil prices fell after two solid sessions. Brent crude sank 1.2% to $76.09, while WTI declined 1% to $72.43.

Due to lower oil prices, Aramco (2222. SE)’s first-quarter net earnings fell 19%.