LONDON: Investors fled stocks for safe-haven assets Friday after being spooked by the latest salvos fired in the global trade war.
With US President Donald Trump announcing tariffs on all Mexican imports and China warning it would create a list of “unreliable" foreign companies, investors piled into low-risk assets, sending the yield on 10-year German government bonds to a record low.
The rate of return for investors on 10-year German government bonds, or Bunds, hit minus 0.213 percent in the secondary market, breaking the previous record of minus 0.205 percent set in July 2016.
The yen, another safe-haven investment, shot higher. Because this makes Japanese exports more expensive, Tokyo's main stocks index tumbled 1.6 percent.
In European trading, the biggest faller was Frankfurt, dropping 1.5 percent.
On Wall Street, the Dow was down 0.8 percent in midday trading.
The dollar hit a six-month high against the Mexican peso at 19.8279 pesos to the dollar.
Oil prices dived to their lowest levels since early March on Trump's move against Mexico and also owing to a smaller-than-expected drop in US crude supplies, traders said.
“Showing up Thursday's rebound as a display of investor naivety, the markets sank on Friday as a new front opened up in Trump's trade war on the world," noted Connor Campbell, analyst at Spreadex trading group.
Trump's Twitter announcement late Thursday of a five percent tariff on all goods from Mexico starting June 10 was aimed at forcing the country to stem a flow of “illegal migrants" crossing the border into the US. On Friday, he linked to stopping the flow of illegal drugs into the US.
Trump had only recently kick-started the process of ratifying a new North American trade pact by removing all tariffs on aluminium and steel, but he has now put the accord at risk, according to experts.
Trump had also recently put off hiking tariffs against European and Japanese cars, which had reassured markets.
The announcement of the new tariffs against Mexico “throws open to question the integrity of any trade deal that is signed off in the future with China, and or the European Union," said CMC Markets UK analyst Michael Hewson.
Carmakers were among the hardest hit by Trump's announcement, with shares in Mazda plummeting 7.1 percent, Nissan tumbling 5.3 percent, Renault shedding 4.3 percent and Volkswagen losing 2.8 percent.
Trump's action comes amid a protracted trade war between the United States and China.
The president's tariff hike on $200 billion in Chinese goods earlier this month “may already be undermining foreign demand", analyst Julian Evans-Pritchard of consultancy Capital Economics wrote in a research note.
China is retaliating by raising tariffs on $60 billion worth of US goods on Saturday, while official data Friday showed that the Asian nation's manufacturing activity contracted more than expected in May.
And on Friday China announced it would release a list of “unreliable" foreign companies and individuals, striking back after the United States targeted telecom giant Huawei in their escalating trade war.
– Key figures around 1530 GMT –
London – FTSE 100: DOWN 0.8 percent at 7,161.71 points (close)
Frankfurt – DAX 30: DOWN 1.5 percent at 11,726.84 (close)
Paris – CAC 40: DOWN 0.8 percent at 5,207.63 (close)
EURO STOXX 50: DOWN 1.1 percent at 3,280.20
New York – Dow: DOWN 0.8 percent at 24,977.39
Tokyo – Nikkei 225: DOWN 1.6 percent at 20,601.19 (close)
Hong Kong – Hang Seng: DOWN 0.8 percent at 26,901.09 (close)
Shanghai – Composite: DOWN 0.2 percent at 2,898.70 (close)
Euro/dollar: UP at $1.1146 from $1.1130 at 2100 GMT
Pound/dollar: DOWN at $1.2620 from $1.2613
Dollar/yen: DOWN at 108.68 yen from 109.61 yen
Oil – Brent Crude: DOWN $2.23 at $64.64 per barrel
Oil – West Texas Intermediate: DOWN $1.71 at $54.88 per barrel