European and Asian stocks unravelled yesterday, resuming a midweek slump, with investors spooked by a ratcheting up of trade war clouds after US President Donald Trump announced tariffs on all Mexican imports.
The biggest faller among Europe's leading indices was Frankfurt, down a hefty 1.8 per cent in midday deals.
And the yield on 10-year German government bonds hit a record low as investors piled into haven assets following the exacerbation of global trade tensions.
The rate of return for investors on 10-year German government bonds, or Bunds, hit minus 0.211 per cent in the secondary market yesterday, breaking the previous record of minus 0.205 per cent set in July 2016.
Tokyo's main stocks index meanwhile tumbled 1.6 per cent by the close as the yen rallied against the dollar, making Japanese exports more expensive.
The dollar hit a six-month low at 19.76 Mexican pesos.
Oil prices meanwhile dived to the lowest levels since early March on Trump's intervention over Mexico and after 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 on Thursday kick-started the process of ratifying the new North American trade pact, but he has now put the accord at risk, according to experts.
Trump's Twitter announcement of a five per cent tariff on all goods from Mexico starting June 10 was aimed at tackling “illegal migrants” crossing the border into the US.
Mexico's under-secretary for North American affairs called the move "disastrous" and vowed to retaliate.
Carmakers were among the hardest hit by Trump's announcement, with shares in Mazda plummeting 7.1 per cent, Nissan tumbling 5.3 per cent, Renault shedding 4.6 per cent and Volkswagen losing 3.6 per cent.
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 yesterday showed that the Asian nation's manufacturing activity contracted more than expected in May.
In Europe, figures showed Italy's GDP grew just 0.1 per cent in the first quarter of this year, slightly revising an earlier forecast in bad news for the government as it locks horns with Brussels.
Data also showed that Turkey exited recession with 1.3 per cent growth in the first quarter.