Alarm bells were ringing yesterday as new US sanctions drove down Russia’s rouble and worries that Turkey was sliding towards a full-blown economic crisis battered the lira.

A rally in Chinese stocks had helped offset the latest escalation in the Sino-US trade war overnight after Beijing matched the latest US sanctions, but too much was going on nearby for Europe to remain unscathed.

London’s FTSE, Frankfurt’s DAX and Paris’s CAC40 were down 0.7 per cent, 0.3 per cent and 0.4 per cent respectively, while German government bonds rose in a broad grab for safety.

Wall Street futures pointed to a steady start in New York but that was deceptive.

The main fireworks were in the currency markets.

The Russian rouble sank after Washington said it would impose fresh sanctions because it had determined that Moscow had used a nerve agent against a former Russian agent and his daughter in Britain, something the Kremlin denies.

There were also reports of a new US Senate Bill that, if passed, would impose even more widespread punishments for meddling in US elections.

The rouble slid to its lowest since late 2016, hitting 66.1 rubles to the dollar and leaving it almost four per cent lighter than it had been 24 hours previously.

Turkey's lira, bond and stocks markets were taking even more of a pounding yesterday after meetings between officials in Washington looked to have made little progress in mending a row over Ankara’s jailing of an American pastor.

The lira touched a record low of 5.44 against the dollar, weakening some 2.5 per cent from Wednesday’s close. There was widespread selling in the country’s bond marketsand Istanbul stocks dropped 1 per cent too.

Asia had been much brighter. Shanghai blue chips closed up 2.5 per cent after talk of possible government support for home-grown technology companies, the latest in a series of growth-boosting measures rolled out by Beijing as the trade dispute worsens.

Hopes for more Chinese infrastructure spending underpinned industrial resources, including iron ore and copper.

The oil market took the news hard on Wednesday, suffering losses of more than three per cent. Prices steadied a little yesterday, with US crude edging down 13 cents to $66.80 per barrel and Brent flat at $72.27.

Back in the FX markets, it wasn’t only emerging-market currencies that were struggling.

The pound wallowed at its lowest against the dollar and euro in almost a year as fears remained that Britain might leave the European Union without a deal on trade.

Traders reported a significant increase in investors hedging against a no-deal Brexit, an event that could send sterling into free fall and hurt the economy by raising trade barriers with Britain’s biggest export market.

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