LONDON - Investors sought the safety of government bonds, the yen, the Swiss franc and gold on Monday, as rising trade tensions dented stocks again and pushed oil close to bear market territory.
After a torrid May that wiped $3 trillion off global equities, the worsening trade and broader economic backdrop made for a jarring start to June.
European shares fell further and the Swiss franc jumped to a two-year high as Beijing sent another shot across Washington's bows on trade and then euro zone data came in weak, though the main groundswell was in bonds.
German government bond yields -- which move inversely to price -- were pinned at all-time lows and those on two-year U.S. Treasuries were seeing their biggest two-day fall since early October 2008, when the global financial crisis was kicking off.
"Bonds are more or less on fire and I think we are going to spend the week with trade dominating everything else," said Societe Generale global strategist Kit Juckes.
With German and UK political concerns and worries about Italy's finances resurfacing too, "it is hard to think the yen is not going to be at least one of the winners this week," he said.
The Japanese currency rose, as did Europe's go-to safety play, the Swiss franc, which rallied to its highest in nearly two years against the euro. The euro hovered at $1.1171 having been stuck in one of its tightest ranges ever against the dollar.
Asia ex-Japan stocks had fared better overnight as gains in South Korea and India offset weakness in Tokyo and elsewhere. Chinese shares ended little changed though the yuan faced pressure.
A private survey of China's manufacturing sector published on Monday suggested a modest expansion in activity as export orders bounced from a contraction.
Economists noted increased in new export orders pointed to possible front-loading of U.S.-bound shipments to avoid potential tariff hikes that U.S. President Donald Trump - who kicked off a potentially confrontational state visit to Britain on Monday - had threatened to slap on another $300 billion of Chinese goods.
"Chinese companies probably see the current export conditions as severe as during the China shock in 2015," said Wang Shenshen, economist at Tokai Tokyo Research Center.
RISING TENSIONS, FALLING ACTIVITY
With the bitter trade weighing, factory activity contracted in most Asian countries and the euro zone last month, surveys showed.
The euro zone's slowdown was for the fourth month running, and at an accelerating pace, as slumping automotive demand, Brexit and wider political uncertainty took their toll.
"The sector remains in its toughest spell since 2013," said Chris Williamson, chief business economist at IHS Markit.
Sino-U.S. tensions escalated again at the weekend as the two countries clashed over trade, technology and security.
A senior Chinese official and trade negotiator said on Sunday the United States could not use pressure to force a trade deal, refusing to be drawn on whether the leaders of the two countries would meet at the G20 summit at the weekend.
The standoff between the world's two largest economies goes beyond trade, with tension running high ahead of the 30th anniversary of a bloody Chinese military crackdown on protesters around Beijing's Tiananmen Square.
China's Defence Minister Wei Fenghe warned the United States not to meddle in security disputes over Taiwan and the South China Sea, after acting U.S. Defence Secretary Patrick Shanahan said Washington would no longer "tiptoe" around Chinese behaviour in Asia.
"No one now thinks a deal would be possible at the G20. It is going to be a prolonged battle. Investors are rushing to the safe assets," Mitsubishi's Fujito said.
BEWARE OF THE BEARS
The gloomy economic outlook has prompted traders to increase bets that the U.S. Federal Reserve will cut interest rates sooner rather than later.
Fed funds rate futures are almost fully pricing in two rate cuts this year, one by September, with more than a 50 percent chance of a move by July 30-31.
The 10-year U.S. Treasuries yield fell to as low as 2.07 percent, a level last seen in September 2017.
In commodity markets, Brent oil futures tumbled 1.8% to $60.86 per barrel. They have dropped almost 20 percent since April, a move classed as a 'bear market' in trader parlance. U.S. crude futures dropped 1.3% too to below $53 a barrel for the first time since mid-February.
Copper futures in Shanghai fell 0.5% to two-year lows while safe-haven gold jumped as much as 0.5% to a 10-week high of $1,312.4 per ounce.
The Mexican peso, hit by Trump's sudden threat on Friday to impose tariffs, regained some stability, trading at 19.6266 to the dollar after its 2.5% fall on Friday.
Mexico's president Andres Manuel Lopez Obrador hinted on Saturday his country could tighten migration controls to defuse tensions with Trump, saying he expected "good results" from talks planned in Washington this week.