Stock markets and the dollar slid Thursday after Wall Street suffered its worst showing this year, as mounting fears of a possible global recession saw investors flee equities for havens such as bonds, the yen and gold.
"The slew of negative news has seen a huge shake down in global equity markets, and money has poured into government bonds," noted David Madden, analyst at CMC Markets UK.
The yield on the 10-year US Treasury bond slid Wednesday below the yield on the two-year note, a so-called "inversion" that has been a reliable harbinger of recession for decades.
"US-China trade tensions have metastasised into something more sinister by affecting global growth to such a large degree that bond markets are pricing-in a high probability of a worldwide recession," warned Stephen Innes, managing partner at VM Markets.
Europe's main stock markets had tumbled by more than 1.5 per cent approaching the half-way mark Thursday.
Tokyo closed down more than 1.0 percent and Sydney plummeted nearly three per cent.
Wall Street's main indices also slumped by about three percent on Wednesday.
The trade war has hammered global demand, with data this week showing China's industrial output had struck a 17-year low, while investment and retail sales have also slowed in the world's number-two economy after the US.
Weeks of pro-democracy protests in Hong Kong have added to the climate of uncertainty, with Beijing referring to the increasingly violent demonstrations as "terrorism", stoking fears of a Chinese crackdown.
Economists have warned for months that the trade tensions were threatening investment and dampening global sentiment, which is already suffering owing to China's slowdown and fears over Brexit's impact on Britain and Europe, with Germany's economy showing contraction.
"The drawn-out... trade war has sapped investor confidence. It is now threatening to turn what would have been an orderly and gentle slowdown, after ten years of uninterrupted growth, into something potentially much more aggressive," said Jeffrey Halley, senior market analyst at OANDA.
Elsewhere Thursday, the pound climbed against the dollar and euro as official data showed British retail sales rose unexpectedly by 0.2 per cent in July.
"The UK's retail data surprised the investors by posting an upbeat reading and traders pushed the (pound) currency higher," said Naeem Aslam, chief market analyst at Think Markets.
"The current bounce in the currency may not live for long because there is no light at the end of the Brexit tunnel," he cautioned.
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