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Global equities tumbled and safe-haven sovereign bonds surged Friday after President Donald Trump’s unexpected threat of tariffs on Mexican goods added to fears that escalating trade wars will push the U.S. and other major economies into recession.

The yield on Germany’s 10-year government bond - regarded as one of the safest assets in the world - fell to a record low while U.S. Treasury yields slipped to 20-month lows.

Washington says it will impose a 5-per-cent tariff beginning June 10, which would then rise steadily to 25 per cent until illegal immigration across the southern border is stopped. Trump tweeted the decision late Thursday, catching markets by surprise.

“Very clearly when we all thought that the main trade tensions in the world were between the U.S. and China or perhaps between the U.S. and Europe, we hadn’t realized there will be another trade tension with Mexico ... and it raises concerns about who the next country may be,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

A key measure of Chinese manufacturing activity for May also came in below expectations, raising questions about the effectiveness of Beijing’s stimulus steps and the health of the global economy.

“It is a nasty slowdown, it looks likely to be taking longer than we thought. Many thought that the slow down would be in Q1 and the recovery in Q2, but clearly everything that we see in May is telling us this will be pushed back into Q3 or Q4,” Milligan added.

MSCI’s gauge of stocks across the globe shed 0.61 per cent.

Canada’s main stock index also fell on Friday as investors digested U.S. President Donald Trump’s shock threat of tariffs on Mexico.

The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 51.75 points, or 0.32 per cent, at 16,036.49.

Trump’s directive also spelled the potential for chaos for the U.S. Congress approval of USMCA deal, which was negotiated as a replacement to the North American Free Trade Agreement between the United States, Mexico and Canada.

Meanwhile, latest data showed the Canadian economy grew slower than expected in the first quarter, although market participants were heartened by signs of a strong recovery in March.

Eight of the index’s 11 major sectors were lower, dragged down by a 1.1-per-cent fall for both the heavyweight financial and energy sectors.

Health care stocks dropped 3.6 per cent as marijuana stocks fell. Cronos Group Inc. lost 5 per cent, while Aurora Cannabis Inc. and Canopy Growth Corp. dipped 4.9 per cent and 4.3 per cent, respectively.

Among notable gainers was the materials sector. The sector, which includes precious and base metals miners and fertilizer companies, added 2.5 per cent as investors’ flight to safer assets boosted gold prices.

On Wall Street, the Dow Jones Industrial Average fell 356.74 points, or 1.42 per cent, to 24,813.14, the S&P 500 lost 36.6 points, or 1.31 per cent, to 2,752.26 and the Nasdaq Composite dropped 113.09 points, or 1.49 per cent, to 7,454.62.

The pan-European STOXX 600 index lost 0.81 per cent. Carmakers led the retreat by dropping nearly 3%, while Volkswagen and Fiat Chrysler - both significantly exposed to Mexico - tumbled 3.6% and 5%.

Spanish banks with exposure to Mexico - Santander, Sabadell and Bilbao - also suffered.

Bonds extended their bull run with 10-year Treasury yields now down around a steep 35 basis points for the month and decisively below the overnight funds rate. U.S. 3-month yields were some 20 basis points above those on 10-year Treasury bonds, the biggest inversion since 2007.

In currency markets, the U.S. dollar suffered the biggest one day fall against the safe haven Japanese yen since March at 0.8 per cent. Against a basket of currencies, the dollar pulled 0.1 per cent lower to trade at 98.013.

The euro also fell sharply against the Japanese yen and was down nearly 0.6 per cent at 121.23 after touching the lowest since a Jan. 3 flash crash.

China’s yuan is set for its worst month since July last year and was heading towards the crucial 7 per dollar figure. Sterling was plumbing its lowest level in nearly five months and poised for the biggest monthly drop in a year as the imminent departure of Theresa May as prime minister deepened fears about a chaotic divorce from the European Union.

Oil slumped over 3 per cent on Friday and posted its biggest monthly drop in six months, after Trump stoked global trade tensions by threatening tariffs on Mexico, a key U.S. trade partner and a major supplier of crude oil.

Brent crude futures fell $2.38, or 3.6 per cent, to settle at $64.49 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell $3.09 to $53.50 a barrel, a 5.5 per cent loss.

During the session, Brent fell to a session low of $64.37 a barrel, lowest since March 8. WTI sank to $53.41 a barrel, weakest since Feb. 14.

Brent futures posted an 11 per cent slide in May and WTI a 16 per cent drop, their biggest monthly losses since November.