Global equities fell on Monday after their worst week of 2019 as hopes of an imminent US-China trade deal were crushed, raising fears of a fresh round of tit-for-tat tariffs.

The impasse left investors bracing for retaliation by China for Washington’s increase on Friday of tariffs on $200 billion worth of Chinese goods. The move followed accusations by US President Donald Trump that Beijing had reneged on earlier commitments.

Trump on Monday warned China not to retaliate against an increase in tariffs he imposed last week.

Escalation could tip the US economy into recession, a risk flagged by the inversion in US Treasury bond yield curve between three-month and 10-year rates for the second time in under a week.

The US curve has inverted before each recession in the past 50 years. It gave a false signal just once.

“Overall, in the short term the chances of recession have increased, so equity markets will be priced on the back of that,” said Justin Oneukwusi, portfolio manager at Legal & General Investment Management.

The pan-European Stoxx 600 slipped 0.5%. S&P 500 futures shed 1.3%. Chinese shares tumbled. The benchmark Shanghai Composite and the blue-chip CSI 300 indices shed 1.2% and 1.8%, respectively.

The offshore Chinese yuan fell to its lowest in more than four months, 6.88 to the dollar.

Trade talks as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any “bitter fruit” that harmed its interests.

“How far this escalates is what the market is really worried about... The important thing is what’s the impact on growth, and that’s what the market is really fearing,” Oneukwusi said.

White House economic adviser Larry Kudlow told Fox News that China needed to agree to “very strong” enforcement provisions to secure a deal. He said the sticking point was Beijing’s reluctance to put into law changes that had been agreed.

Kudlow said US tariffs would remain in place while negotiations continued and Trump was likely to meet Chinese President Xi Jinping at a G20 summit in Japan in late June.

“The risk of a full-blown trade war has materially increased, even though both sides seem to still want a trade deal and talks are expected to continue,” UBS economist Tao Wang said.

Washington said it was preparing to raise tariffs on all remaining imports from China, worth about $300 billion.

“Our base case is for limited progress and Chinese retaliation,” said Michael Hanson, head of global macro strategy at TD Securities.

Major currencies were relatively calm. The euro was steady at $1.1234 and the dollar little changed against a basket of currencies at 97.270.

“We’ve seen pretty restrained moves among currencies, despite some severe rhetoric between the US and China so far. However, cause for concern remains a weaker yuan, which should be a warning sign for risk assets,” said Marc-André Fongern of MAF Global Forex.

Emerging-market stocks were down 0.9 per cent, hovering near January lows. JPMorgan said it had reduced its emerging-markets risk for the second time in as many months on Monday following the set-back in U.S-China trade talks.

In commodities, oil futures jumped on growing concern about supply disruptions in the Middle East. Brent crude futures rose 1.8% to $71.90 a barrel and US West Texas Intermediate futures were up 1.5% at $62.56 per barrel.

In digital currencies, Bitcoin hovered above $7,000 on Monday, close to nine-month highs, as the biggest cryptocurrency’s 2019 rally gathered steam.

Meanwhile, gold prices fell on Monday as an escalating trade conflict between Washington and Beijing weighed on the yuan, denting demand in the world’s biggest consumer of the metal, China.

Spot gold was down 0.2% at $1,283.63 an ounce at 1031 GMT. US gold futures slipped 0.3% to $1,284.20.

“Gold is trading a touch softer even though some of the outside market should be providing support. Bond yields are lower, stocks are lower and the dollar is also slightly down − all gold-friendly developments,” said Saxo Bank connodity strategist Ole Hansen.

“We’re seeing the negative impact from the yuan.” The yuan was set for its worst daily fall in nine months, hurt by trade concerns, making gold expensive for buyers in China. USD/] Trade tensions have plagued investors in wider markets, with Washington increasing tariffs on $200 billion of Chinese goods on Friday, raising the chances of a retaliation from Beijing.

The two biggest economies appeared to be deadlocked on Sunday as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any “bitter fruit” that harmed its interests.

However, gold has been stuck in a $15 range over the past week despite weakness in global equity markets.

“Also, another market we don’t watch often, bitcoin, seems to be on fire once again,” said Saxo Bank’s Hansen.

Agencies