London — European stocks posted their biggest drop of 2019 on Friday and German bond yields hit record lows after US President Donald Trump fired his latest trade war salvo at China, jolting markets and sparking a frenzied bid for safe-haven assets.

Trump is imposing a 10% tariff on $300bn of Chinese imports from September 1, escalating a bruising and protracted trade war between the world’s two biggest economies.

China said on Friday it would have to take counter-measures.

The abrupt end to a truce in the trade war capped a critical week for global markets after the US Federal Reserve delivered a widely anticipated interest-rate cut but played down expectations of many more rate cuts ahead.

Markets around the globe dived into a sea of red, with the pan-European Stoxx dropping 2% in its sharpest daily tumble of 2019. The trade-sensitive DAX and France’s CAC 40 dropped 2.7%, the former hitting a fresh two-month low.

“The combination of the Fed delivering a cut but not really what the market expected or wanted has tightened financial conditions, and may partly be the reason why Trump has gone for this escalation,” said Gerry Fowler, investment director at Aberdeen Standard Investments. “It is not good for what was already weak business sentiment.”

MSCI’s index of world stocks dropped 0.6% as Asian bourses nursed heavy losses. Japan’s Nikkei fell 2.1%, Hong Kong slumped 2.5% and China mainland stocks declined about 1.5%.

US stocks futures pointed to main indices opening 0.3% lower. On Thursday, the S&P 500 skidded 0.9% to hit one-month lows overnight.

Trump’s announcement, which came a day after US and Chinese negotiators concluded a meeting in Shanghai without much progress, marks an end to a trade truce struck in June and could further disrupt global supply chains.

The proposed levies triggered a stampede for safe-haven assets. Core eurozone bond yields tumbled, with German 10-year government bond yields dropping more than three basis points to an all-time low of -0.529%. That tracked the drop in 10-year US treasuries yields to 1.832% — the lowest since November 8, 2016, the day Trump was elected president.

Trump’s move may force the Fed to cut interest rates again to protect the US economy from trade-policy risks after its first rate cut in more than a decade on Wednesday. Although Fed chair Jerome Powell said the rate cut was a “mid-cycle adjustment” and not a start to a full-blown rate-cutting cycle, markets aren’t fully convinced.

The October Fed funds rate futures have jumped to now fully price in a rate cut in September, compared with only about 60% before the tariff announcement. Another 25-basis-point move is priced in by December.

“In the grand scheme of things, it will become clearer and clearer that the Fed has started an easing cycle and will have no choice but to cut rates further,” said Akira Takei, fund manager at Asset Management One.

The new tariffs would hit a wide swathe of consumer goods from cellphones and laptops to toys and footwear, at a time when the manufacturing sector is already reeling from the accumulative impact of the trade war.

The US Institute for Supply Management said on Thursday that its index of national factory activity fell to 51.2 points last month, the lowest reading since August 2016.

In currency markets, the safe-haven yen surged to a five-week high against the dollar and soared to a two-and-a-half-year peak against the pound. The dollar softened a touch against a basket of currencies.

“How things progress for the US and the dollar will depend now much more on whether there are signs that the trade conflict is increasingly leaving a mark on the US economy,” Commerzbank FX analyst Esther Reichelt said.

The euro recovered to $1.1099, from a two-year low of $1.1027 hit in US trade. China’s onshore yuan slumped to its lowest since November 2018, falling some 0.7% to 6.9428 per dollar. In the offshore market, the yuan fell to as low as 6.9778..

The pound held near a 30-month low against the dollar as the ruling Conservatives’ majority in parliament was reduced to one seat, adding to concern over politics three months before the country is due to leave the EU. Sterling was last 0.1% lower on the day at $1.2116.

In commodity markets, gold softened a touch to stand at $1,435.46 an ounce after having risen 2.3% on Thursday, staying near a six-year high of $1,453 touched two weeks ago.

Oil prices bounced back after suffering a sharp sell-off. Brent crude rose 2.2% to $61.84 a barrel, after having fallen 7.0% on Thursday, its biggest daily percentage drop since February 2016. US West Texas Intermediate (WTI) crude rebounded 1.9% to $54.96, having shed 7.9% the previous day.