Sterling steadied after initially posting further large losses on UK political fears but shares in Europe and the US were hit as the fallout of the US-China trade war extended to Chinese champion Huawei and the world’s chip makers for mobile phones.
Ryanair and Thomas Cook added to gloom as their shares dived on earnings fears as fuel costs rise.
Chris Beauchamp at online broker IG said investors were right to fret about the fallout from the “superpower clash”.
“The US-China trade dispute is now mirrored at the commercial level, between Google and Huawei, deepening the confrontation and adding more players of problems on to the existing situation,” Mr Beauchamp said.
“Now it is not just trade tariffs and patents that are at stake, but relations between companies. The world wide web, to use a phrase from the 1990s that seems archaic now, was one of the pillars of the globalised economy, just as an integrated China was,” he said.
He said it now made sense to see “the former being challenged at the same time as the latter and is another reason for investors to fret about the long-term impact of the superpower clash”.
The Euro Stoxx index of 50 leading shares fell 1.7%, the Iseq fell almost 1%, and the Ftse-100 shed 0.5%. In Ireland, Ryanair led the decline, with a drop of almost 5%.
Early on, sterling had added to its significant losses last week but later steadied, to end at 87.55 pence against the euro.
Currency traders have been rattled by the prospects that a hard Brexit or no-deal Brexit could be back on the agenda if Nigel Farage’s Brexit Party polls well this week in the European Parliament elections.
A large eurosceptic vote in the UK could bolster the pretensions of hardline Brexiteer Boris Johnson to succeed Theresa May, analysts said.
Meanwhile, Ms May’s latest bid to put a version of her withdrawal bill to the House of Commons in the coming weeks is seen as doomed by investors.
Focus is also turning to any fallout to the rest of Europe should right-wing populists capture a sizeable vote at the EU-wide elections.
However, Capital Economics in London said that sovereign bond yields across Europe would unlikely suffer in the immediate future.
“We suspect that the European Parliament elections will not cause much reaction on bond markets, even if populist parties perform even better than expected. Recent elections in the EU suggest that politics trigger sell-offs only when those parties attain power and jeopardise their countries’ fiscal positions,” the economics firm said.
It said that it was unlikely that the far-right or far-left groups in the European Parliament would join a grand coalition but that there were dangers for investors, nonetheless.
“The elections could serve as an indicator of whether some countries will end up being ruled by extremist or populist parties in the future,” wrote markets economist Hubert de Barochez.