LONDON (Reuters) – World share markets suffered a fresh bout of risk aversion on Friday after tough words on trade from China, while bets on a new pro-Brexit leader in Britain whipped the pound towards its worst week since October.

Europe’s bourses slipped 0.6% early on that seemed a minor blip after what had happened in Asia.

Shanghai stocks finished 2.5% in the red and the yuan hit its weakest in nearly five months amid growing fallout from President Donald Trump’s move to block China’s Huawei Technologies from buying vital American technology.

On Friday, the Communist Party’s People’s Daily used a front page commentary to evoke the patriotic spirit of past wars, saying the trade war would never bring China down.

In terms of how the trade conflict plays out, “the next fortnight will be very, very important,” UniCredit strategist Kiran Kowshik said.

“Chinese counter-tariffs are due on June 1 and if those get effective, I think markets will price in the risk of the U.S. imposing its additional $300 billion of tariffs ahead of the G20 meeting (near the end of June).”

The drop in the yuan saw it ease past 6.9400 per dollar in the offshore market for the first time since November 2018.

Its slide has been steepening in recent days. Sources in China told Reuters the central bank would intervene to ensure it did not weaken past 7 to the dollar in the near term.

While breaking 7 could reduce some of the effects of U.S. tariff increases, it could hit confidence and trigger fund outflows, one of the sources said.

MSCI’s broadest index of Asia-Pacific shares outside Japan was at 15-week lows and down 2.6% for the week at the end of trading.

Japan’s Nikkei did manage to bounce 0.9%, while the main Australian index climbed to an 11-year peak as higher commodity prices boosted miners.

In Europe, Germany’s exporter-heavy DAX fell the most, auto stocks lost as much as 1.6% and E-Mini futures for the S&P 500 shed 0.35% ahead of Wall Street trading.

Sentiment had been briefly soothed on Thursday by better U.S. economic news, with housing starts surprisingly strong and a welcome pickup in the Philadelphia Federal Reserve’s manufacturing survey.

Upbeat results from Walmart burnished the outlook for retail spending, though the chain also warned that tariffs would raise prices for U.S. consumers.

As the earnings season winds down, of the 457 S&P 500 companies reporting about 75% have beaten profit expectations, according to Refinitiv data.

MAY COUNTS DOWN TO JUNE

The chillier trade winds helped Treasuries, with the 10-year yield down at 2.38% after a second strong week running for bond markets.

The dollar lost a little of its shine against the safe-haven yen to stand at 109.64 from a top of 110.03. Against a basket of currencies, it was a shade softer at 96.824.

Yet the euro could make no ground and held at $1.1173, down 0.5% for the week so far.

Sterling was one of the worst performers as Britain’s Prime Minister Theresa May battled to keep her Brexit deal, and her premiership, intact amid growing fears of a disorderly departure from the European Union.

The pound touched a three-month low of $1.2783 and was down 1.6% for the week so far.

Also under pressure was the Australian dollar, losing 1.5% for the week to $0.6880 as investors piled into bets that interest rates would be cut in June.

Cyber currency Bitcoin tumbled over 20% at one stage for no clear reason. It was last down 7%, albeit back on course for its third week of gains and having doubled in value this year.

In commodity markets, spot gold steadied at $1,287 per ounce as risk sentiment soured.

Oil futures firmed into a fourth session as rising tensions in the Middle East stoked fears of potential supply disruptions.

U.S. crude was last up 33 cents at $63.20 a barrel, while Brent crude futures rose 19 cents to $72.81.

The Organization of the Petroleum Exporting Countries and other producers will meet in Saudi Arabia this weekend over whether to continue with supply cuts that have boosted prices more than 30% so far this year.

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