* S&P500 futures down 0.5% at 3-month lows
* European stocks fall 0.2-0.7%, Wall Street futures lower
* Money market futures see 50% chance of Fed cut by July
* Oil whipsaws, Shanghai copper at 2-year low
* Bond rally drives yields lower
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Asian stock markets: https://tmsnrt.rs/2zpUAr4
By Marc Jones
LONDON, June 3 (Reuters) - A stampede to safety sent
benchmark government bond yields tumbling on Monday, hoisted the
Swiss franc to its highest in nearly two years and gold to a
10-week peak, while oil veered close to bear market territory.
After a torrid May that wiped $3 trillion off global
equities, worsening trade tensions and the broader economic
backdrop made for a jarring start to June.
European shares .EU and Wall Street futures .N both
slipped further after Beijing sent another shot across
Washington's bows on trade and euro zone data came in weak,
although the main impact was on bonds.
German government bond yields -- which move inversely to
price -- fell to a new all-time low and those on two-year U.S.
Treasuries were flirting with their biggest two-day fall since
October 2008, at the start of the global financial crisis.
"Bonds are more or less on fire and I think we are going to
spend the week with trade dominating everything else," said
Societe Generale global strategist Kit Juckes.
With German and UK political concerns and worries about
Italy's finances resurfacing, "it is hard to think the yen is
not going to be at least one of the winners this week", he said.
The Japanese currency consolidated Friday's biggest one-day
jump in over two years at 108.40 yen per dollar JPY= , though
Europe's main safety play, the Swiss franc, kept the rally going
by scoring a near two-year high against the euro. /FRX
The common currency ticked up to $1.1195 EUR= , having been
stuck in one of its tightest ranges ever against the dollar for
weeks as investors wait to see how generous the European Central
Bank will be with a new tranche of cheap bank funding this week.
Asian stocks had fared slightly better overnight as gains in
South Korea .KS11 and India .BSESN offset a 4-1/2 month low
for Tokyo's Nikkei N225 . Chinese shares .CSI300 ended little
changed .SS though the yuan faced pressure. A private survey of China's manufacturing sector CNPMI=ECI
published on Monday suggested a modest expansion in activity as
export orders bounced from a contraction. Economists noted that increases in new export orders pointed
to possible front-loading of U.S.-bound shipments to avoid
potential tariff hikes that U.S. President Donald Trump has
threatened to slap on another $300 billion of Chinese goods.
Trump kicked off a potentially confrontational state visit
to Britain on Monday.
"Many firms are leaving China for other countries, including
the U.S., in order to avoid paying the tariffs," Trump said on
Twitter shortly after landing in Britain. "No visible increase
in costs or inflation, but U.S. is taking billions."
TENSIONS, FALLING ACTIVITY
With the bitter trade mood weighing, factory activity
contracted in most Asian countries and the euro zone last month,
surveys showed. The euro zone reading slowed for the fourth month running,
and more dramatically, as slumping automotive demand, Brexit and
wider political uncertainty took their toll.
"The sector remains in its toughest spell since 2013," said
Chris Williamson, chief business economist at IHS Markit.
A senior Chinese official and trade negotiator had said on
Sunday the United States could not use pressure to force a trade
deal, refusing to be drawn on whether the leaders of the two
countries would meet at the G20 summit at the weekend.
The standoff between the world's two largest economies goes
beyond trade, with tensions running high ahead of the 30th
anniversary of a bloody Chinese military crackdown on protesters
around Beijing's Tiananmen Square.
China's Defence Minister Wei Fenghe warned the United States
not to meddle in security disputes over Taiwan and the South
China Sea, after acting U.S. Defense Secretary Patrick Shanahan
said Washington would no longer "tiptoe" around Chinese
behaviour in Asia. "No one now thinks a deal would be possible at the G20. It
is going to be a prolonged battle. Investors are rushing to the
safe assets," said Norihiro Fujito, chief investment strategist
at Mitsubishi UFJ Morgan Stanley Securities.
BEWARE OF THE BEARS
The gloomy economic outlook has prompted traders to increase
bets that the U.S. Federal Reserve will cut interest rates
sooner rather than later.
Fed funds rate futures 0#FF: are almost fully pricing in
two rate cuts this year, one by September, with more than a 50
percent chance of a move by July 30-31.
The 10-year U.S. Treasuries yield fell to as low as 2.07%
US10YT=RR , a level last seen in September 2017, while bond
market volatility gauges have now spiked to the highest in more
than two years. .MERMOVE1M
It was lively in commodity markets too.
Brent oil futures LCOc1 tumbled almost 2% to $60.55 per
barrel before reassurances from top oil exporter Saudi Arabia
pulled them all the way back up to $62.55. Since April they have
dropped almost the 20% needed for traders to call a 'bear
market'.
Mexico's president Andres Manuel Lopez Obrador hinted on
Saturday his country could tighten migration controls to defuse
tensions with Trump, saying he expected "good results" from
talks planned in Washington this week. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Korea exports https://tmsnrt.rs/2Kn47VJ
Messy May for global markets https://tmsnrt.rs/2WJboFV
US 2-year yield in biggest two day fall since 2008 crisis https://tmsnrt.rs/2WFaY3b
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