Shares mostly fell on Monday after the latest escalation in the US-China trade war renewed uncertainties about global economies, as well as questions over what President Donald Trump might say next.

France's CAC 40 recouped early losses to inch up nearly 0.1pc in early trading to 5,330.86, while Germany's DAX fell nearly 0.2pc to 11,589.71. Markets were closed in Britain for a national holiday. US shares were set to recover, with Dow futures up 0.2pc at 25,725. S&P 500 futures were up nearly 0.2pc at 2,859.60.

Stephen Innes, managing partner at Valour Markets in Singapore, compared the difficulty of assessing the volatile market situation to reading tea leaves.

“Nobody understands where the [American] president is coming from,” he said, adding that the best thing Trump can do for market stability is to “keep quiet.”

“The problem that we're faced right now is that we are making a lot of assumptions ahead of economic realities,” he said.

The market is now dominated by fears of a portending US recession, although the American economy is actually holding up, and much of the US economy is made up of consumption, Innes said. If interest rates come down, he added, consumer spending is likely to go up, working as a buffer for the economy.

“What the market's really waiting for is for them to drop interest rates,” Innes said. “Right now, we are still sitting on that uncertainty.”

At a meeting of the Group of Seven economies in France, Trump appeared to tone down his comments, saying the two sides will talk “very seriously” about their war over trade and technology. He also said the Chinese “mean business.”

On Monday, China allowed the yuan to fall. The yuan declined to 7.1468 to the dollar, a relatively modest change from Friday's low point of 7.0927, but its weakest rate since January 2008. The yuan has lost 6.5pc from this year's high on Feb 28. Chinese leaders have promised to avoid “competitive devaluation” to hold down export prices in the face of Trump's tariff hikes.

Japan's benchmark Nikkei 225 started plummeting as soon as trading began and finished at 20,261.04, down 2.2pc. Australia's S&P/ASX 200 slipped 1.3pc to 6,440.10. South Korea's Kospi lost 1.6pc to 1,916.31. Hong Kong's Hang Seng dropped 1.9pc to 25,680.33, while the Shanghai Composite was down 1.2pc at 2,863.57. Shares were also down in Singapore, Taiwan, Indonesia and Thailand.

The Dow Jones Industrial Average plunged more than 600 points Friday after the latest escalation in the trade war between the US and China rattled investors. The broad sell-off sent the S&P 500 to its fourth straight weekly loss.

The tumbling began after Trump responded angrily on Twitter following China's announcement of new tariffs on $75 billion in US goods. In one of his tweets, he “hereby ordered” US companies with operations in China to consider moving them to other countries, including the US.

Trump also said he'd respond directly to the tariffs and after the market closed he delivered, announcing that the US would increase existing tariffs on $250 billion in Chinese goods to 30pc from 25pc, and that new tariffs on another $300 billion of imports would be 15pc instead of 10pc.

The ongoing trade dispute between Washington and Beijing, and especially its unpredictability, is certain to have damaging effects on Asia. The unpredictability affects the real decisions central banks make on fiscal policy and companies make on their strategies and investments, setting off ripples of uncertainty.

Zhu Huani of Mizuho Bank in Singapore said that what he called Trump's “tariff tantrum” was setting off “the sense that tariffs could continue to rise,” with the “the unpredictability of timing and extent of these trade actions risk accentuating the paralysis of business decisions and big-ticket business spending.”

“No matter which way you cut the cake, it is nearly impossible to construct a bullish, or even neutral scenario for equity markets today,” said Jeffrey Halley, senior market analyst at Oanda.

Trump also said Friday morning that he was “ordering” UPS, Federal Express and Amazon to block any deliveries from China of the powerful opioid drug fentanyl. The stocks of all three companies fell as traders tried to assess the possible implications.

Some analysts think the Federal Reserve will lower interest rates this year.

Federal Reserve Chair Jerome Powell indicated last week that the central bank was prepared to cut interest rates but gave no clear signal on when or by how much, while suggesting that uncertainty over Trump's trade wars have complicated the central bank's ability to set interest rate policy.

A quarter-point rate cut reduction in September is considered all but certain. Some think the Fed will cut rates again in December.

The price of benchmark crude gained 9 cents to $54.26 a barrel. It sank $1.18, or 2.1pc, to settle at $54.17 a barrel Friday, as traders worried that the latest escalation in the trade battle could sap global demand for energy. Brent crude oil, the international standard, rose 8 cents to $59.42 a barrel.

The dollar fell to 105.84 Japanese yen from 106.65 yen on Friday. The euro strengthened to $1.1114 from $1.1057.