Financial markets around the world are braced for a renewed period of turbulence this week as the US readies fresh sanctions against Iran and amid rising hopes for a breakthrough in the US-China trade war.
Donald Trump tweeted over the weekend that “major” additional sanctions were being prepared to use against Iran from Monday to block Tehran from developing nuclear weapons.
Washington’s relations with Tehran have worsened after Trump aborted a military strike following the downing of a US spy drone last week, with the response threatening to open up another front in the geopolitical disputes holding back the world economy.
John Bolton, Trump’s national security adviser, said on Sunday that a fresh round of sanctions against Iran would serve as a warning not to “mistake US prudence and discretion for weakness”.
Analysts warned that renewed tensions in the Middle East would probably cause the price of oil to rise sharply on international markets and shares to tumble on stock exchanges around the world. However, the threat of sanctions rather than a full-scale military intervention could comfort concerned investors.
The renewed tensions come as China’s president, Xi Jinping, and Trump prepare to meet this week in an attempt to break the deadlock in the trade standoff between Washington and Beijing.
Chinese state media reported over the weekend the first official confirmation of Xi’s attendance at the G20 gathering of world leaders in Osaka, Japan, where he is expected to meet with the US president.
Set against a backdrop of simmering hostility over trade between the two countries, the meeting could provide a potential breakthrough in the dispute that has harmed the resilience of the global economy over the past year.
Stock markets around the world have rallied in recent weeks on the back of increased optimism of a deal between Washington and Beijing, while any reversal of the progress towards a resolution could send stocks into a tailspin.
Trump and Xi met at the last G20 summit in Argentina in December, reaching a breakthrough at that time before progress was reversed earlier this year.
Trump raised tariffs on $200bn (£157bn) of imports from China from 10% to 25% in May while threatening to impose more on a further $325bn of Chinese goods. China has hit back with its own tariffs, albeit covering fewer imports.