This article is more than 1 year old

This article is more than 1 year old

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.

Donald J. Trump (@realDonaldTrump) Iran cannot have Nuclear Weapons! Under the terrible Obama plan, they would have been on their way to Nuclear in a short number of years, and existing verification is not acceptable. We are putting major additional Sanctions on Iran on Monday. I look forward to the day that.....

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”.

The tensions in the Middle East saw the price of oil rise in early trade on Monday, with a barrel of Brent crude up 0.6% to $65.58, near Friday’s three-week high of $65.76.

Asian share prices were subdued on Monday but the threat of sanctions rather than a full-scale military intervention by the US gave some comfort to 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.

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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.