Stocks are dropping as Trump fanned fears of an escalating conflict with Iran and an unending trade war with China

Brendan McDermid/Reuters

• Stocks dropped on Tuesday after Donald Trump slapped sanctions on Iran's supreme leader and a report indicated he "feels comfortable with any outcome" from his meeting with Chinese President Xi Jinping.
• The news fanned fears of an escalating conflict with Iran and an unending trade war with China.
• "Optimism is fading a little and we would expect investors to perhaps take some risk off the table ahead of the meeting," said Neil Wilson, chief market analyst for Markets.com.
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Traders on Tuesday sent stocks lower after Donald Trump fanned fears of an escalating conflict with Iran and an unending trade war with China.

Trump slapped sanctions on Iran's supreme leader and a report indicated he feels "comfortable with any outcome" from his meeting with Chinese counterpart Xi Jinping later this week.

"Optimism is fading a little and we would expect investors to perhaps take some risk off the table," said Neil Wilson, chief market analyst for Markets.com.

The penalties aim to prevent Ayatollah Ali Khamenei and eight senior military commanders from accessing assets or banks in the US, and come after the US has already imposed sanctions on 80% of Iran's economy. The Iranian government said the move meant "the permanent closure of the diplomatic path with the government of the United States."

Targeting Khamenei directly is "certainly a huge breach of diplomatic protocol, and unlikely to smooth tensions with Iran in any way - or to make them give up in their struggle with the US," said Michael Every, senior Asia-Pacific strategist at RaboResearch.

Meanwhile, Trump feels "comfortable with any outcome" when he meets with Xi later this week, according to a senior US official interviewed by Reuters. The president's relaxed approach to reaching a deal and avoiding further escalation of the US-China trade war didn't help market sentiment.

However, an unproductive meeting is unlikely to hammer stocks as investors aren't expecting much.

"The equity markets already price in a slim chance for a sudden resolution of trade tensions between the US and China at this week's G20 meeting," said Ipek Ozkardeskaya, senior market analyst at London Capital Group. "As such, a no-deal will likely see limited negative knee-jerk reaction from equity traders, but any positive step could revive the bulls."

Here's the market roundup as of 9.15 a.m. (4.15 a.m. ET):

• Asian markets fell with the Shanghai Composite down 0.9%, the SZSE Component down 1%, and Hong Kong's Hang Seng down 1.2%.
• European equities retreated in morning trading. Germany's DAX, the Euro Stoxx 50, and Britain's FTSE 100 fell between 0.2% and 0.3%.
• US stocks are poised for a negative open with futures underlying the Dow Jones Industrial Average and S&P 500 down 0.2%, and Nasdaq futures down 0.3%.
• Oil prices declined with West Texas Intermediate crude down 0.2% at $57.80 a barrel, and Brent crude down 0.3% at $64.
• Gold jumped 1.3% to $1,437 per ounce as traders bought the yellow metal as a safe haven.