U.S. stocks were on course to drop Tuesday after China hit back at the U.S. with a fresh round of trade policies, reviving fears about ongoing tensions between the world’s two largest economies.
Futures tracking the Dow Jones Industrial Average fell 250 points, or 0.5%. S&P 500 futures dropped 0.9%, and contracts tied to the tech-heavy Nasdaq 100 slid 1.2%.
The three major indexes rallied on Monday, after President Donald Trump signaled that China and the U.S. ought to be able to resolve their trade dispute. But Beijing retaliated with a series of countermeasures on Tuesday, which now look set to weigh on sentiment.
China added five U.S. subsidiaries of South Korean shipping Hanwha Ocean to its sanctions list, and its Ministry of Transport said it would launch a probe into how the U.S.’s Section 301 investigation would impact its shipping and shipbuilding industries.
The news of heightened trade tensions comes as the third-quarter earnings season ramps up–asset manager BlackRock and banks JPMorgan, Goldman Sachs, and Wells Fargo are among the companies set to report ahead of the opening bell. Investors will also be watching to see if Congress is able to resolve the ongoing government shutdown, which has now dragged on into a 14th day.
“Volatility is back on the menu as US-China relations keep investors on edge,” Hargreaves Lansdown analyst Matt Britzman said. “Worries from government shutdown chatter, trade tensions, and a fresh earnings season have kept many on the sidelines,” he added, noting that trading volumes have been relatively low.
The yield on the benchmark 10-year U.S. Treasury note slid 2 basis points to 4.02% on Tuesday. Gold futures rose to a record high of just under 4,191 an ounce, and the dollar was up 0.1% against a weighted basket of its peers. Cryptocurrencies sold off, with Bitcoin down 3.2% over the past 24 hours, according to data from CoinDesk.
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