Russia-U.S. tensions hit markets as Putin lowers threshold for nuclear strike

Global stocks fell and investors fled to safe-haven assets on Tuesday, as global markets reacted to escalating tensions between the world’s two largest nuclear powers: Russia and the U.S.

The pan-European Stoxx 600 stock index was down almost 1% at 12:23 p.m. London time, hitting 498.56 points — its lowest level since August. In the U.S., stock futures tied to the Dow Jones Industrial Average fell 0.5%, S&P futures slid around 0.2%, while Nasdaq 100 futures lost 0.1%.

The declines come after Russian President Vladimir Putin amended Russia’s nuclear doctrine that outlines the conditions that would prompt Moscow to deploy its nuclear arsenal, Russian state news agency Tass reported Tuesday.

Critically, Russia has now widely expanded the circumstances under which it will consider nuclear retaliation, with Kremlin Spokesperson Dmitry Peskov saying the updated code now “states that the Russian Federation reserves the right to use nuclear weapons in the event of aggression with the use of conventional weapons against it or the Republic of Belarus, which creates a critical threat to sovereignty or territorial integrity. Aggression against the Russian Federation by any non-nuclear state with the participation or support of a nuclear state is considered a joint attack,” according to NBC News reporting.

The prospect of a potential nuclear escalation propeled investors into safe-haven markets, with gold prices up 0.8% at 11:52 a.m. London time. In currency markets, the Japanese yen rose 0.7% and 0.36% against the euro and U.S. dollar respectively at 12:26 a.m. London time. The Swiss franc, meanwhile, added 0.3% against the euro.

“The sharp drop in bond yields and USDJPY was of course notable, but I think even more telling is how quickly it … faded,” Wells Fargo Macro Strategist Erik Nelson told CNBC over email, in reference to the U.S. dollar and Japanese yen exchange.

“There is clearly still a bias to position for higher inflation and sturdy growth as we get into the final weeks of the year. Market participants likely recall the headline risk from the earlier stages of the Russian-Ukraine war and will likely be inclined to fade any dips in yields and USDJPY so long as any indications of escalation remain more verbal in nature.”