Global stock markets fell and bond prices have jumped after reports that Ukraine had fired a US-made long-range missile into Russia for the first time and Vladimir Putin approved changes to Moscow’s nuclear doctrine.
Investors dashed into safe-haven currencies such as the US dollar, the Japanese yen and the Swiss franc on Tuesday, after the RBC-Ukraine news outlet reported that Kyiv had carried out its first strike on Russian territory using western-supplied missiles.
Moscow said later that Ukraine had fired six US-made Atacms missiles at Russia’s Bryansk region, after Joe Biden’s decision last weekend to relax restrictions on their use. Senior US and Ukrainian officials confirmed that US-made Atacms missiles had been fired into Russian territory.
Earlier on Tuesday, Putin signed a decree lowering the threshold for using nuclear weapons. The revised doctrine declares that a conventional attack on Russia by any nation that is supported by a nuclear power will be considered a joint attack.
Concerns that the full-scale invasion of Ukraine, which has passed its 1,000th day, was escalating hit stock markets in Europe. The Stoxx 600 share index dropped over 1% to its lowest since August.
Britain’s FTSE 100 index was down 0.5% in afternoon trading, towards the three-month low hit last week, at 8,070 points.
New York opened in the red, with the Dow Jones industrial average of 30 large US companies dropping by 0.8%, and the broader S&P 500 losing 0.4%. Wall Street’s fear index, the Chicago Board Options Exchange’s CBOE Volatility Index, jumped by almost 10%.
Markets were “rattled” that Ukraine had fired US-supplied long-range missiles into Russia, hurting the euro, said Fawad Razaqzada, a market analyst at City Index and FOREX.com.
Razaqzada said: “The big worry here is how Russia is going to respond now. President Vladimir Putin’s approval of an updated nuclear doctrine [broadens] the conditions under which Russia might deploy nuclear weapons, including in response to a large-scale conventional attack on its territory.
“Use of atomic weapons is unthinkable, but we are getting close to very dangerous territories.”
In the foreign exchange markets, the pound slipped by a third of a cent against the US dollar, to $1.265, while the euro lost 0.25% against the Swiss franc and the dollar.
“Geopolitical does not matter for financial markets until it does,” said Brad Bechtel, global head of FX at Jefferies. “When US equipment is striking Russia and Russia mentions nuclear, you have to pay attention.”
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UK, US and eurozone governments were also a popular safe-haven, which pushed down the yield, or interest rate, on the debt.
Investors were also unsettled that two undersea cables in the Baltic have been mysteriously severed. The German defence minister, Boris Pistorius, said on Tuesday that sabotage was suspected.
There are also signs that the market rally prompted by Donald Trump’s election win two weeks ago has fizzled out, leading to a drop in share prices at the end of last week.
Analysts have said that the president-elect’s policies on trade tariffs and mass deportations of illegal immigrants would cause disruption to some industries and also push up prices.