Russia-U.S. tensions hit global markets as Putin lowers the threshold for a 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.

Europe’s Stoxx 600 stock index was down almost 1% at 12:23 p.m. London time, hitting 498.56 — 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 to include “a large-scale launch of enemy aircraft, missiles, and drones targeting Russian territory, their crossing of the Russian border, and an attack on its ally Belarus,” Tass said.

The prospect of a potential nuclear escalation propelled 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 was 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.”

While Moscow had signaled an interest in updating its nuclear doctrine months prior, the amendments are nevertheless being implemented within days of a U.S. decision to allow Kyiv to use American-made long-rage missiles in Russian territory — a key reversal of Washington’s policy regarding the war in Ukraine.

“The conflict is escalating … I clearly expect to see some kind of immediate reaction, knee-jerk reaction,” Tiffany McGhee, CEO and CIO of Pivotal Advisors, told CNBC’s “Worldwide Exchange.”

She stressed the need to review the market impact in the long term, however, noting similar short-lived reactions since Russia’s wholescale invasion of its neighbor in February 2022.

“But in terms of longer-term, this is year three of the conflict and while initially we saw spikes in prices … that’s kind of leveled off,” she said.

Oil markets, which have been most directly affected by the war following Western sanctions on Russian oil supplies, remained in negative territory on Tuesday despite the heightened possibility of a confrontation between two of the world’s largest crude producers.

The Ice Brent contract with January expiry was down 0.55% at 11:56 a.m. London time, with front-month December Nymex WTI futures lower by 0.74%, both compared with the Monday settlements.