Kyiv makes first ATACMS strike in Russia

Ukrainian forces have reportedly conducted their first strike on a border region in Russia using Western-supplied missiles. This comes as President Vladimir Putin approved an updated nuclear doctrine that expands the conditions under which Russia may use atomic weapons.

As a result of these developments, stock markets experienced a downturn, with European equities declining by 1% and global bonds rising due to concerns over the latest escalation in Russia’s war against Ukraine. S&P 500 futures fell by 0.5%, while the yield on 10-year Treasuries decreased seven basis points to 4.34%. The situation was more severe in Europe, where German bond yields dropped to their lowest level since October. The Euro also fell by 0.5%, and Poland’s main stock index plummeted by 2.6%.

The announcement of Russia’s nuclear doctrine, which allows for an expanded use of atomic weapons, has unsettled the markets. This comes just days after the United States granted Ukraine limited permission for long-range missile strikes on Russian territory. According to a report from RBC-Ukraine, the first such strike has already occurred.

Traditional safe-haven assets, including the Japanese yen, Swiss franc, and Gold, gained value during this time. However, Ukraine’s sovereign dollar bonds suffered the most among emerging-market assets, with a note due in February 2029 losing 1.6 cents on the dollar.

Oil retreats

Oil prices declined after experiencing their largest increase in over five weeks as Europe’s largest oilfield began to gradually resume operations following a power outage.

Brent futures were trading close to $73 per barrel as Equinor ASA brought production at the Johan Sverdrup oil field in the North Sea back to two-thirds of its capacity after yesterday’s halt. Crude prices had jumped 3.2% on Monday, driven by a weaker dollar, which made commodities more appealing to investors.

Oil prices remain lower for the year due to concerns about Chinese demand and abundant global supply, which are affecting the market outlook. On Monday, the prompt spread for West Texas Intermediate (WTI)—the difference between the two nearest futures contracts—traded in a bearish contango structure for the first time since February.

Gold jumps

Gold continued its rally, experiencing its largest jump since August on Monday. The market is focused on the dollar and the Federal Reserve’s interest rate strategy.

The bullion traded near $2,620 an ounce, following a 1.9% surge in the previous session. The dollar experienced a two-day decline as the so-called “Trump trade,” which had previously bolstered the greenback and increased U.S. yields, has temporarily lost momentum.

Despite this recent rally, the precious metal has faced losses so far this month, primarily due to a rise in the dollar, which reached a two-year high last week after Donald Trump’s election victory. Additionally, there are indications that the Fed may need to slow the pace of interest rate cuts. However, Goldman Sachs has reiterated its forecast for gold to reach $3,000 an ounce by the end of next year, citing central bank buying and ongoing trade tensions as factors that will fuel gains.

EURUSD near key support

The Euro has fallen by 0.5% to $1.0541, driven by rising geopolitical tensions between Ukraine and Russia, which has brought a crucial threshold into focus. If the Euro breaks below last year’s low of around $1.0450, expectations for the currency reaching parity with the dollar may increase.

Rate differentials and a weakening growth outlook are increasingly swaying sentiment against the Euro. Additionally, political instability in Germany and France adds further pressure, while the possibility of US tariffs threatens to worsen challenges for European companies that are already struggling with sluggish domestic and Chinese demand.

GBP remains under pressure

Bank of England Governor Andrew Bailey informed British lawmakers that there are indications that the tightness in the UK labor market is easing, which is helping to reduce inflationary pressures. “I believe there is evidence of some loosening occurring in the labor market at the moment,” Bailey stated.

He noted that the UK has reached its inflation target more quickly than anticipated, reaffirming his earlier assessment. Following his comments, the pound fell against the US dollar, and gilts rallied as global trading adopted a risk-off approach due to geopolitical tensions.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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