On the 1000th day of the Russia-Ukraine conflict, geopolitical tensions seemed to become a major obstacle to the market overnight. Fortunately, in the end, the stock, bond, and foreign exchange markets on this day were still relatively stable
On Tuesday, many Wall Street traders were clearly focused on the Russia Ukraine situation. Firstly, the Russian Ministry of Defense stated that on the early morning of the 19th local time, the Ukrainian military used six American Army Tactical Missile System (ATACMS) missiles to attack targets located in Bryansk Oblast, Russia. This is reportedly the first time that the Ukrainian military has used American made missiles to attack targets within Russian territory.
Subsequently, Russian President Putin signed a decree on the 19th local time, approving the new version of Russia's basic policy on nuclear deterrence. The new policy expands the scope of countries and military alliances that Russia can implement nuclear deterrence: any non nuclear country's aggression against Russia with the participation or support of nuclear armed countries is considered a "joint attack" against Russia; Russia will consider the possibility of using nuclear weapons upon receiving reliable information of concentrated launches of space attack weapons crossing its borders.
The release of the above news clearly quickly put global financial markets on edge during the overnight European session.
Russia's new policy has lowered the threshold for using nuclear weapons, which has led to a significant surge in safe haven assets such as US bonds and gold in the first place. Investors are rushing towards assets that are considered the safest in the world. The yield of 10-year US Treasury bonds fell by 7 basis points during trading, while the yield of German bonds during the same period fell by 11 basis points. These safe haven actions have also spread to the foreign exchange market, raising the safe haven currencies of the Japanese yen and Swiss franc. The three major stock indexes in the United States also fell after opening, with a maximum drop of about 0.6%.
Tatyana Stanovaya, a senior researcher at the Carnegie Russia Eurasia Center, said on the X platform, "This marks an exceptionally dangerous juncture as Putin may be trying to persuade Western leaders that they must make a choice between nuclear conflict or resolving the issue on Russian terms
Fortunately, the developments in the subsequent period of the day did not further escalate the tense atmosphere.
In his latest speech on Tuesday, Russian Foreign Minister Lavrov attempted to quell concerns about the nuclear issue, despite accusing Western countries of escalating the conflict. He stated at the G20 meeting, 'We firmly support making every effort to prevent nuclear war from happening.'. Nuclear weapons are primarily weapons used to prevent nuclear war.
The spokesperson for the US National Security Council subsequently stated that the US sees no reason to adjust its nuclear posture in response to Russia's decision to lower the threshold for the use of nuclear weapons. The spokesperson, who declined to be named, said that Russia's decision was not surprising as the country has been sending signals for weeks to update its nuclear deterrence policy.
In addition, news from the Middle East has to some extent eased investors' tension over the global geopolitical situation caused by the Russia Ukraine situation. The International Atomic Energy Agency (IAEA) announced on Tuesday that Iran has agreed to cease production of near weapon grade enriched uranium. Last week, IAEA Director General Rafael Grossi visited Tehran, Iran for talks on the nuclear issue. After Grossi's visit, Iran has taken preliminary measures to limit production.
Erik Bregar, Director of Foreign Exchange and Precious Metals Risk Management at Silver Gold Bull, said, "After Lavrov's remarks, we saw a reversal, and the United States will not respond to this change in Russia's nuclear policy, which has played a certain role in calming market sentiment
Of course, geopolitical risks have not disappeared, and this is still a crazy and dangerous world, "Bregar added.
From the performance of the financial market, both US bond yields and US stocks experienced a rollercoaster trend of first suppressing and then rising on that day. The decline in US bond yields of all maturities narrowed to within 3 basis points at the end of Wednesday trading. Among them, the yield of 2-year US Treasury bonds rose 0.2 basis points to 4.291%, the yield of 5-year US Treasury bonds fell 1.4 basis points to 4.269%, the yield of 10-year US Treasury bonds fell 1.8 basis points to 4.401%, and the yield of 30-year US Treasury bonds fell 2.6 basis points to 4.586%.
The three major stock indexes in the United States ultimately fluctuated in their rise and fall. As of the close, the Dow Jones Industrial Average fell 120.66 points, or 0.28%, to 43268.94 points; The Nasdaq rose 195.66 points, or 1.04%, to 18987.47 points; The S&P 500 index rose 23.36 points, or 0.40%, to 5916.98 points.
Andrea Tueni, Head of Sales and Trading at Shengbao Bank in France, said, "The market reaction is reasonable, and we could already feel the tension rising yesterday. However, the market reaction is still relatively limited, and some investors are still adopting a wait-and-see attitude
At present, after the initial "Trump deal" craze began to cool down, the US Treasury market seems to have reached a position that gradually attracts bulls to try buying again. With the yield of 10-year US Treasury bonds rising above 4.5% last week and the yield of 30-year US treasury bond reaching about 4.68%, these higher yields seem to have begun to attract buyers back.
In terms of the US stock market, Wall Street traders will undoubtedly focus on Nvidia's financial report after Wednesday's close. As Nvidia's market value has grown to approximately $3.5 trillion, it is expected that its post earnings market value volatility will be close to the largest in history. Options traders have predicted that Nvidia's stock price may fluctuate up or down by 8.5% after its quarterly results are announced, which means its closing market value may experience a change of nearly $300 billion!