Kremlin: Use of Western missiles by Ukraine against Russia could lead to nuclear response

Speaking at a news briefing on Tuesday, Kremlin spokesperson Dmitry Peskov warned that the use of Western non-nuclear missiles by the Ukraine against the Russian Federation under the new doctrine could lead to a nuclear response.

His comment comes after Russian President Vladimir Putin approved changes to the country’s nuclear doctrine earlier on Tuesday, expanding conditions under which nuclear weapons could be used, including in cases of attacks by non-nuclear states supported by nuclear powers, per The Moscow Times.

Russia’s response follows US President Joe Biden’s authorization to Ukraine to use American Army Tactical Missile Systems (ATACMS) to strike inside Russia on Sunday, a move the Kremlin warned could lead to “a significant new round of escalation.”

Market reaction

Risk sentiment took a big hit on the above headlines, with the US S&P 500 futures, a risk barometer, down 0.50% on the day. The safe-haven US Dollar recaptured 106.50 against its major rivals while Gold price tested highs near the $2,635 level.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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