European stocks declined on Tuesday as geopolitical tensions spiked following President Vladimir Putin’s revision of Russia’s nuclear doctrine in response to Ukraine’s use of US-made long-range missiles. The Stoxx Europe 600 index dropped 0.5%, hitting its lowest level in over three months, while Germany’s DAX and France’s CAC 40 each fell 0.7%. The FTSE 100 fell 0.1%. Safe-haven assets like gold, government bonds, and the Swiss franc saw gains as investors sought refuge.
The market turmoil followed Ukraine’s first use of US-supplied ATACMS missiles to strike military targets inside Russia’s Bryansk region. The strikes came just days after US President Joe Biden authorised their use, partly in response to the entry of North Korean troops into the war. Upping the ante, Putin signed a decree updating Russia’s nuclear doctrine to permit a nuclear response to conventional attacks involving support from a nuclear-armed state.
Under the revised doctrine, any attack on Russia or its ally Belarus, even with conventional weapons, could justify a nuclear response if the aggressor is supported by a nuclear power. Kremlin spokesperson Dmitry Peskov emphasised that the changes signal Russia’s readiness to escalate if necessary, describing the move as a “timely adjustment to the current situation”.
Defence stocks rallied in response to the heightened tensions, with Germany’s Rheinmetall gaining 3.9% and Sweden’s Saab climbing 3.6%. Meanwhile, more economically sensitive sectors like banking and retail dragged the broader indices lower, with bank stocks falling 1.4%.
Bond markets reflected the growing unease, with German yields declining as prices rose. Gold gained 0.7% to $2,630 per troy ounce, further indicating a flight to safety. The Swiss franc also strengthened, rising 0.1% against the US dollar.