S&P 500 Drops as Russia-Ukraine Escalation Raises Nuclear Risk

Also, 10-year T-note, silver, natural gas and British pound futures

1. S&P 500 E-mini futures (/ES): -0.97% 
2. 10-year T-note futures (/ZN): +0.38% 
3. Silver futures (/SI): +0.58% 
4. Natural gas futures (/NG): -1.31% 
5. British pound futures (/6J): -0.27% 

This morning’s price action is shaping up to be defined by whether traders will take warnings from the Russian government seriously, literally or neither. With Ukraine firing U.S.-supplied long range missiles into Russian territory overnight, attention has turned to Russia’s new nuclear weapons doctrine, which states that it can use such firepower against non-nuclear states if said states are backed by nuclear powers. While Russian Foreign Minister Sergei Lavrov has tried to temper the change in posture by saying that “nuclear war won’t happen,” it would now appear attention has returned to Eastern Europe for the foreseeable future. 

S&P 500 futures were lower ahead of the opening bell as tensions between Ukraine and Russia temper market sentiment after President Joe Biden authorized Ukraine to use long-range missiles to strike inside of Russia. Those missiles—known as ATACMS—were used for the first time shortly after the authorization came. It marks an escalation in the war. Walmart (WMT) rose 2% in pre-market trading after beating earnings estimates. Investors will have earnings from NIO (NIO,) Target (TGT) and TJX (TJX) tomorrow morning. 

Bond yields fell across the curve as the safety of Treasuries comes back into focus amid rising tensions in Eastern Europe. 10-year T-note futures rose 0.38% ahead of the New York open, which pushed the underlying yield down to 4.359%, the lowest mark since Nov. 12. There are no auctions on the schedule today, but traders will get a 20-year bond auction tomorrow and then a 10-year TIPS (Treasury Inflation Protected Security) auction on Thursday. Markets continue to mull who will be the next U.S. Treasury Secretary.  

Silver prices (/SIZ4) were uninspired this morning despite the push lower in Treasury yields and some softness in the dollar. The metal remains below its 50-day simple moving average (SMA) following last week’s down move. Dip buyers moved in yesterday after the metal touched a two-month low the week before. Still, the technical structure in silver is much weaker than gold, which may remain traders’ preferred way to play precious metals for now.  

Natural gas futures (/NGZ4) were lower on Tuesday, retracing part of yesterday’s move. Natural gas has traded below its 50-day SMA since selling off in early October. The weather outlook isn’t offering much help, with warmer-than-average temperatures expected across the East Coast into early December. Meanwhile, production in the U.S. remains on the low side for this time of the season, with about 100.6 billion cubic feet of production per day.  

The United Kingdom’s inflation figures are due out later this week. It could be a key moment for British pound futures (/6BZ4), which are coming off a seven-week losing streak. A higher-than-expected inflation print could put more pressure on the Bank of England (BOE) and negatively impact the currency.  

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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