Shelling at Ukrainian nuclear plant jolts markets

Not satisfied with shelling Chernobyl – the infamous location of a previous nuclear plant disaster - Russia’s military have seemingly turned their attention to Europe’s largest nuclear plant in Zaporizhzhya, Ukraine. Reports of a fire and images of an explosion at the facility have surfaced, just hours after a temporary ceasefire was agreed to pave way for a ‘humanitarian corridor’. And the culprit is alleged to be the Russian shelling of the nuclear facility.

Radiation within normal limits (for now)

The Ukrainian State Emergency Service has since reported that radiation levels sit “within normal limits” but there is currently little information about how devastating the impact may be. A major concern is that the current fire, or further attacks at the facility, could hinder the ability to keep the nuclear reactor cool enough for the core not to explode. Should such an event occur, it would be much larger than the crisis in Chernobyl, an area will not be safe for thousands of years. And this would become a global issue.

The collateral damage may not be limited to Ukraine

With Russia bombing the Chernobyl site and now targeting live nuclear stations, there’s plenty of room for collateral damage. And not just for Ukraine but surrounding countries. So we have to ask ourselves, at what point is this simply an invasion on Ukraine? With air being shared globally shared commodity and a nuclear power plant meltdown a sure way of contaminating it for all.

Flight to safety favours the yen and gold

The flight to safety has also taken its toll on emerging FX, with the Thai baht down -0.4% and South African rand off around -0.5%. Indices across Asia are in the red, with the Nikkei down around -2% and the Hang Seng sitting at a post-pandemic low (it has not traded at this level since March 2020). Investors are moving away from riskier assets such as emerging FX, and seeking safety in the yen. Oil has spiked and global yields have also taken a knock. The fact we’ve seen these moves across the major asset classes - both simultaneously and during the Asian session - is very telling. The world is watching to see if things escalate. And this will likely be a key theme heading into the European and US session, to see how world leaders respond.

Reports of the fire initially saw the euro weaken and create a flight to safety into the yen and gold, although prices have since stabilized on reports that shelling had stopped and the site is now secure. However, we saw from last week’s COT report that investors were continuing to pile into gold, and two fruitless peace talks and a shelled nuclear site later, we see little reason for investors to step away from gold just now. Technically, gold remains in the 1916 – 1950 range, although three higher lows have formed above 1916, and we have now seen an attempted break above 1950 overnight.