The Morning Update

The USD slips, oil prices edge higher, equity markets are down, and US yields are mixed as markets are muted by geopolitical turmoil. In early trading, markets appear to have absorbed the Russian political turmoil putting equity markets under pressure, oil prices higher, and currency markets muted. Russian officials met key partners, including in China, a day after Prigozhin halted the advance of his Wagner mercenary group to Moscow. The quick turnaround defused the biggest threat to President Putin's almost 25-year group on power. The EU says aborted Russian mutiny shows Moscow's military power is 'cracking', and agrees 3.5 bln euro boost to fund used for military aid. Today alongside Russian updates, markets will be focused on the ECB's annual forum on central banking will start with a speech by President Lagarde. In the US & CAD, the economic docket is light so we expect the markets to be sidelined awaiting further direction.

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In other news. China's economy gloom worsens with weak consumer spending data on everything from holiday travel to cars and homes. Greece's Mitsotakis wins landslide victory in elections. Putin's weaknesses were laid bare after 24 hours of coup chaos in Russia-CNBC. Saudi Arabia sends top delegation to China's 'Summer Davos'. Turkey unwinds measures designed to increase Lira holdings. China plays down the impact of Russia's aborted rebellion on bilateral ties.

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In currency news. Japan's top currency diplomat escalates warning against weak JPY. The Russian Rouble tumbles 1.2% to 15-month lows vs US$ on the aborted mutiny. China's CNY hovers at 7-month lows on continuing weak data. Turkish Lira at new low after rollback of bank rules. CNY weakens 0.8%, while Asian currencies slip 0.25% vs US$. Trading currencies are mixed with AUD down 0.1%, while SEK is flat, MXN & NOK firm 0.2%, NZD & JPY firm 0.3%, CHF gains 0.4%, and ZAR rallies 0.7% vs US$.

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Oil prices hold on to early gains as markets shrug off the Russian turmoil over the weekend. CAD edges higher in early trading as the USD eases and oil prices edge higher in a muted response to the political turmoil related to the Wagner group's actions on the weekend. Investors are expected to be sidelined today with the lack of economic data. The focus shifts to Tuesday's CAD inflation report, which is expected to slow to an annual rate of 3.4% from 4.4% in April. Economists see a soft landing despite the need for tighter policy, with BoC now expected to cap the rate-hiking campaign at 5%.

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EURCAD holds steady in muted trading as markets remain sidelined with the absence of any key economic data releases today.

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EUR straddles 1.0900 after German IFO data. Mixed German IFO sentiment data continues to cap Euro strength as growth momentum remains stalled. The worsening economic outlook in the EU should continue to limit the Euro's potential gains on growing speculation the ECB is reassessing the need for additional rate hikes beyond July. With the absence of US economic data focus will be on ECB Lagarde will present welcome remarks at the annual ECB forum on Central banking, themed "Macroeconomic stabilization in a volatile inflation environment".

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GBPEUR is flat as both currencies are sidelined as markets await the US Durable Goods data release on Tuesday.

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GBP consolidates above 1.2700 vs US$ in muted trading. The pound holds steady amid political uncertainty in Russia and weakening economic data from China and increasing concerns of the UK entering possible recession as the BoE continues to hike interest rates in an attempt to tame surging inflation levels. Domestically the government is reportedly planning to ignore some of the pay review body recommendations on public sector wage hikes on concerns over a wage-price spiral. Expect the pound to hold within the current trading range in the absence of any tier-one economic releases from the US.

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