A look at the day ahead in U.S. and global markets from Mike Dolan.
More perplexed by events than anything else, world markets stayed relatively calm on Monday after a dramatic Russian military mutiny at the weekend was uneasily quelled.
Fractious geopolitics have been front of mind for global investors ever since the pandemic and Russian invasion of Ukraine early last year. But the fleeting risk of civil war and a toppling of Russian President Vladimir Putin revealed greater instability in the nuclear power than many had assumed.
The quick truce to avert Progozhin's mercenary mutineers entering Moscow on Saturday left even seasoned Kremlinoligists scratching their heads. An eerie calm held in Moscow on Monday.
For markets, the threat of a power vacuum in a nuclear military power holds obvious risks - but the most extreme of which are near impossible to price and hence most asset managers hold and wait. Without more information, rock-bottom volatility measures and the dollar edged higher - though remained contained in recent holding patterns.
Looked through an energy or commodity price lens, Russian oil, gas and many of its commodities are already either cut off from western markets or under some form of sanction - and so supply threats pack less of a price punch.
The different scenarios tested could just as easily see regime change in Moscow eventually returning commodity supplies to markets and cutting prices - a potential positive for inflation and interest rates dogging world assets.
Aside from the VIX, which popped from pre-pandemic lows to its highest in 10 days just under 15, there was a mildly negative tilt to stocks - which were already on the back foot from downbeat June global business surveys last week.
Shanghai stocks underperformed with losses of more than 1%. The offshore yuan - now down almost 5% in just six weeks - fell to another 2023 low on Monday.
MORE SUBDUED
European stocks and Wall Street futures were more subdued, and modestly in the red. Shares of major European defence firms Leonardo, Saab and Rheinmetall dropped between 5% and 6%.
Brent crude oil prices were actually lower on Monday, and still down almost 35% year-on-year. Gold was lower too, but wheat prices rose about 2%.
For Russian markets themselves, the rouble slipped to 15-month lows - but it too had been falling last week as oil prices ebbed. Largely now isolated from western investment, Russian stocks fell about 1%.
Away from the Russian drama, the week ahead focuses on the latest inflation updates from Europe and the United States, with the results of U.S. bank stress tests on Wednesday a marker after the March regional bank failures.
The fallout from last week's dour business readouts was that European firms were struggling more than U.S. counterparts this month. Germany's Ifo survey bore that out on Monday.
U.S. Treasury yields slipped lower, perhaps with a smidgen of a safety bid from the weekend events helping too. Two-year Treasury yields dipped briefly below 4.70% - some 10 basis points below last week's peaks - ahead of an auction of new paper later on Monday.
The world's central bank umbrella body, the Bank for International Settlements (BIS), called on Sunday for more interest rate hikes, warning the world economy was now at a crucial point as countries struggle to rein in inflation.
Turkey's lira slid again to record lows after the central bank took steps to simplify rules governing lenders' holdings and foreign deposits after a sharp but underwhelming interest rate rise last week.
In banking, HSBC has decided to leave its longstanding headquarters in Canary Wharf in east London in favour of a move to a much smaller office in the centre of the city.
Events to watch for later on Monday:
* Dallas Federal Reserve's June manufacturing survey
* U.S. Treasury auctions 2-year notes, 3- and 6-month bills
* European Central Bank Forum on Central Banking in Sintra, Portugal
* Atlanta Federal Reserve President Raphael Bostic, St Louis Fed President James Bullard and Cleveland Fed chief Loretta Mester all speak
(By Mike Dolan, editing by Ed Osmond mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)
