Stocks Slightly Higher into Final Hour on Greece Debt Deal Hopes, Less Emerging Markets/US High-Yield Debt Angst, China Bounce, Biotech/Gaming Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 18.42 -2.28%

• Euro/Yen Carry Return Index 142.54 -.88%

• Emerging Markets Currency Volatility(VXY) 9.08 -.33%

• S&P 500 Implied Correlation 63.14 -.82%

• ISE Sentiment Index 94.0 -7.84%

• Total Put/Call 1.11 -20.71%

• NYSE Arms 1.19 -37.82% 

Credit Investor Angst:

• North American Investment Grade CDS Index 70.06 -2.36%

• America Energy Sector High-Yield CDS Index 1,129.0 +.38%

• European Financial Sector CDS Index 89.18 -1.88%

• Western Europe Sovereign Debt CDS Index 28.65 +2.85%

• Asia Pacific Sovereign Debt CDS Index 59.82 -1.84%

• Emerging Market CDS Index 308.78 -1.44%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.68 -.15%

• 2-Year Swap Spread 25.75 +.5 basis point

• TED Spread 29.75 +1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -21.75 unch.

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 171.0 +2.0 basis points

• China Import Iron Ore Spot $59.35/Metric Tonne -3.17%

• Citi US Economic Surprise Index -28.80 +.3 point

• Citi Eurozone Economic Surprise Index -5.0 -6.9 points

• Citi Emerging Markets Economic Surprise Index -22.30 -1.4 points

• 10-Year TIPS Spread 1.89 unch.

Overseas Futures:

• Nikkei 225 Futures: Indicating +81 open in Japan 
• China A50 Futures: Indicating -318 open in China

• DAX Futures: Indicating +53 open in Germany

Portfolio: 

• Higher: On gains in my retail/biotech/medical/tech sector longs

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Tsipras Asks European Union for a New Bailout Program. (video) Alexis Tsipras just tried to jam the pin back into the grenade. Less than nine hours before Greece’s bailout package was due to expire -- and a day after he was forced to shut down his financial industry for lack of cash -- the Greek premier sought a new deal to maintain an aid lifeline and an umbrella to assure the critical flow of European Central Bank loans.

• Greeks Want a New Bailout Agreement. (video)

• Greece’s Mounting Default Risk Seen in Inverted Bond Yield Curve. Default risk is at its highest since 2012. To judge how bleak Greece's financial prospects are without a bailout program, take a look at its government-bond market. It's showing the highest risk of the nation defaulting on its private debt since 2012, when investors lost 100 billion euros ($112 billion) in the biggest-ever debt restructuring. Investors typically accept higher yields on bonds maturing further into the future, judging the risk of owning them to be greater. In Greece right now, that relationship is inverted. Two-year notes yield 23 percentage points more than the 10-year bonds. That's up from 10 percentage points at the end of last week, before Prime Minister Alexis Tsipras called a referendum on austerity measures demanded by international peers in exchange for more bailout funding. ``What the curve is telling us is that there is a very large risk of a restructuring, of a default in the near term,'' said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London.

• Puerto Rico Bonds Fall to Record Low as Debt Crisis Worsens. Puerto Rico bonds tumbled to record lows as Governor Alejandro Garcia Padilla moved to restructure some of the junk-rated island’s $72 billion of debt to ease its fiscal crisis. The commonwealth’s newest general obligations dropped 5.6 percent Tuesday to the lowest since they were first sold in March 2014. That followed a 6.5 percent decline for Puerto Rico securities Monday, the biggest one-day loss since at least 1998, according to J.R. Rieger, vice president of fixed-income indexes at Standard & Poor’s in New York.  

• Here's What Latin America's Sharp Slowdown Means for the U.S. The region's economy will grow only 0.1 percent this year, economists forecast. As the world nervously watches the Greek debt talks break down, there's another corner of the planet that's struggling. Growth in most of Latin America and the Caribbean is coming to a screeching halt, dragged down by Argentina, Brazil and Venezuela. Economists expect the region (excluding Mexico) to expand an almost nonexistent 0.1 percent this year, a forecast that would mean faring worse than the U.S. for a second straight year. It's a reversal of fortunes, as the chart below shows. 

• European Stocks Extend Worst Quarterly Drop Since 2012 on Greece. European stocks fell for a second day as investors weighed Greece’s ability to meet a payment amid an expiry of its bailout package. The Stoxx Europe 600 Index dropped 1.3 percent to 381.31 at the close of trading, taking its second-quarter loss to 4 percent.

• OPEC Crude Production Surges as Iraq Pumps at Record Pace. Iraqi crude production climbed to a record this month, helping send OPEC output to the highest level since August 2012. Output by the Organization of Petroleum Exporting Countries climbed 744,000 barrels to 32.134 million a day this month, according to a Bloomberg survey of oil companies, producers and analysts. Last month’s total was revised 189,000 barrels lower to 31.39 million a day, because of changes to the Saudi, Iraqi, Algerian and Nigerian estimates. OPEC has been boosting supply as it seeks to force higher-cost producers to cut output. The 12-member group agreed on June 5 to retain its collective output target of 30 million barrels a day, a level that it’s exceeded for 13 months, according to data compiled by Bloomberg.

• Fed Beats Greece as Treasuries Drop for First Quarter Since 2013. Haven demand sparked by the crisis in Greece isn’t proving enough to prevent Treasuries from heading for their first quarterly loss since 2013 with the Federal Reserve poised to raise interest rates this year. Treasuries are set to fall for a third month as a rebound in the world’s biggest economy buoys prospects for the Fed to increase borrowing costs as soon as September. U.S. sovereign securities erased losses Tuesday as German bonds gained after Greece’s government asked for a two-year bailout program from lenders hours before its aid agreement expires.

• Retailers Slam Obama’s Overtime Expansion as Costing Billions. Retailers and manufacturers blasted President Barack Obama’s plan to make more Americans eligible for overtime pay, saying the move would stunt workers’ careers and cost companies billions. The National Retail Federation says Obama’s proposed rule change to greatly increase how many salaried employees can claim overtime would force companies to use more part-time and entry-level workers. Businesses also may offer fewer promotions and convert salaried employees to hourly to avoid raising their pay, the NRF said.

Fox News:  

• Obama says US could 'walk away' from Iran nuclear talks, as deadline extended. (video) President Obama threatened to "walk away" from a nuclear deal with Iran if it fails to keep tabs on the country's compliance, as the negotiations were extended past their original Tuesday deadline amid sharp disagreements. The president addressed the shaky talks during a joint press conference in Washington, alongside visiting Brazilian President Dilma Rousseff. He spoke shortly after the State Department confirmed that the Iran talks were being extended another week. "My hope is they can achieve an agreement," Obama said.

CNBC: 

• Is your bond fund invested in Puerto Rico? (video)

ZeroHedge: 

• Gross Says Hold Cash, Prepare For "Nightmare Panic Selling".

• EFSF Confirms Greek Bailout Expires Today.

• Don't Blame Austerity: Five "Dastardly" Ways Italy Burned Through Taxpayer Money. (graph)

• Chart Of The Day: Is China Sending A Warning? (graph)

• Consumer Confidence Soars In June On Spike In Hope. (graph)

• Chicago PMI Prints Worst June Since 2008 As Employment Tumbles.

• The Global Template For Collapse: The Enchanting Charms Of Cheap, Easy Credit.

• Case-Shiller US Home Price Index Drops Most In A Year. (graph)

• When The PBOC Went All-In: China Stocks See Biggest Intraday Swing In 23 Years. (graph)

• Why There Is No Growth: The Entire S&P 500 Free Cash Flow Is Going Back To Shareholders.

Telegraph: 

• Greece crisis live: Latest news as Greeks submit audacious new two-year bail-out application but promise to default tonight. Athens applies to European rescue fund for €29bn loan package in return for debt relief as midnight bail-out expiry looms. 

• What the front pages say: how is Europe covering Greece? How are the major European papers covering the Greek crisis? After all, this affects their countries too... 

Aargauer Zeitung:

• Grexit May Be Gain for Euro Zone, Merkel Adviser Says. Greek exit from euro zone "would hardly be a reason to worry because the risk of contagion for the other countries is low," Lars Feld, an economic adviser to German Chancellor Merkel said. The Greek govt is solely responsible for failure of negotiations, he said.

El Mundo:

• Greek Labor Minister Tells Mundo If Greece Falls Eurozone Falls. Panos Skurletis said that if door opens for Greece to exit Europe the door will open for other countries to exit. Skurletis said European leaders fear the advance of left wing parties in Europe and want to crush Syriza to provide an example. Skurletis says he doubts Greece will be kicked out of euro even if Greek people vote 'no' in July 5 referendum.

Bear Radar

Style Underperformer:

• Large-Cap Value +.06%

Sector Underperformers:

• 1) Coal -3.52% 2) Steel -2.43% 3) Disk Drives -1.35%

Stocks Falling on Unusual Volume:

• TW, AMBC, BPOP, APOL, TUES, OFG, IHG, SYY, AZN, SCHN, KORS, RCKY, SKX, SNDK, BUD, BTI, KATE, MMLP, CXW, LOW, MLHR, SEAS, SNE and CSII

Stocks With Unusual Put Option Activity:

• 1) AMD 2) BHI 3) MBI 4) SMH 5) HPQ
  

Stocks With Most Negative News Mentions:

• 1) APOL 2) MLHR 3) SYY 4) SCHN 5) MBI
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.66%

Sector Outperformers:

• 1) Gaming +3.58% 2) Tobacco +1.95% 3) Airlines +1.78%
  

Stocks Rising on Unusual Volume:

• WSH, JUNO, PNR, THS, MPEL, ALDR, JOE, KITE, RDUS and SPW

Stocks With Unusual Call Option Activity:

• 1) MBI 2) JUNO 3) JOE 4) GIS 5) WEN
  

Stocks With Most Positive News Mentions:

• 1) TK 2) PBY 3) TASR 4) JMEI 5) MDT
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 3.9% Above 100-day average
• 9 Sectors Rising, 1 Sector Declining
• 62.7% of Issues Advancing, 34.4% Declining
• 16 New 52-Week Highs, 179 New Lows
• 42.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 36.8
• Vix 18.79
• Total Put/Call 1.21
• TRIN/Arms 1.36

Tuesday Watch

Evening Headlines 

Bloomberg:  

• Tsipras Says European Leaders Won’t Dare Kick Greece Out of Euro. Greek Prime Minister Alexis Tsipras said European leaders don’t have the nerve to throw his country out of the euro, striking a defiant tone just hours after imposing capital controls on a country in economic freefall. As Greeks come to terms with a new reality that’s trapped their money inside the country’s banks, 12,000 people gathered in the central Syntagma Square with banners that read “Our lives do not belong to the creditors.” Tsipras, who passed by them en route to a televised interview, said the cost to the 19-nation bloc of Greece leaving would be “enormous.”

• ECB’s Coeure Says Greek Exit From Euro Area Can’t Be Ruled Out. (video) European Central Bank Executive Board member Benoit Coeure said Greece’s future in the euro area isn’t guaranteed, though he still sees room for a political deal to keep it. “The exit of Greece from the euro area, which was a theoretical point, can unfortunately no longer be ruled out,” he said in an interview with Les Echos published late on Monday. “This is the result of the choice of the Greek government to put an end to the discussion with its creditors and to call a referendum, prompting the Eurogroup not to extend the second aid program.”

• Bank of America strategist, who’s Greek, sees humanitarian disaster looming. To prevent a crisis, the ECB will have to boost the Emergency Liquidity Assistance program long beforehand, continuing to ensure Greek lenders have enough cash on hand, the strategist said. “Otherwise, you’ll have a humanitarian disaster,” he said. “People will start to be affected when they can’t withdraw their paychecks, when you start to see shortages because Greece imports many of its products. For instance medications are imported, some food items are imported.”

• From Puerto Rico to Greece, Credit Traders Put on the Defensive. A day before debt traders closed the books on the first half of 2015, the dual threats of default by Greece and Puerto Rico spurred them into defense mode. Trading in insurance-like contracts surged to the most in at least three months on Monday as investors and banks sought to preserve what little gains they still had for the year. The biggest exchange-traded fund that buys junk bonds dropped to the lowest level since December. And measures of credit risk in both Europe and the U.S. jumped. The activity underscored the uneasiness of investors already grappling with a Federal Reserve that’s planning its first interest-rate increase in nine years. By the time trading started Monday in London, they also were faced with capital controls and a government-imposed bank shutdown in Greece, in addition to a Puerto Rico governor who warned holders of its $72 billion of debt to brace for losses.

• Komatsu CEO Says Customer Reticence Shows Worsening China Slump. Komatsu Ltd.’s customers in China are reluctant to buy construction equipment because they’re unsure when building projects will start, underscoring the challenges the Japanese supplier and its peers face in a market that’s cooling more than expected. “Things in China are tougher” than previously forecast, Chief Executive Officer Tetsuji Ohashi said last week in an interview at the company’s Tokyo headquarters. “Customers themselves are unsure of the timing for the start of construction works. It feels like they’ll wait to buy machinery until after they see that projects are underway.” Komatsu’s concerns in China mirror those of Hitachi Construction Machinery Co., which last week said excavator demand this quarter is running almost 50 percent below year-ago levels. In response to conditions in China, Komatsu is reducing labor costs, while Hitachi is cutting stockpiles by operating Chinese plants at half capacity.  

• China A-Shares in Bear Market as Index Falls 22%. (video)

• China’s Stocks Extend Bear-Market Rout as Margin Trading Drops. Chinese stocks tumbled to the lowest levels in almost three months as traders unwound margin positions and technology companies slumped. The Shanghai Composite Index sank 4.1 percent to 3,887.55 at 10:21 a.m. The measure has plunged 25 percent from its June 12 peak, ending the nation’s longest-ever bull market, amid concern valuations were unsustainable. A weekend interest-rate cut and speculation that regulators will halt initial public offerings has failed to stem the rout. “The correction in the market made investors rather nervous,” said Gerry Alfonso, a director at Shenwan Hongyuan Group Co. in Shanghai. “Margin lending remains a significant issue and it is unavoidable to have volatility, even with the supporting measures.”

• China Turns to Market-Boosting Playbook That BofA Calls Obsolete. Bank of America Corp. strategist David Cui has a laundry list of support measures that China’s government might deploy to fight the steepest stock-market rout since 1996. They could halt initial public offerings, encourage insurers to buy shares, ease access to margin financing, reduce stamp duties or cut lending rates -- just to name a few. The problem for bulls, Cui says, is that none of those measures are likely to spark a sustained rally at a time when margin traders are unwinding a record build-up of leveraged bets. His year-end target for the Shanghai Composite Index implies a drop of 11 percent from Monday’s close.

• Asian Stocks Rise From Three-Month Low as Investors Weigh Greece. Asian stocks rose, with the regional benchmark index climbing from a three-month low, as investors watched developments in Greece’s debt crisis. The MSCI Asia Pacific Index rose 0.1 percent to 145.16 as of 9:01 a.m. in Tokyo after closing Monday at the lowest since March 17. The gauge is on course to fall 4.1 percent this month and 0.8 percent for the quarter. 

• Australia Iron Ore Exports to Surge 10% as Rinehart Jumps In. Iron ore exports from Australia will expand 10 percent next year, more than double the gain in 2015, as a new mine backed by billionaire Gina Rinehart ramps up supply, according to the government, which cut price forecasts. Shipments will increase to 824 million metric tons from 748 million tons in 2015, when exports were seen rising 4.3 percent on-year, the Department of Industry and Science said in a quarterly outlook on Tuesday. Iron ore will average $54 a ton this year from about $60 forecast in March, the department said. Prices will average $52 in 2016 from $57 estimated in March. Increased exports from the biggest supplier may hurt the outlook for prices, which on Tuesday will cap the first quarterly rise since the final three months of 2013.

• Puerto Rico Creditors Said Drawing Battle Lines as Default Looms. A group of more than 35 hedge funds has gone from standing ready to pour more than a billion dollars into cash-strapped Puerto Rico to preparing for battle against the island territory -- and one another -- in a default. Governor Alejandro Garcia Padilla triggered the unraveling of a potential $2.9 billion oil-tax bond deal for Puerto Rico’s Government Development Bank by signaling his desire to restructure the island’s debt rather than raise new capital, according to three people with direct knowledge of the matter. The hedge funds that were preparing to fund the bulk of that deal are now focusing on ways to protect their stakes, including through litigation, said one of the people, who didn’t want to be named because the talks are private. Some creditors are also in talks to break off into new groups, the person said.

• Citigroup(C) Overtakes JPMorgan(JPM) as Top U.S. Derivatives Dealer. Citigroup Inc. overtook JPMorgan Chase & Co. to become the largest derivatives dealer in the U.S. The firm’s derivative contracts as measured on a notional basis were $56.6 trillion at the end of the first quarter, according to data compiled by the Office of the Comptroller of the Currency and released Monday. JPMorgan ranked second with $56.2 trillion and Goldman Sachs Group Inc. third with $52 trillion. 

• Obama Plans to Expand Overtime Eligibility for Millions. The Obama administration plans to raise the wages of millions of Americans who work more than 40 hours a week by requiring their employers to pay them overtime. The Department of Labor will announce as soon as Tuesday a draft regulation to increase the minimum salary for exempting workers from a federal overtime requirements to $970 a week in 2016, the equivalent of a $50,440 annual salary, said an administration official, who asked for anonymity because the plan hasn’t been officially announced.

Wall Street Journal:

• Greek Debt Crisis: Europe, Athens Race to Sway Greeks in Bailout Referendum. Greece’s Prime Minister Alexis Tsipras argues ‘no’ vote would strengthen his hand in negotiations. European and Greek leaders began a singular election campaign Monday, a weeklong dash to persuade Greece’s battered voters that one of two imperfect referendum choices will bring them the least pain. Markets around the world shuddered, but didn’t collapse, in reaction to Greece’s weekend decision to hold a referendum next Sunday about the terms its creditors want for more...

• Iran Sends Top Officials to Nuclear Talks on Deadline Day. Western diplomats say deadline will be missed. Iran dispatched two senior officials to nuclear talks here in a last-minute push for a breakthrough in the diplomacy that U.S. officials acknowledge will miss another key deadline on Tuesday. Western officials said late Monday it was still not clear whether Iran and six world powers would be able to bridge their differences and clinch a comprehensive agreement intended...

• Justice Kennedy’s Bitter Truth. The same-sex marriage ruling will unleash the legal furies against those who disagree with it.

• The Mercurial Court. The Supremes rebuke the EPA but decline to rein in its abuses. 

Fox News:

• Supreme Court blocks Texas abortion-clinic rules. (video) The Supreme Court acted Monday to keep Texas' 19 abortion clinics open, amid a legal fight that threatens to close more than half of them. The justices voted 5-4 to grant an emergency appeal from the clinics after a federal appeals court upheld new clinic regulations and refused to keep them on hold while the clinics appealed to the Supreme Court.

MarketWatch.com:

• 7 photos that sum up what it looks like in Greece today. 

• Caixin China PMI to replace HSBC China PMI.

CNBC:

• Stocks ignored Greece, now pay the price. "We were basically within striking distance of all-time highs, coming in today," said Michael O'Rourke, chief market strategist at JonesTrading. "There was no risk priced in whatsoever, and even at these levels there's not much risk priced in to the market today."

Zero Hedge: 

• Greece... Mattered: Surveying The Carnage. (graph)

• JPMorgan(JPM) Just Cornered The Commodity Derivative Market, And This Time There Is Proof.

• French Economy In "Dire Straits", "Worse Than Anyone Can Imagine", Leaked NSA Cable Reveals. (graph)

• Strap In! China Is Crashing Again. (graph)

• Beggar Thy Neighbor? Greece's Battered Banks Beget Balkan Jitters. (graph)

• Puerto Rico Announces Bond Payment "Moratorium". (graph)

• SocGen Says "Raise Cash" As Volatility, Turbulence Ahead. (graph)

• This Insane Debt Chart Explains Why Chinese QE Is Inevitable. (graph)

• Greek Supermarkets Begin To Resemble Those Of Venezuela. (pic)

• Technically Speaking - Bears Are Winning. (graph)

• "Retired" Dallas Fed Chief Joins Barclays As "Senior Advisor".

Business Insider: 

• Microsoft(MSFT) is getting out of the display ad business, and up to 1,200 employees will move to AOL.

• The International Monetary Fund is on the hook if Greece defaults.

• EU's Tusk: There is no chance of a bailout for Greece this time.

• The NYPD is revamping its efforts to hire black and Muslim officers.

• Here's what people told me at the massive rally against a bailout deal in Athens.

• Uber is reportedly losing boatloads of money.

• The end of sanctions is worth hundreds of billions to Iran.

Daily Caller: 

• Former CIA Head: ‘I Wouldn’t Be Surprised’ If Terror Attack Hits U.S. Over 4th Of July Weekend [VIDEO].

Reuters: 

• Celgene(CELG) to invest $1 bln in Juno to partner in cancer therapies. Celgene Corp on Monday launched a 10-year partnership with Juno Therapeutics, announcing a $1 billion investment aimed at bringing to market Juno technologies that harness the immune system to treat cancer and autoimmune diseases. 

• Greece may find it is easier to close banks than re-open them. Capital controls imposed in Greece are likely to stay in place for months and its banks may need billions of euros of new capital or even face nationalisation under a lengthy financial rebuilding, industry sources said.

Telegraph: 

• Leftist politics have doomed Greece to collapse. It is always those in the middle -- and especially what Marxist intellectuals call the petit bourgeois, the aspiring, hard-working workers and savers -- who are hurt the hardest.

• Greece threatens top court action to block Grexit. Exclusive: European leaders warn in concert that a 'No' vote on Sunday means Greece will be pushed out of the euro.

• Greece crisis: What happens next? And how much money does Greece owe? As Greece hurtles towards bankruptcy and a potential exit from the euro, we round up the key facts and dates.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 115.0 -2.0 basis points.

• Asia Pacific Sovereign CDS Index 61.0 +3.5 basis points.

• S&P 500 futures +.22%.

• NASDAQ 100 futures +.25%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (CAG)/.59

• (SCHN)/-.08

• (AVAV)/.16

Economic Releases

9:00 am EST

• S&P/CS 20 City MoM SA for April is estimated to rise +.8% versus a +.95% gain in March.
  

9:45 am EST

• The Chicago Purchasing Manager report for June is estimated to rise to 50.0 versus 46.2 in May.

10:00 am EST

• Consumer Confidence for June is estimated to rise to 97.4 versus 95.4 in May.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The IMF deadline for Greek repayment, Fed's Bullard speaking, China Manufacturing/Non-Manufacturing PMI, UK GDP report, Eurozone CPI report, weekly US retail sales reports, ISM Milwaukee for June, (ANAC) Phase III results and the (MRVL) general meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 50% net long heading into the day.

Stocks Falling Substantially into Final Hour on Greek Debt Deal Fears, Soaring Eurozone/Emerging Markets/US High-Yield Debt Angst, China Bubble-Bursting Worries, Financial/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Around Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 18.38 +31.10%

• Euro/Yen Carry Return Index 143.85 -.47%

• Emerging Markets Currency Volatility(VXY) 9.08 +3.89%

• S&P 500 Implied Correlation 64.52 +6.22%

• ISE Sentiment Index 90.0 +13.92%

• Total Put/Call 1.40 +32.08%

• NYSE Arms 1.44 +84.64% 

Credit Investor Angst:

• North American Investment Grade CDS Index 71.590 +5.96%

• America Energy Sector High-Yield CDS Index 1,125.0 +2.09%

• European Financial Sector CDS Index 90.92 +18.5%

• Western Europe Sovereign Debt CDS Index 27.86 +25.61%

• Asia Pacific Sovereign Debt CDS Index 60.64 +4.33%

• Emerging Market CDS Index 312.72 +2.92%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.86 unch.

• 2-Year Swap Spread 25.25 +2.0 basis points

• TED Spread 28.25 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -21.75 -1.25 basis points

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 169.0 -8.0 basis points

• China Import Iron Ore Spot $61.29/Metric Tonne -1.16%

• Citi US Economic Surprise Index -29.10 +1.5 points

• Citi Eurozone Economic Surprise Index 1.90 -5.5 points

• Citi Emerging Markets Economic Surprise Index -20.90 -.1 point

• 10-Year TIPS Spread 1.89 -5.0 basis points

Overseas Futures:

• Nikkei 225 Futures: Indicating +56 open in Japan 
• China A50 Futures: Indicating -183 open in China

• DAX Futures: Indicating -73 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts 

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg: 

• Merkel Says Europe Can’t Put Principles Aside Temporarily. German Chancellor Angela Merkel said Europe can’t throw aside its principles after aid talks with Greece broke down, though she said she remains open to finding a compromise. “If the euro fails, Europe will fail,” Merkel told a party meeting marking the 70th anniversary of the chancellor’s Christian Democratic Union party in Berlin, reviving a phrase she used in earlier years of Europe’s debt crisis. “That’s why we have to fight for these principles,” she said. “We could maybe set them aside in the short term. We could maybe say we’ll just give in. But I say: in the medium and long term, we will suffer damage that way.” 
• Greek Combat Makes Compromise Riskier Than Contagion for Europe. For Europe, compromise with Greece looks increasingly costlier than contagion. As German Chancellor Angela Merkel and her fellow euro-area leaders cast Greece’s July 5 referendum as a choice on whether to remain in the currency, the strategy suggests confidence the rest of the 19-country region is inoculated from any infection. Having spent five years dispensing aid and brokering deals with Athens, it also reflects a shift toward worrying that the bigger risk to the euro’s integrity lies in bowing to a member’s demands. “Although the indirect costs of a Grexit could be significant, this does not mean that they would necessarily outweigh the costs associated with an excessive compromise,” said Torsten Slok, chief international economist at Deutsche Bank AG in New York. “Sending the wrong message across the euro area would risk undermining the medium-term stability of the monetary union.”
• `Freight Train of Unknowns' Confronts Investors With Greece. It's one of those Monday mornings following one of those weekends which created more questions than answers. So it may be premature at best, or pointless at worst, to attempt to figure out what sort of long-term scar tissue will be left on global markets from the decision by Greece's leader to hold a referendum on the country's international aid. There are simply "a freight train of unknowns" confronting markets today,  as Weeden & Co.'s chief global strategist Michael Purves wrote in a note today. Among the boxcars on that train are piles of question marks surrounding the actual language of the Greek referendum, who will run the country if voters don't follow Prime Minister Alexis Tsipras's advice to reject terms of the international bailout, and what sort of social unrest could develop as a result of the whole mess. For investors looking for simple answers, there are only difficult questions as Greece shuts its banks and stock market for the week.
• Credit Risk Gauges in Europe Rise by Most Since Lehman on Greece.
  Measures of risk in Europe's credit markets surged after Greek debt talks broke down, rising the most since Lehman Brothers Holdings Inc. failed in 2008. A benchmark of credit-default swaps rose by as much as 20 percent to the highest in more than a year, according to data compiled by Bloomberg. Greek bank bonds dropped to their lowest levels on record and contracts insuring the Mediterranean nation’s sovereign debt indicated a 91 percent probability of default. The Markit iTraxx Europe index of credit-default swaps on 125 investment-grade companies rose to as high as 80 basis points, and was at 74 basis points 1:29 p.m in London, Bloomberg data show. The index was the most-traded credit-default swap measure globally, with a gross $196 billion changing hands in the week through June 19, the most recent data published by the Depository Trust & Clearing Corp. The Markit iTraxx Europe Senior Financial Index of credit-default swaps on 30 European banks and insurers climbed by as much as 21 basis points to 98 basis points. The increase is the biggest in percentage terms since Sept. 15, 2008, Bloomberg data show.
• Greece Risk May Pose Black Swan Dangers for Emerging Markets. Here we go again. A flight to haven assets has begun as Greece’s economy faces a tailspin, sparking concern defaults and bank collapses could spill over to other European nations, and impose a global impact. This time, though, Europe and the U.S. confront the risk of contagion with a strengthened policy toolkit -- including new mechanisms to monitor and support banks, and a system of swap lines to inject liquidity. In Japan, the central bank is led by a governor who’s already pumping unprecedented monetary stimulus. If developed markets can regard the risk of Grexit with less trepidation than the maelstrom of 2008, for emerging markets, some of the ground has shifted in an undesired direction. Their combined growth rate is less than half the pace of 2007. Some, including Indonesia and Malaysia, have mounted up on dollar-denominated debt even as their currencies slumped, increasing their vulnerability in a mass exodus from risk.   
• Greek Crisis: What's Behind the Euro Strength. (video)
• Shanghai Enters Bear Market. (video) 
• China Economy Slowing for Several Years: Male. (video)
• China’s CSRC Says Margin Trading ‘Controllable’ as Stocks Plunge. China’s securities regulator said Monday margin trading at brokerages was “controllable,” seeking to stem a stock-market rout amid concern traders had borrowed excessive amounts of money to buy shares. Margin calls on Monday morning on the off-market HOMS pooling system were only about 2.2 billion yuan ($354 million), a “fraction” of total transaction value, the China Securities Regulatory Commission said in a statement on its official microblog. Deposits in margin accounts were “nowhere near” dangerous levels, the regulator said.
• Brazil ETF Leads Emerging-Market Outflows as Greece Adds to Woes. Brazil’s biggest exchange-traded fund tumbled to a one-month low amid speculation that a possible Greece exit from the euro would deepen the largest outflows among emerging markets this year. The iShares MSCI Brazil Capped ETF had about $800 million in withdrawals in the first six months of 2015, according to data compiled by Bloomberg. The fund extended this year’s slump to 12 percent. The Ibovespa retreated 2 percent to 52,936.38 at 1:58 p.m. in Sao Paulo, the most in the Americas. Brazilian shares have dropped 8.8 percent from this year’s high as the nation struggles to shore up the budget and keep its investment-grade credit rating at a time when the economy is set for the worst recession in 25 years. Stocks joined a global rout Monday after Greece shut lenders and imposed capital controls, a measure that will deepen the country’s recession and risk driving it toward an exit from the euro.
• Worldwide Stock Volatility Soars as Sleepy VIX Awakens on Greece. Gauges of stock volatility surged around the world as the weekend meltdown in Greece collided with China’s market unraveling and traders bought hedges to stanch the bleeding. The Chicago Board Options Exchange Volatility Index surged 24 percent, its biggest increase since December, while a gauge of European share swings climbed 15 percent to an eight-month high. The surge shook U.S. traders out of a two-month-long slumber in which weekly changes in the S&P 500 have failed to exceed 1 percent for the longest stretch since 1993. 
• European Banks Erase $67 Billion as Greece Edges Toward Exit. (video) European banks slumped the most since 2011, erasing almost 60 billion euros ($67 billion) in market value, after Greece imposed capital controls and shut lenders. The Stoxx 600 Banks Index fell as much as 4.4 percent, the biggest decline since November 2011. The gauge closed down 4 percent, eliminating most of last week’s rally. Lenders in Italy, Portugal and Spain were among the biggest decliners, led by Banco Comercial Portugues, which tumbled 11 percent.
• Nickel Declines to Six-Year Low as Aluminum Nears Bear Market. Nickel slid to the lowest since May 2009 as Greece’s debt crisis undermined confidence in the global growth outlook. Aluminum fell closer to entering a bear market. The LMEX Index of six industrial metals is heading for a fourth straight quarterly loss, the longest streak since 2001. Greece’s standoff with its creditors is adding to economic concerns amid a slowdown in China. Europe is forecast to account for almost one-fifth of the world’s nickel demand this year, Morgan Stanley estimates.
• Bond Insurers Drop, Credit Risk Jumps on Puerto Rico Concern. Shares of the two biggest bond insurers dropped while a gauge of their credit risk surged as Puerto Rico’s governor called the island’s $72 billion of debt unpayable. Assured Guaranty Ltd. dropped 12 percent in New York, while MBIA Inc. fell 16 percent. Credit-default swaps that protect against the risk that the insurers won’t be able to meet their obligations climbed by the most in a year. The insurers, who guaranteed a combined $9.4 billion of Puerto Rico debt, face the prospect of losses as Governor Alejandro Garcia Padilla -- who previously said the commonwealth would do whatever it takes to avoid default -- told the New York Times that investors should prepare to sacrifice. Credit-swaps tied to Assured Guaranty Municipal Corp. jumped 70 basis points to 441 basis points and earlier reached 461, the highest since January 2014, according to data provider CMA. Contracts linked to MBIA increased 101 to 732 basis points, the highest since April.
• U.S. Rails Skid Into Bear Market on Triple Whammy Cargo Slump. U.S. railroads, Wall Street favorites for much of the past decade, are slumping into a bear market amid a three-way squeeze from plunging coal, crude-oil and grain shipments. An index of the four largest publicly traded U.S. carriers has dropped 20 percent from its peak in November, paced by Kansas City Southern, as the companies struggle to offset the loss of volumes. They haven’t tumbled this much since 2011.
• EPA Loses at U.S. High Court on Power-Plant Emissions Rule. The U.S. Supreme Court ruled against the Obama administration’s effort to limit toxic pollution from the nation’s coal-fired power plants, leaving the fate of a landmark environmental regulation in doubt. The 5-4 decision went against an Environmental Protection Agency mercury rule that forces utilities to shutter old coal plants or invest billions of dollars in equipment to clean up the emissions from their smokestacks. The court said the EPA should have considered the costs and benefits before deciding whether to impose limits on the toxic emissions.

ZeroHedge: 

• Greece Will Default To IMF Tomorrow, Government Official Says.
• Massive Greek "No" Protest In Front Of Parliament - Live Feed. (video)
• Greek Contagion Uncontained: Portugal Bond Risk Spikes Most In Over 7 Years. (graph)
• ECB Strikes Back: Threatens With Greek Deposit Haircut If And When ELA Found To Be "Illegal" On Wednesday.
• Chinese Regulator Blames Ongoing Market Crash On "Rumors", Demands Traders "Act Rational". (graph)
• European Bank Risk Spikes Most In 5 Years To 19-Month Highs. (graph)
• Greek 10Y Bonds Collapse - Yield Tops 15%. (graph)
• An Inadvertent Warning From BlackRock(BLK).
• Dallas Fed Surges Back, Beats By Most Since Jan 2012 But Hope Tumbles. (graph)
• Pending Home Sales Rise At Slowest Pace Since 2014, April Revised Lower. (graph)
• Puerto Rico Bonds Are Collapsing. (graph)
• "Uncontained" - Greek Stocks Crash 17% As European Banks Plunge Most In 3 Years. (graph)

Business Insider: 

• Greece will default.
• 'There is no US precedent for anything of this scale or scope'.
• S&P DOWNGRADES GREECE, PUTS GREXIT ODDS AT 50%, WARNS DEFAULT COULD HAPPEN IN 6 MONTHS.
• Here are the companies and industries whose insiders are dumping tons of stock.
• ART CASHIN: 'I think China may be more important than Greece.'

Reuters:

• Puerto Rico needs debt restructuring, reforms: economists' report. Puerto Rico needs to restructure its debts and should make reforms including cutting the number of teachers and raising property taxes, a report by former International Monetary Fund economists on the Caribbean island's financial woes said. The report, which was obtained by Reuters, gave a damning review of how Puerto Rico has arrived at its current state, which it said requires both structural reform and debt restructuring to fix. "Puerto Rico faces hard times," the report said. "Structural problems, economic shocks and weak public finances have yielded a decade of stagnation, outmigration and debt... A crisis looms."

Telegraph: 

• Greece debt crisis live: EU leaders say the referendum is a choice between euro and drachma as Grexit looms. Greeks can take out only €60 per day from ATMs as Greece admits it will default on €1.6bn debt.
• European debt crisis: It's not just Greece that's drowning in debt. (map)

Deutschlandradio:

• Issing Says ECB Greece Policy Bordering on State Financing. Former ECB Chief Economist Otmar Issing says the central bank's emergency funding for Greek banks has been bordering on state financing, which is banned by law. "It was high time the ECB put a stop to this barely concealed government funding," he said. "Bundesbank President Weidmann has pointed out for some time that the Greek central bank awards loans to banks in Greece which have no access to the capital market. These banks buy bonds of a country which has lost the confidence of investors. This comes very close to direct state funding." "It was more or less an increasing fiction that this is supporting solvent banks. The ECB, like other institutions, has to obey the law." "If the ECB had not set a limit, then more money would have been produced, withdrawn by the Greeks from their bank accounts and partially moved abroad. This leads to ever higher claims within the European system of central banks, far exceeding 100 billion euros, of which a substantial part affects Germany." "This money will be more or less lost," he said.