Friday Watch

Evening Headlines 

Bloomberg: 

• EU Calls Emergency Summit as Greece Runs Out of Time. Greece lurched closer to an exit from the euro as a meeting of finance officials to reach a deal over aid dissolved in acrimony, forcing leaders to call for an emergency summit for Monday. As the European Central Bank prepared for its own emergency session on Friday to discuss Greece’s liquidity, thousands of Greeks piled outside parliament in Athens asking for the nation to be saved from default as Prime Minister Alexis Tsipras’s government blamed a conspiracy to blackmail Greece for the rancorous breakdown in talks.

• Greece Aid by June 30 Is Unthinkable, Dijsselbloem Says. (video) 

• Grexit Would Test Global System in Unknown Ways. NZ’s English. A Greek default and exit from the euro probably would test the global financial system in ways different to the Lehman Brothers crisis of 2008, according to New Zealand’s finance minister. Liquidity backstops such as international swap lines have strengthened since the 2008 cataclysm, and banks have scaled back their balance sheets, making them more resilient, Bill English said in an interview in his office in Wellington Thursday. New Zealand could become ground zero for the first market response to a Greek crisis should it come over a weekend, as it hosts the start of the global trading day.

• China Bears Rush to Short U.S. ETF at Record Pace as Rally Fades. U.S. investors have never been so convinced that the rally in China’s mainland stocks is ending. Short interest in the largest exchange-traded fund tracking yuan-denominated equities rose to a record 16 percent of shares outstanding Wednesday as bets on a price drop almost doubled from a month ago, according to data compiled by Markit and Bloomberg. Traders pulled $258 million from the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF last week, the most since the fund was created in 2013.

• Asia’s Hedge Funds Assets Surge to Record on China Stock Rally. Assets managed by Asia’s hedge funds reached a record $177 billion in May, bolstered by returns from funds trading China stocks, according to data provider Eurekahedge Pte. Investments by funds with an Asia mandate exceeded the $176 billion in December 2007, before the global financial crisis, Alexander Mearns, chief executive officer of Singapore-based Eurekahedge, said in an interview on June 17.

• Chinese Stocks Drop 10% From Peak. China’s stocks were poised to enter a correction as initial public offerings drained cash from the market and investors speculated recent gains have gone too far. The Shanghai Composite Index dropped as much as 3.4 percent, extending its loss from its June 12 peak to more than 10 percent. If the gauge closes in a correction, it would be the first 10 percent drop since January 2014. “I would not be too surprised if the correction goes deeper than anticipated,” said Hao Hong, head of China research at Bocom International Holdings Co. in Hong Kong.

• China’s Stocks Head for Worst Week Since 2008 Financial Crisis. China’s stocks fell, sending the benchmark index toward its steepest weekly loss since 2008, amid concern the government will clamp down on margin trading and valuations are excessive after a world-beating rally over the past year. The Shanghai Composite Index dropped 1.5 percent to 4,712.15 at 9:33 a.m., extending this week’s slump to 8.7 percent. Losses were led by technology companies and power producers. Leshi Internet Information & Technology (Beijing) Co. and Wangsu Science & Technology Co. decreased more than 5 percent. SDIC Power Holdings Co. declined 4 percent. The Shanghai gauge dropped as analysts warned the stock market is in a bubble that will burst after it reached its highest levels in seven years and the 21st Century Business Herald reported the securities regulator is working on margin-trading risk management rules for securities firms. Equities have also been weighed down by new share offerings that have lured an estimated $1.1 trillion in bids.

• Asian Stocks Advance as Investors Await Bank of Japan Decision. Asian stocks rose for a second day, following gains in U.S. shares, as investors awaited a Bank of Japan policy decision. Energy shares led the advance. The MSCI Asia Pacific Index climbed 0.3 percent to 146.91 as of 9:01 a.m. in Tokyo, paring this week’s slide to 0.8 percent.

• Hollywood Producers Host Obama to Collect Money for Democrats. While some Republican presidential candidates canceled political events on Thursday after a mass shooting in Charleston, South Carolina, President Barack Obama carried on with fundraisers at the homes of two of Hollywood’s most famous producers. Tyler Perry, creator of the “Madea” series of movies, and Chuck Lorre, known for his CBS comedies “Two and a Half Men” and “The Big Bang Theory,” will each help Obama raise money for the Democratic National Committee. About 250 supporters are set to attend a dinner event at Perry’s Beverly Hills home, and Lorre will host about 30 people at his Pacific Palisades home. Donors contribute as much as $33,400 to attend the events.

Wall Street Journal:

• IPO Market Heats Up After Slow Start to 2015. Strong debuts have begun to ease fears about declining investor appetite for new issues.

• Martha Stewart Nears Deal to Sell Fading Empire. Licensing firm Sequential Brands wants to add name to its stable.

• Pope Blames Markets for Environment’s Ills. Pontiff condemns global warming as outgrowth of global consumerism.

• The Pope’s Green Theology. The good news: His encyclical invites honest discussion. Let’s have it.

Fox News:

•  'I'm lost': Church massacre victims leave deep void in Charleston community. The other victims of the church massacre in Charleston were not as well-known as their leader, Clementa Pinckney, a preaching prodigy and charismatic state lawmaker who had earned respect throughout the state for his hard work on behalf of his flock and constituents alike, but they were the backbone of one of the South's most venerable African-American churches.

MarketWatch.com:

• Report risks intensifying worries over Greek banks. Concerns about Greece’s banking system intensified Thursday, after a news report said a European Central Bank official warned eurozone finance ministers that the country’s banks might not be able to open come next week.

• Fogo De Chao sets IPO pricing above expected range.

Zero Hedge:

• The Mysterious "Massive" Seller Who Flash Crashed Gold In 2014 Has Finally Been Revealed.

• The Corporate Earnings Cycle Has Just Turned Negative In The US. (graph)

• ECB Admits Emergency Call On Greece ELA Planned For Friday.

• ECB "Blesses" Greek Bank Runs, Says Unsure If Banks Will Reopen Monday.

• 3 Things: Retail Sales, Fed Misses Again, Profits. (graph)

• Total Greek Deal Failure Sparks Biggest Buying Spree Since 2011, Stocks Set New Records. (graph)

• Pope Francis Calls For A New Global Political Authority To Save Humanity. They will always say that it is about “saving humanity” or “saving the planet”, but ultimately everything that they are trying to accomplish would mean more power in their hands. 

• China Is Turmoiling. (graph)

• Sweden's Largest Fund Manager Is Quietly Dumping Stocks Before The "Herd" Is Caught In A Selling Vortex.

Business Insider:

• The US defense industry is reeling after the latest massive cyber attack.

• Hong Kong lawmakers just rejected China's 'sham' democracy plan.

• Obama will announce new standards for big trucks to cut carbon emissions.

• Deadly respiratory virus MERS just spread to Thailand.

Reuters:

• BOJ keeps upbeat view of economy, maintains asset purchases.

• Lipper fund flows IG US$161.2m outflow; HY US$2.889bn outflow.

Financial Times: 

• Greece’s defiant youth opt for ‘chaos’ over more of the same. Greece’s central bank delivered an alarming warning on Wednesday that the country faced an “uncontrollable crisis” that might force it out of the EU if the government was unable to reach a new bailout deal with creditors soon. But the throng of young supporters gathered outside the Greek parliament had a different message for their defiant prime minister: hold firm, whatever the cost.

China Business News:

• Chinese Banks in Shenzhen Raise Mortgage Rates. More than 10 banks in southern Chinese city of Shenzhen have raised borrowing rates for first-tome purchases, citing banks. Higher mortgage rates aim to control rising risks following a recent property price surge, citing an employee at a bank.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 111.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 61.25 -1.0 basis point.

• S&P 500 futures -.10%.

• NASDAQ 100 futures -.05%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (KMX)/.86

• (KBH)/.08

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, Fed's Mester speaking, BoJ decision, Eurozone Current Account Balance report, Eurogroup meeting on Greece, Russell updates rebalance list and the (ODP) general meeting could also impact trading today.

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