Friday Watch

Evening Headlines 

Bloomberg: 

• Merkel Says Weekend Talks on Greece ‘Decisive’ as Time Runs Out. German Chancellor Angela Merkel and her fellow European Union leaders told their finance ministers to unblock Greece talks once and for all as positions hardened around conditions the country must meet to secure aid. In the rundown to the June 30 expiry of Greece’s euro-area bailout, hopes were raised -- then dashed -- by Prime Minister Alexis Tsipras, who came to Brussels with a set of proposals only to push back when more cuts were demanded. With Greece’s stay in the euro at stake, negotiations have picked up in frequency as a breakthrough has proved elusive.

• Draghi Stimulus Proves Painful for Bondholders Now Facing Losses. Record-low yields drew Berkshire Hathaway Inc., BlackRock Inc. and overseas borrowers to Europe’s bond market in their droves. The trend hasn’t worked well for investors who are suffering their worst losses in nine years.

• Russia’s ‘Saber-Rattling’ Threatens Stability, U.S. Says. Six years after then-Secretary of State Hillary Clinton said the Obama administration wanted to “reset” relations with Russia, the temperature is falling instead of rising. It hasn’t plunged to Cold War levels, but despite cooperation in fighting terrorism and seeking to curb Iran’s nuclear program, relations between Russia and the NATO alliance have been deteriorating steadily, and concern over further Russian moves against Ukraine and other neighboring European states has grown steadily. 

• Chinese Stock Plunge Leaves State Media Speechless. In a front-page commentary on Tuesday, the China Securities Journal said the nation’s “liquidity bull market” was “taking a break.” Future gains would be “slow” and driven by government efforts to reform state-owned companies, the paper said, echoing an earlier article by the state-run Securities Times. The takeaway is that authorities are trying to discourage speculative bets on the highest-flying stocks, Yan said. Instead, the government wants to steer money toward state-run companies, which tend to trade at lower valuations.

• Morgan Stanley Says Don’t Buy the Dip as China Stock Rally Peaks. Morgan Stanley is calling the top of China’s stock rally. The brokerage predicts the Shanghai Composite Index will fall between 2 percent and 30 percent over the next 12 months, according to Jonathan Garner, Morgan Stanley’s chief Asia and emerging market strategist. The Shanghai Composite declined 2.7 percent at 9:48 a.m. to its lowest level in five weeks, while the ChiNext gauge of smaller companies fell more than 20 percent in Shenzhen from its June 3 record.

• Shanghai Volatility Spreads to U.S. as ETF Erases Gains for June. The largest U.S. exchange-traded fund tracking mainland Chinese stocks erased its gain for the month amid the widest price swings since January on concern the rally that pushed shares to a seven-year high is fading. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF slumped 5.1 percent to $47.81 on Thursday, putting it on track for the first monthly drop since January. The fund’s 30-day historical volatility climbed to 47 percent. The selloff followed another erratic session on the Shanghai Stock Exchange after traders sold shares purchased with borrowed money for a third day. 

• China’s Stocks Tumble to Five-Week Lows as Margin Debt Declines. Chinese stocks fell to a five-week low after traders sold shares purchased with borrowed money for a fourth day and concern grew valuations are too high relative to earnings growth. Technology and industrial companies, the best performers over the past six months, led declines. East Money Information Co. plunged by the 10 percent daily limit, while China Shipbuilding Industry Co. dropped 5.8 percent. Guotai Junan Securities, China’s largest brokerage by revenue, jumped 44 percent in its debut in Shanghai after the nation’s biggest domestic initial share sale since 2010. The Shanghai Composite Index tumbled 2.7 percent to 4,404.16 at 9:35 a.m., erasing this week’s gain and sending it toward the steepest monthly loss since January 2014. 

• Asian Stocks Fall to Pare Weekly Gain as Investors Weigh Greece. Asian stocks fell, trimming the regional benchmark index’s weekly advance, as investors weighed prospects for Greece after days of talks failed to yield a breakthrough in its debt crisis. The MSCI Asia Pacific Index lost 0.2 percent to 149.02 as of 9:02 a.m. in Tokyo, paring this week’s gain to 1.3 percent.

• Never Mind Greece, Euro Seen Driven Toward Parity by ECB Policy. (graph) If Greece is forced to default, sell the euro. If Greece reaches a deal with its creditors, sell the euro. That’s the message from strategists including Barclays Plc and Bank of Tokyo-Mitsubishi UFJ Ltd., who say what matters for the currency is the European Central Bank’s bond purchases.

• Treasuries Set for Weekly Drop as Focus Moves to Fed From Greece. Treasuries headed for their first weekly decline in three weeks as investors shifted their attention from Greece to the U.S. economy. Benchmark 10-year yields are about 10 basis points from the highest since October after a report Thursday showed consumer spending rose the most in almost six years in May, even as talks between Greece and its creditors ended without agreement. Federal Reserve policy makers have stressed the timing of the first interest-rate rise since 2006 will depend on data, which a Bloomberg gauge shows are the strongest relative to economist estimates in almost four months.

• Micron(MU) sales outlook disappoints as PC slump continues. Micron Technology, the biggest U.S. maker of memory chips, issued a fiscal fourth-quarter sales forecast that fell short of analysts' estimates on weaker demand for personal-computer components. Revenue for the period ending in August will be $3.45 billion to $3.7 billion, the Boise, Idaho-based company said in a presentation posted on its website. Analysts on average were projecting sales of $4.16 billion, according to data compiled by Bloomberg.

Wall Street Journal: 

• Islamic State Attacks Two Syrian Kurdish Areas. Group’s first major foray into Kobani after being routed out in January by Kurdish militias. Islamic State militants attacked two Syrian Kurdish areas in an apparent warning to Kurdish militia fighters and their allies as they advance toward the extremist group’s stronghold of Raqqa.

• Unanswered Health Law Question: So Why Was It Written that Way? Words ‘established by the State’ formed the basis of the unsuccessful Supreme Court challenge.

• The Political John Roberts. The Chief Justice again rewrites ObamaCare in order to save it. For the second time in three years, Chief Justice John Roberts has rewritten the Affordable Care Act in order to save it. Beyond its implications for health care, the Court’s 6-3 ruling in King v. Burwell is a landmark that betrays the Chief’s vow to be “an umpire,” not a legislator in robes. He stands revealed as a most political Justice. The black-letter language of ObamaCare limits insurance subsidies to “an Exchange established by the State.” But the Democrats who wrote the bill in 2010 never imagined...

Fox News:

• US intel chief calls Iran the leading terror sponsor, as nuke talks enter final phase. (video) The nation’s top intelligence official labeled Iran the leading state sponsor of terrorism and called the regime -- and its proxy Hezbollah -- the single most important factors keeping Syrian dictator Bashar Assad in power, according to a letter obtained by Fox News. The warning comes as Obama administration officials enter the final phase of nuclear negotiation with Tehran. But despite the diplomatic track, Director of National Intelligence James Clapper assailed the country’s role in destabilizing the region in the letter to Republican senators.

• Scalia leads scathing dissent on ObamaCare ruling, dubs law 'SCOTUScare'. (video) Supreme Court Justice Antonin Scalia and his conservative colleagues may have been overruled in Thursday's decision upholding ObamaCare subsidies, but they didn't go down without a fight.

MarketWatch.com: 

• Obamacare tax increases are now locked in at least through 2016.

CNBC:

• Nike(NKE) earnings swoosh past estimates; shares rise. Nike delivered quarterly earnings and revenue that topped analysts' expectations on Thursday. The sports apparel retailer posted fiscal fourth-quarter earnings of 98 cents per share and $7.78 billion in revenue. Wall Street had forecast that the company would report 83 cents a share on $7.69 billion in revenue, according to a consensus estimate from Thomson Reuters.

Zero Hedge: 

• 18 Years Ago This Country Collapsed Almost Overnight. Is This Time Different?

• For The First Time Ever, QE Has Officially Failed.

• IRS Deleted Backups Of 24,000 Lois Lerner Emails Months After Subpoena.

• There's Something Wrong With The World Today (Hint: 1995). (graph)

• Stocks Give Up "Greece Doesn't Matter" Gains; Oil Drops, VIX Pops. (graph)

• Is This The Chart That Scared Yellen Capital Out Of Biotechs? (graph)

• 3 Things: Trend, Ceiling & Rates. (graph)

• The Biggest Threat To Chinese Stocks: "Shadow Lending" Crackdown. (graph)

• The Simple Reason Why China's Stratospheric Stock Market Rally Can't Fuel Economic Growth. (graph)

Business Insider: 

• The Silicon Valley housing crisis is epitomized in this listing for a $899/month tent.

• The State Department says that it has 15 Benghazi emails that Clinton didn't hand over.

Telegraph: 

• Greece talks to go down to the wire amid fears of imminent banking collapse. Talks will spill over into the weekend as Angela Merkel tells Alexis Tsipras to "shut up" and vows not to submit to Athens' 'blackmail'.

• EU summit: Greek talks collapse while Cameron's renegotiation ploy stutters. Second European finance ministers meeting breaks down in space of 24 hours as both sides fail to thrash out differences, with another meeting planned for Saturday.

Australian Financial Review:

• HSBC dumps China PMI as Beijing tightens information flows. For those on wanting to understand China there is one economic statistic more closely watched than any other. It's the Flash Purchasing Managers Index - or PMI - which is released in the last week of every month. The index claims to be the "earliest available indicator" of activity in China's giant manufacturing sector and it moves markets from Shanghai to Sydney, while providing a talking point for pundits. For the last five years the index has been sponsored by HSBC, giving the bank an easy stream of publicity and allowing it to brand itself as an authority on the Chinese economy. But HSBC's sponsorship will finish at the end of this month after the bank did not renew its global agreement with the survey's private sector compiler, Markit. The bank will end its sponsorship of all 23 emerging market PMI's produced by Markit. A spokeswoman for HSBC confirmed its exit to AFR Weekend and said the bank would refocus its marketing dollars towards other projects. She denied there was anything more to it than the bank moving on after "five successful years".

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.25% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 107.5 -1.25 basis points.

• Asia Pacific Sovereign CDS Index 57.50 -.5 basis point.

• S&P 500 futures -.07%.

• NASDAQ 100 futures -.16%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (FINL)/.24

Economic Releases

10:00 am EST

• Final Univ. of Mich. Consumer Sentiment for June is estimated at 94.6 versus a prior estimate of 94.6.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's George speaking, Eurozone M3 Money Supply and the final publishing of the reconstituted Russell indices could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and finaincial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.