Tuesday, June 30, 2015

Tuesday Watch

Posted by Gary .....at 12:25 AM
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’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...
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:
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: 
Business Insider: 
Daily Caller: 
Reuters: 
Telegraph: 
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%.

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.

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