Wednesday Watch

Evening Headlines 

Bloomberg: 

• Tsipras Kicks Off Bailout Pitch with Math Already in Question. Greek Prime Minister Alexis Tsipras started his pitch for a bailout that’s sparked a revolt in his own party and is struggling to get off the ground as international officials ask new questions about the country’s finances. As Tsipras went on national television to argue for a deal that he only agreed to with “a knife on my neck,” European officials are at a loss on how to put together a bridging loan that will keep Greece from defaulting on the European Central Bank and its own citizens next week. One person familiar with the matter said that Greece’s finances seem to get worse with every meeting and governments are now reluctant to help out with even short-term funds.  

• China Rout Could Cut Banks’ Equities Revenue 22%, JPMorgan Says. Global investment banks may see revenue from trading stocks slide 22 percent on average in the second half of the year from the first half because of the turmoil in China, according to analysts at JPMorgan Chase & Co. Should the market swings in China persist “it might impact the trading volumes in the second half” as clients reduce activity and the pace of new stock sales slows, analysts led by Kian Abouhossein wrote in a report on Tuesday.  

• Bank of Japan Keeps Record Stimulus, Trims Inflation Outlook. The Bank of Japan refrained from increasing its monetary stimulus as officials count on the economy shaking off recent weakness and inflation picking up toward its target. The central bank will continue to expand the monetary base at an annual pace of 80 trillion yen ($648 billion), it said in a statement on Wednesday in Tokyo. It lowered its inflation projection for the fiscal year through March 2016 to 0.7 percent from 0.8 percent and forecast 1.9 percent for the following year.

• Daewoo Ship Falls to Lowest in 7 Years on Loss, Debt Concerns. Daewoo Shipbuilding & Marine Engineering Co., the world’s second-largest shipbuilder, fell to its lowest price in almost seven years in Seoul trading on concerns that it may report losses and could need to restructure its debt. Shares of Daewoo Ship slumped by the daily 30 percent limit to 8,750 won, its lowest intraday price since October 2008, as of 10:22 a.m. in Seoul. The stock is the worst performer on the MSCI Asia Pacific Index Wednesday.

• China Stocks Slump for Second Day as GDP Fails to Lift Sentiment. China’s stocks fell for a second day after better-than-expected economic data failed to boost investor confidence in the world’s worst-performing equity market and more companies resumed trading. The Shanghai Composite Index slumped 3.1 percent to 3,801.78 at 11:01 a.m. local time. About six stocks dropped for each that rose. The number of halted companies fell by 96 from Tuesday to 689, or 24 percent of overall listings on mainland exchanges. 

• Asian Stocks Rise on U.S. Retail Sales Ahead of BOJ, China Data. Asian stocks rose before a Bank of Japan policy decision and data on China’s economy as a fall in U.S. retail sales fueled bets the Federal Reserve won’t raise interest rates in September. The MSCI Asia Pacific Index added 0.3 percent to 143.92 as of 9:05 a.m. in Tokyo. Sales at American retailers unexpectedly dropped in June, upending optimism over the strength of a rebound in consumer spending.

• World’s Top Steelmaker Says Output Waning as Demand Stumbles. Mills in the world’s biggest steelmaker are churning out less even as economy shows signs of stabilizing. Crude-steel production in China shrank 1.3 percent to 410 million metric tons in the first half compared with the same period of 2014, according to the National Bureau of Statistics on Wednesday. June’s output fell 0.8 percent from a year ago. 

• Yellen Faces Tough Time Convincing Traders She’ll Act This Year. The central bank chair is scheduled to address U.S. lawmakers Wednesday and Thursday in Washington, after saying last week it will probably be appropriate to increase borrowing costs “later this year.” A Morgan Stanley index based on futures trading shows the Fed won’t act until early 2016. The central bank will meet four more times this year.

Wall Street Journal: 

• 5 Things to Watch in Yellen’s Congressional Testimony.

• Tehran’s Nuclear Triumph. The deal leaves Tehran on the cusp of a bomb while sanctions vanish. President Obama was right on Tuesday to hail his nuclear agreement with Iran as historic, though not because of his claim that it will “prevent Iran from obtaining a nuclear weapon.” The agreement all but guarantees that Tehran will eventually become a nuclear power, while limiting the ability of a future President to prevent it. We say this after reading the 159-page text, complete with five annexes, which offers a...

Fox News:

• Officials: Iran nuclear deal fuels Middle East arms race, boosts Russia’s influence.

MarketWatch.com: 

• These are Morgan Stanley’s 12 stocks to watch during earnings.

CNBC:

• Celgene(CELG) to acquire Receptos(RCPT) for $7.2 billion.

Zero Hedge:

• IMF Rips Pandora's Box To Shreds, Demands Greek Debt Relief "Far Beyond What Europe Has Been Willing To Consider".

• IMF May Walk Away From Greek Bailout.

• Varoufakis: Greek Deal Is "Coup", Turns Greece Into "Vassal" State, And Deals "Decisive Blow" To European Project.

• Crude Extends Gains After API Reports Large Drop In Inventories. (graph)

• Tsipras Stunner: Creditors Said "There Is No Point In Holding Elections" In Bailed Out Countries.

• "Everything Is Awesome" In China - Retail Sales, Industrial Production, & GDP All Mysteriously Crush Expectations. (graph)

• Chinese Big Cap Stocks Continue To Slide; Bridgewater Warns, "Typical Of Market Dominated by Unsophisticated Investors".

• Systemic Risks Surge As Correlation Among Stocks Shoots Higher. (graph)

• Recessionary Retail Sales & Broken Markets Spark Volumeless Buying In Stocks, Bonds, & Crude. (graph)

Business Insider: 

• Greeks are rebelling against the bailout and the system risks collapse.

• Here's what's in Iran's $100 billion in assets that will become unfrozen by the nuclear deal. 

• Tehran is erupting in celebration over the Iran nuclear deal.

Telegraph:

• Greece news live: PM Alexis Tsipras says banks could stay closed for a month. Greek PM says banks might not reopen until the bailout deal with the Eurozone is finalised, a process that could take several weeks.

• Europe's collective aversion to Grexit is baffling. Who can explain why the rest of the eurozone is so keen to hang on to Greece? It can’t be based on economics and the hope of shared prosperity or solidarity. 

• Greek deal exposes the flaws in Europe's heart. Telegraph View: Britain must keep a healthy distance from the doomed European project.  

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.50% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 108.5 -.25 basis point.

• Asia Pacific Sovereign CDS Index 59.25 +.25 basis point.

• S&P 500 futures +.12%.

• NASDAQ 100 futures +.18%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ASML)/.82

• (BAC)/.36

• (BLK)/4.80

• (DAL)/1.21

• (PNC)/1.75

• (USB)/.81

• (HGR)/.45

• (INTC)/.50

• (KMI)/.19

• (NFLX)/.28

Economic Releases

8:30 am EST

• PPI Final Demand for June is estimated to rise +.2% versus a +.5% gain in May.

• PPI Ex Food and Energy for June is estimated to rise +.1% versus a +.1% gain in May. 

• PPI Final Demand for June is estimated to fall -.9% versus a -1.1% decline in May.

• Empire Manufacturing for July is estimated to rise to 3.25 versus -1.98 in June.

9:15 am EST

• Industrial Production for June is estimated to rise +.2% versus a -.2% decline in May.

• Capacity Utilization for June is estimated at 78.1% versus 78.1% in May.

• Manufacturing Production for June is estimated to rise +.1% versus a -.2% decline in May.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,242,380 barrels versus a +384,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +437,500 barrels versus a +1,215,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,727.500 barrels versus a +1,641,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise +.16% versus a -.3% decline prior.

2:00 pm EST

• US Fed release Beige Book.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Yellen testimony to House, Fed's Mester speaking, Fed's Williams speaking, weekly MBA mortgage applications report, Bank of Japan policy decision, China retail sales report and the (PAYX) investor day could also impact trading today.

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