Monday Watch

Today's Headlines 

Bloomberg:

• Greece’s Real Crisis Deadline Arrives With ECB Debt to Pay. Greece has reached the deadline it couldn’t afford to miss, for a bill it can finally afford to pay. Monday is the day the country must reimburse the European Central Bank 4.2 billion euros ($4.5 billion), including interest, as bonds bought during its last debt crisis mature. The impending reckoning may have been the factor that eventually forced Prime Minister Alexis Tsipras on July 13 to accept the austerity he and his electorate had previously rejected, in return for the funds needed to keep his nation from default. As Greece blew past multiple political and financial supposed end-dates over the past five months, July 20 always remained make-or-break. European Union law bans the ECB from financing governments, meaning a default would probably require it to pull support from Greek lenders, leaving an exit from the single currency all but assured.

• Greek Banks to Open Monday as Tsipras Prepares for Another Vote. Greek banks reopen Monday three weeks after they were shut down to prevent their collapse, as Prime Minister Alexis Tsipras prepares for a second parliamentary vote crucial to securing a bailout. Greeks will regain access to some basic bank services, including the ability to deposit checks and access safe deposit boxes. Although customers will continue to face restrictions on cash withdrawals, the daily limit of 60 euros ($65) will be replaced by a cumulative maximum of 420 euros a week.

• Merkel Holds Out Prospect of Limited Greek Debt Relief. German Chancellor Angela Merkel held out the prospect of limited debt relief for Greece if it follows through on the terms of a third bailout, while insisting that Greek membership in the euro precludes a debt writedown. Nations in the 19-member currency union will consider extending maturities and reducing interest rates on Greek bonds only after the first assessment of whether Greece is meeting pledges for more austerity and overhauling its labor market, the German leader said -- “not now, but then.”

• France’s Hollande Proposes Creation of Euro-Zone Government. French President Francois Hollande said that the 19 countries using the euro need their own government complete with a budget and parliament to cooperate better and overcome the Greek crisis. “Circumstances are leading us to accelerate,” Hollande said in an opinion piece published by the Journal du Dimanche on Sunday. “What threatens us is not too much Europe, but a lack of it.” 

• In Bailouts, China’s Bias for the Complex May Be Storing Up Risk. The second major bailout program from China’s leadership this year underscored its preference for relying on the banking system to shore up markets, a strategy that risks the need for further intervention over time. As details emerged last week on a stock-support plan valued at as much as $483 billion, investors became better acquainted with an agency called China Securities Finance Corp. that previously had a limited role in economic policy. The unit is now being deployed, with financing from state-owned banks, to buy up the nation’s depreciated equities. 

• China Regressing to a Frontier Market: Padamadan. (video)

• Volkswagen China Sales Decline for First Time Since 2005. Volkswagen AG, which counts China as its largest market, posted the first decline in first-half deliveries there in a decade as demand slowed with the economy. VW’s deliveries in China and Hong Kong fell 3.9 percent from a year earlier to 1.74 million units in the January to June period, the company said in a statement. First-half sales in China last fell in 2005, when deliveries slumped 14 percent. 

• Aussie Banks Must Set Aside More Capital for Mortgage Losses. Australia’s biggest lenders will have to set aside more capital against potential losses on home loans, the nation’s banking regulator said Monday in its latest move to bolster the financial system. Under rules coming into force on July 1, 2016, the average risk weight on residential mortgage exposures will rise to at least 25 percent from about 16 percent, the Australian Prudential Regulation Authority said in a statement. That will increase the capital requirements of the biggest four banks by about A$12 billion ($8.9 billion), according to Goldman Sachs Group Inc. and Morgan Stanley.

• Barclays May Lose 1 in 4 Jobs as Cost-Cutting Plans Carried Out. Barclays Plc may see its workforce shrink by about a fourth in coming years as the firm carries out existing programs to reduce costs, according to a person with knowledge of the projections. 

• Asian Stocks Decline, Paring Biggest Weekly Advance Since April. Asian stocks outside Japan dropped as materials and information technology shares led declines after a regional benchmark index posted the biggest weekly advance since April. The MSCI Asia Pacific Excluding Japan Index fell 0.1 percent to 463.99 as of 8:03 a.m. in Hong Kong.

• Gold Plunges 4.2% to Lowest Since March ’10 as Platinum Slides. Gold sank 4.2 percent to the lowest level in more than five years, dropping for a sixth day, on prospects for higher U.S. interest rates and after China said it held less metal in reserves than some analysts expected. Platinum extended its decline to the lowest since 2009.

• Saudi Arabia Crude Exports Fall to Five-Month Low on China. Saudi Arabia’s crude oil exports slumped to a five-month low in May as local refineries used more supplies and some plants in China closed for maintenance. The world’s biggest oil exporter shipped 6.94 million barrels a day in May, down from 7.74 million in April and the lowest since December, according to data published Sunday on the website of the Joint Organizations Data Initiative, or JODI. The drop in exports is more than Qatar produces in one month. New refineries in Saudi Arabia are leaving less crude available for overseas at a time when the market is in surplus. Chinese refineries had almost 1 million barrels a day of capacity offline in May, almost twice the total in April, according to London-based Energy Aspects. Brent crude futures declined for the past two months as U.S. drillers added more rigs and OPEC production exceeded its monthly output target for more than a year. “It’s very clear that if China sneezes, Saudi oil exports will get a cold,” Mohammed Ramady, professor of economics at King Fahad University for Petroleum and Minerals at Dhahran, Saudi Arabia, said by phone on Sunday. “The fall in Saudi crude exports in May illustrates the tight rope of opportunities facing major oil exporters with their dependence on a single market like China for sustaining their growth.”  

• Hedge Funds Dump Crude Oil as Iran Deal Threatens Prolonged Glut. Speculators cut bullish bets on oil to the lowest level since March because an agreement over Iran’s nuclear program threatens to prolong a global supply glut. Money managers reduced their net-long position in West Texas Intermediate crude by 15 percent in the week ended July 14, U.S. Commodity Futures Trading Commission data show. Longs dropped 7.9 percent and short wagers rose 4.2 percent.

• Fuel Feud Pits Saudis’ Secretive Ghawar Against Sprawling Bakken. How much crude the Saudis pump out of their largest field may determine the fate of some of America’s oilmen. Ghawar is the world’s oil spigot. It’s the biggest conventional field in the world’s biggest-producing country, Saudi Arabia. Statistics about Ghawar—a narrow, deep deposit in porous limestone—are a state secret. The best guess, according to Rasoul Sorkhabi, a geology professor at the University of Utah, is that the field accounts for about 60 percent of Saudi oil. As such, Ghawar is the country’s lever on oil prices. Too high, and the Saudis open the nozzle; too low, and they close it a bit. They’ve been pumping a lot of oil of late—the nation produced a record 10.6 million barrels a day in June, according to data the country provided to OPEC—in part to drive U.S. shale drillers out of business.

Wall Street Journal: 

• For Many Firms, China’s ‘New Normal’ Spells Doom. Industrial city’s struggle illustrates how slower economic growth is squeezing manufacturers. What Chinese leaders are welcoming as the “new normal”—an era of slower but better growth—translates for many businesses as a wrenching battle for survival. Tengzhou, an industrial city of 1.5 million in eastern Shandong province, grew fast during the years of cheap, abundant capital. But since China’s slowdown started, a number of its...

• After Five Years, Dodd-Frank Is a Failure. The law has crushed small banks, restricted access to credit, and planted the seeds of financial instability. Tuesday will mark five years since President Obama’s signing of the Dodd-Frank law, the most sweeping rewrite of the country’s financial laws since the New Deal. Mr. Obama told the country that the legislation would “lift our economy.” The statute itself declared that it would “end too big to fail” and “promote financial stability.” None of that has come to pass. Too-big-to-fail institutions have not disappeared. 

• A Not-So-Transparent Attempt to Cap Drug Prices. Forcing the disclosure of profits on high-cost drugs reflects a misunderstanding of how research works. 

• Trump and His Apologists. The conservative media who applaud him are hurting the cause.

Zero Hedge:

• Chinese "Bubble Trouble": Why UBS Thinks We're Only "Half Way Through". (graph)

• Portugal’s Debts Are (Also) Unsustainable.

• "The Streets Of Athens Will Fill With Tanks": Kathimerini Reveals Grexit "Black Book" Shocker.

• Lies, Damned Lies, & Inflation Statistics.

• Janet Yellen Was Half Right. (graph)

• How The Fed And Wall Street Are Eating Their Seed Corn.

Business Insider:

• Wall Street has stopped believing in the most important idea holding China together.

• The 'leveraged loan' time bomb just exploded. Millennium Health – biggest drug-testing lab in the US and biggest recipient of Medicare drug-testing payments, which account for one-third of its revenues – is Exhibit A of how a credit bubble allows companies and banks to put yield-desperate investors, blinded by a zero-interest-rate policy, through the wringer.

• China's corporate debt pile is a huge threat to its slowing economy.

• Greece's debt crisis has exposed growing rifts in the euro zone.

• The Iran deal is immediately going to face this huge problem.

• There's a chilling new trend among ISIS militants.

• Norway is so liberal a man who murdered 77 people was just accepted to the country's top college.

• More job losses are coming for the US shale industry.

Telegraph:

• France’s staggering debt levels are far more worrying than ours. Francois Hollande’s French administration has struggled to cope with a sluggish economy and uncertainty in the eurozone. 

• Commodities crash could turn Australia into a new Greece. The commodities boom made Australia the lucky country but rising debt and a slump in Chinese demand for resources signal tough times ahead Down Under. 

Weekend Recommendations

• None of note

Night Trading

• Asian indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 104.5 -1.25 basis points.

• Asia Pacific Sovereign CDS Index 57.75 -1.25 basis points.

• S&P 500 futures +.03%.

• NASDAQ 100 futures +.02%.

Morning Preview Links

Earnings of Note

Company/Estimate 

• (GPC)/1.32

• (CALM)/1.04

• (HAL)/.29

• (HAS)/.29

• (MS)/.73

• (BMI)/.73

• (BXS)/.35

• (BRO)/.44

• (IBM)/3.79

• (SANM)/.49

• (RMBS)/.13

• (STLD)/.21

• (WERN)/.42

• (ZION)/.38

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The RBA Minutes and the Fed Board Meeting to establish risk-based capital surcharges could also impact trading today.

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