Tuesday Watch

Evening Headlines 

Bloomberg:  

• Merkel Warns Greece Time Is Running Out to Save Place in Euro. Greek Prime Minister Alexis Tsipras was given hours to come up with a plan to keep his country in the euro as citizens endure a second week of capital controls. German Chancellor Angela Merkel said “time is running out,” as she and French President Francois Hollande, leaders of the two biggest countries in the euro bloc, responded for the first time to Sunday’s referendum. The European Central Bank piled on the pressure by making it tougher for Greek banks to access emergency loans. Finance ministers from the 19-member region gather on Tuesday for an emergency meeting. After promising voters a “no” against austerity would strengthen his negotiating hand, the onus is on Tsipras to prove he can get a deal with creditors insistent on tax hikes and spending cuts as the price for a new bailout of Europe’s most indebted nation.

• Stock Corrections Come to Europe as Greek Vote Hits Italy, Spain. While most financial markets were spared selloffs Monday, it was hardly a good day in equities -- especially those perceived as vulnerable to Greek contagion. Stocks in Italy and Portugal fell more than 3.8 percent, and benchmark indexes in Spain and France lost 2 percent after voters in Greece rejected bailout terms. Half of the 18 western-European markets tracked by Bloomberg are now in corrections, with shares down 10 percent or more from their 2015 highs.

• Greek Risk Seeps Through Currencies to Torment ECB’s Neighbors. Greece’s debt turmoil has found a favorite conduit for spreading contagion: the $5.3 trillion-a-day foreign-exchange market. From Sweden to Switzerland, central banks are battling to contain an appreciation of their currencies versus the euro. Greek risks are also infiltrating markets in Eastern Europe after Greece’s decisive vote against austerity this week. Even the Bank of England, whose economy is showing signs of a gradual recovery, may find itself compelled to delay tightening monetary policy.

• As China Intervenes to Prop Up Stocks, Foreigners Head for Exits. Foreign investors are selling Shanghai shares at a record pace as China steps up government intervention to combat a stock-market rout that many analysts say was inevitable. Sales of mainland shares through the Shanghai-Hong Kong exchange link swelled to an all-time high on Monday, dual-listed shares in Hong Kong fell by the most since at least 2006 versus mainland counterparts. Options traders in the U.S. are paying near-record prices for insurance against further losses after Chinese stocks traded in the U.S. plunged Monday by the most since 2011. The latest attempts to stem the country’s $3.2 trillion equity rout, including stock purchases by state-run financial firms and a halt to initial public offerings, have undermined government pledges to move to a more market-based economy, according to Aberdeen Asset Management. They also risk eroding confidence in policy makers’ ability to manage the financial system if the rout in stocks continues, said BMI Research, a unit of Fitch. “It’s coming to a point where you’re covering one bad policy with another,” said Tai Hui, the Hong Kong-based chief Asia market strategist at JPMorgan Asset Management, which oversees about $1.7 trillion. “A lot of investors are still concerned about another correction.”

• China ADRS Plunge Most Since 2011 as Support Fails to Stem Rout. U.S.-traded Chinese stocks plunged the most in four years after the government’s latest support measures failed to stem the rout in mainland markets. The Bloomberg China-US Equity Index sank 5.1 percent to 121.36 in New York, the steepest drop since September 2011. Internet companies including Weibo Corp., Xunlei Ltd. and Changyou.com Ltd. tumbled more than 12 percent. The biggest U.S. exchange-traded fund tracking mainland stocks slumped 2.5 percent, extending its loss since a June 12 peak to 25 percent.

• Aussie Slides Toward Six-Year Low as Iron Slump Haunts Stevens. Australia’s dollar fell toward a six-year low on speculation central bank Governor Glenn Stevens will call for a weaker currency after setting monetary policy Tuesday. The Aussie slid against its 16 major peers as all 27 economists in a Bloomberg survey said the Reserve Bank of Australia will keep interest rates at a record low. It was below 75 U.S. cents for a second day amid concern an eight-day selloff in iron ore, Australia’s biggest export earner, and a rout in China’s stock market will hurt the nation’s economy.

• China’s Stocks Resume Rout as Traders Unwind Record Margin Bets. China’s stocks dropped for the fourth time in five days as government measures to support the market failed to stop traders unwinding margin bets by the most on record. The Shanghai Composite Index slid 1.7 percent to 3,710.52 at 9:51 a.m., with about 24 stocks down for every one that rose. For a second day, technology and small-company stocks plunged, while PetroChina Co. and Industrial & Commercial Bank of China Ltd., the two largest members on the index, rallied amid speculation of buying by state-directed funds. 

• China A-Share Crash Destabilizing for Leadership. (video)

• Asian Stocks Climb After Rout as Investors Weigh Greece Crisis. Asian stocks rose, with the regional benchmark index rebounding from the biggest drop since February 2014, as investors weighed developments in Greece’s debt crisis before an emergency meeting of European leaders. The MSCI Asia Pacific Index gained 0.4 percent to 144.06 as of 9:02 a.m. in Tokyo after falling 2 percent on Monday.

• Iron Ore’s Bear Market Seen Deepening as Clarksons Forecasts $40. Iron ore will probably extend declines after falling back into a bear market on Monday as low-cost supplies from Australia and Brazil are set to expand further this half while demand stumbles in China. Prices may drop toward $40 a metric ton, according to Clarksons Platou Securities Inc. A deepening slowdown in China’s steel industry and higher iron ore exports from the largest miners are weighing on prices, said Sanford C. Bernstein & Co.

• Obama Urged to Convene Crisis Group Over Puerto Rico’s Debt. The first woman of Puerto Rican descent elected to the U.S. House of Representatives called on President Barack Obama Monday to do more to help the debt-wracked island. The Obama administration has signaled it has no intention of intervening and said any help for Puerto Rico needs to come from Congress, where top Republicans have shown little inclination to get behind bankruptcy legislation.

Wall Street Journal:

• Germany’s Power Polarizes Europe. The Continent’s most powerful country is grappling with its leadership role—and other nations are, too. Under the glass Reichstag dome in Germany’s parliament last week, left-wing opposition leader Gregor Gysi lit into Chancellor Angela Merkel for saddling Greece with a staggering unemployment rate, devastating wage cuts, and “soup kitchens upon soup kitchens.”

• Greece and the Flight From Reality. A people who want wealth without work will have neither.

Fox News: 

• CDC official called Obama ‘Marxist,’ ‘amateur’ over 2014 border surge. (video) A federal health official dealing with the surge of illegal immigrants last year at the southern U.S. border ripped President Obama for the months-long crisis, calling him a "Marxist" and “the worst pres we have ever had,” according to newly released internal emails.

Zero Hedge: 

• Greece Fallout: Italy & Spain Have Funded A Massive Backdoor Bailout Of French Banks.

• There is Only One Way Out For Greece.

• The Biggest Winner From The Greek Tragedy. (graph)

• Chinese Stocks Open Down Hard, "VIX" Hits Record High, "Nasdaq" Down 40% From Highs. (graph)

• Can China Keep Miami's Condo Bubble From Bursting? (graph)

• In China, Hairdresser Bull Call Goes Horribly Wrong, Broker IPO Crashes 31%. (graph)

• This Is How Much It Cost To Keep The Shanghai Composite Green For A Day.

• Obamacare Sticker Shock Arrives: Insurance Premiums To Soar 20-40%. (graph)

• Is It Slowing China Or Grexit That Is Driving Financial Market Price Changes? (graph)

• Why Greece Matters A Lot: The Case Of Europe's Falling Dominoes. (graph)

• This Is What Greece's "Triumphant Return" Looks Like Now. (graph)

• "Greece Is Contained" Except In Crude, Copper, FX, US & EU Stocks, & Peripheral Bonds. (graph)

Business Insider: 

• El-Erian: Keep a close eye on Chinese stocks.

• China's desperate attempts to control the stock market will end badly.

• The US's response to Iran's cheating is a very bad omen.

• Target(TGT) is quietly opening a new kind of store in cities across America.

• The bad news for oil is getting worse by the day.

• Iran's regime knows 'snapback sanctions' aren't going to be able to stop it from going nuclear.

• Iran is now pushing for an end to the weapons embargo as part of nuclear deal.

• The Greek government may have to start issuing IOUs and that could mean a 'Grexit'.

Reuters:

• China economic uncertainty a potential risk for U.S. chipmakers. Tumbling markets and economic uncertainty in China pose a risk to major chipmakers such as Qualcomm Inc that derive a big portion of their sales from the world's second-largest economy. Consumer electronics giant Apple Inc could also be vulnerable - 17 percent of the company's overall revenue last fiscal year came from China, and in the most recent quarter it sold more iPhones in the country than in the United States for the first time. But the slowing pace of China's economic growth - on top of already weakening demand for mobile devices - could deliver a particularly tough blow to chipmakers, analysts said.

• Humana(HUM) cuts outlook, raising new concerns about Aetna(AET) deal. Humana Inc, fresh from announcing an agreement to be purchased by larger rival Aetna Inc, prompted new investor concerns about the $33 billion deal on Monday by lowering its 2015 financial forecasts.

• Chipmaker AMD(AMD) cuts revenue estimate, citing weak PC sales. Chipmaker Advanced Micro Devices Inc lowered its revenue estimate for the second quarter, below analysts' average estimate, saying the demand for personal computers was weaker-than-expected. AMD's shares fell as much as 15 percent to $2.10 in extended trading, after the company also cut its adjusted gross margin forecast for the quarter ended June 27.

Financial Times:

• Saudi sovereign fund to invest $10bn in Russia. Saudi Arabia’s sovereign wealth fund has agreed to invest $10bn in Russia, in a powerful sign of the rapprochement between Moscow and Riyadh. The Public Investment Fund signed a deal with the Russian Direct Investment Fund for the largest foreign direct investment yet in Russia, RDIF said late on Monday. “The first seven projects have received preliminary approval, and we expect to close 10 deals before the end of the year,” said Kirill Dmitriev, RDIF chief executive.

Telegraph: 

• Greece: Even Wile E Coyote eventually fell off the cliff. Greece is in a state of suspended animation but it will eventually fall off the cliff, with monumental consequences. 

• Greece news live: Banks to remain shut for another two days as Greeks told 'reform or it's over'. European Central Bank takes unprecedented move to squeeze the Greek banking system as Dutch tell Athens to reform or go bust. 

• European Central Bank tightens noose on banking system as creditor powers punish Greece. Greek 'No' vote sees lenders act in concert, warning of imminent bankruptcy unless Athens capitulates to fresh reform demands.

Bild:

• Oettinger Says Bankrupt Nations Don't Fit Monetary Union. EU Commissioner Guenther Oettinger says in interview he has serious concerns about Greece remaining within the monetary union. Greece will probably soon have to pay wages, pensions and billion in IOUs. An insolvent country introducing a parallel currency wouldn't suit a monetary union. Remains sceptical over further talks with Greek govt. Referendum may have mobilized citizens, but doesn't change fact that Greece faces bankruptcy. Govt needs to tackle reforms and if it continues to refuse reforms, new negotiations have no sense. Referendum was "remarkable event," question was misleading, govt campaign was polemic and there were verbalisations against EU partners that were "indecent".

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 113.0 -4.0 basis points.

• Asia Pacific Sovereign CDS Index 60.5 +1.25 basis points.

• S&P 500 futures +.27%.

• NASDAQ 100 futures +.20%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (TCS)/-.13

• (HCSG)/.23

• (MSM)/.96

Economic Releases

8:30 am EST

• The Trade Deficit for May is estimated to widen to -$42.7B versus -$40.9B in April.

10:00 am EST

• JOLTS Job Openings for May are estimated to fall to 5300 versus 5376 in April.

• The IBD/TIPP Economic Optimism Index for July is estimated to rise to 48.9 versus 48.1 in June.

Upcoming Splits

• None of note

Other Potential Market Movers

• The RBA rate decision, UK industrial production report, G8 meetings, $24B 3Y T-Note auction, weekly US retail sales reports and the (AUO) June sales update could also impact trading today.

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