Tuesday Watch

Today's Headlines

Bloomberg: 

• U.K. Business Expectations Fall ‘Off a Cliff’ After Brexit Vote. U.K. business confidence dropped and pessimism about the economic outlook almost doubled in the week after Britain voted to leave the European Union, according to a survey. An index published by YouGov Plc and the Centre for Economics and Business Research on Tuesday tumbled to 105 from 112.6 in the three days ended June 23, the referendum date. The survey, which was carried out between June 28 and July 1, also found the proportion of businesses that are pessimistic about the economic outlook climbed to 49 percent from 25 percent. “These figures show what is happening on the ground and they suggest a significant shock reaction,” said Cebr Director Scott Corfe. “Not only are businesses feeling much more pessimistic in general about the state of the economy, but their own expectations for domestic sales, exports and investments over the next 12 months have gone off a cliff.”
• PBOC Panel Says Don’t Underestimate Complexity of Economic Risks. China’s central bank said it’s closely monitoring domestic and external risks to the economy and that the complexity of the situation shouldn’t be underestimated. The People’s Bank of China cited market volatility spurred by the U.K.’s decision to leave the European Union, according to a statement released late Monday after a quarterly monetary policy committee meeting. Domestic economic and financial performance remains stable overall, the advisory panel led by PBOC Governor Zhou Xiaochuan said. The central bank, which has kept its main interest rate at a record low since October, was more upbeat on the U.S. economy, which it said is "recovering moderately." The PBOC repeated that risks in global financial markets have risen and that it will maintain prudent monetary policy and keep the yuan stable at a reasonable level.
• Yen Advances on Fresh Concerns Over U.K. Politics, Italian Banks. The yen rose, approaching its strongest level in more than two years against the dollar, as focus turned back to political uncertainty in the U.K. and worries over the health of Italian banks. Japan’s currency advanced against all 16 of its major peers as a gauge of Asian equities fell for the first time in five days, adding to demand for haven assets. One of the leading proponents for Brexit, Nigel Farage, quit on Monday as the leader of the U.K. Independence Party. Regulators are pressing Italian banks to clean up their balance sheets and build up buffers against losses after the British vote to leave the European Union exacerbated a selloff in the lenders. “Markets are concerned about what’s going on in the U.K. and there’s more uncertainty about Italian banks,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. “Those who wanted to exit don’t have a game plan and they’re leaving the stage. It just highlights the parlous state of political affairs that the U.K. risks descending into. There’s a check on the market rally we saw last week.” 
• Asian Shares Retreat With Commodities as Yen Gains; Won Weakens. Asian stocks dropped for the first time in a week and commodities slumped as the possibility of bank bailouts in Italy gives investors another reason to exercise caution in the wake of the U.K.’s vote to leave the European Union. Haven assets including the yen and sovereign bonds rose. The MSCI Asia Pacific Index retreated from a three-week high, with banks and energy stocks leading losses. Brent crude dropped below $50 a barrel as nickel slid from an eight-week high, while gold and silver fell for the first time in a week or more. Japan’s yen strengthened against all 31 major peers and a gauge of dollar strength snapped a five-day losing streak. Australia’s dollar led losses among the currencies of commodity-exporting nations before a central bank policy review. The nation’s bonds advanced with U.S. Treasuries. The MSCI Asia Pacific Index lost 0.5 percent as of 11:33 a.m. Tokyo time. Benchmark stock indexes fell in Hong Kong and Japan, while the Shanghai Composite Index gained 0.3 percent.
• Brent Oil Falls Below $50 After Nigeria Boosts Crude Production. Brent crude sunk below $50 a barrel as estimates showed Nigerian production rose last month following repairs to infrastructure that had been damaged by militant attacks. Futures in London dropped as much as 1 percent after slipping 0.5 percent Monday. Nigeria pumped an average of 1.53 million barrels a day last month, an increase of about 90,000 a day from May, according to a Bloomberg survey. U.S. East Coast gasoline supplies rose to a record as the Energy Information Administration said consumption of the fuel in April was less than estimated in weekly reports. Crude has risen this year, with Brent gaining more than 75 percent from a 12-year low in January, amid supply disruptions and falling U.S. output. American shale drillers have brought back the most oil rigs of any week this year amid expectations of a stabilizing market.

CNBC:

• Italy could be on a collision course for two key reasons.
• This one chart signals a bear market may behere.

Zero Hedge: 

• Bear Stearns 2.0? UK's Largest Property Fund Halts Redemptions, Fears "Vicious Circle". (graph)
• "China Is Headed For A 1929-Style Depression".
• Goldman Reveals How China Is Covering Up Hundreds Of Billions In Capital Outflows.
• Istanbul Turns Into A Ghost Town As Tourism Collapses.
• Brexit Proved It's All A Central Bank Funded Mirage.
• Something Huge Is Coming From Japan.
• Meanwhile At The Most Systemically Dangerous Bank In The World... (graph)
• War Of Words Erupts As Italy's PM Slams Mario Draghi: "You Could Have Done More To Help Italian Banks". (graph)
• Hillary's Closest Aide Admits Clinton 'Illegally' Burned Daily Schedule.
• Nigel Farage Steps Down As UKIP Leader, Adding To Post-Brexit Political Turmoil.
• Deflation Is Blowing In On An Eastern Trade Wind.
• Italian Banks Tumble, Monte Paschi Plunges To Record Low After ECB Letter. (graph)
• Precious Metals Surge Continues, As Does Italian Bank Pain, In Holiday-Shortened Session. (graph)

Business Insider: 

• Nike(NKE) is facing unprecedented headwinds.
• The EU isn't about free trade — it's about control.
• There's a parasite in China sucking up money faster than the country can print it.
• Barclays is already warning investors to take cover for the coming recession.
• A strange phenomenon is making the 'new housing crisis' even worse.
• Global investment banks had their slowest half since 2012.

Reuters:

• Japan firms' price expectations slide, keep BOJ under pressure. Japanese companies' inflation expectations fell slightly in June from three months ago, the Bank of Japan's tankan survey showed, adding to growing doubts over its argument that aggressive money printing will accelerate price growth to its 2 percent goal. The data on inflation expectations came after Friday's tankan sentiment survey showed business confidence was subdued in the second quarter, heightening pressure on the BOJ to roll out yet more stimulus to ease the pain from a strong yen. Companies expect consumer prices to rise an average 0.7 percent a year from now, down 0.1 percentage point from three months ago and some way off the BOJ's 2 percent target, the tankan survey on price expectations showed on Monday.

Night Trading

• Asian indices are -.75% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 138.0 -1.5 basis points.
• Asia Pacific Sovereign CDS Index 53.25 +.5 basis point.
• Bloomberg Emerging Markets Currency Index 72.47 -.16%.
• S&P 500 futures -.24%.
• NASDAQ 100 futures -.24%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (AZZ)/.85
• (ISCA)/.32
• (ITRI)/.34

Economic Releases

9:45 am EST

• ISM New York for June.
  

10:00 am EST

• IBD/TIPP Economic Optimism for July is estimated to rise to 48.3 versus 48.2 in June.
• Factory Orders for May are estimated to fall -.9% versus a +1.9% gain in April.
• Durable Goods Orders for May are estimated to fall -2.2% versus a prior estimate of a -2.2% decline.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Dudley speaking and the Eurozone Manufacturing/Services PMI could also impact trading today.

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