Evening Headlines
Bloomberg:
- Greek Groundhog Day Continues With Talks Failing to Break Impasse. Another round of top-level talks failed to resolve the standoff
between Greece and its creditors as Prime Minister Alexis Tsipras
rejected proposals that would facilitate the disbursement of bailout
funds necessary to avert a default. After a meeting in Brussels with European Commission President
Jean-Claude Juncker and Dutch Finance Minister Jeroen Dijsselbloem, who
also heads the group of his euro-area counterparts, Tsipras said the
basis for any agreement must be a Greek proposal meant to avoid more
spending cuts and tax rises rather than a plan drafted in recent days by
creditors.
- Ukraine Offensive Rekindles Sanctions Threat as Ruble Stumbles. A sudden military build-up by pro-Russian rebels in eastern Ukraine
has investors taking another look at the sanctions risk for Russian
assets. The ruble fell the most in more than six weeks and yields on
five-year government bonds climbed to one-month highs after Ukraine’s
military said Wednesday that separatists attacked the Donetsk-region
town of Maryinka. The rising tensions jeopardize a three-month truce between rebels and
the government in Kiev and escalates risks before a European Union
meeting later this month to review penalties imposed on Russia for its
role in the conflict.
- China’s Hot IPO Market Lures $273 Billion to $2 Billion Offering. China’s initial public offerings are such hot commodities that a
company seeking to raise $2 billion attracted total bids for an amount
almost equaling the entire annual economic output of Hong Kong. China National Nuclear Power Co., the country’s second-biggest atomic
power operator, locked up 1.69 trillion yuan ($273 billion) in bids for
its IPO, according to a company statement posted on the Shanghai Stock
Exchange’s website. Investors have been drawn to newly issued stocks traded in mainland
China as they typically surge in initial trading, partly because
regulators discourage companies from selling shares at high valuations.
The 144 firms that went public this year jumped by an average 539
percent so far, including a 44 percent increase on the first day of
trading, according to data compiled by Bloomberg. China National
Nuclear’s $2 billion offering would be the biggest since August 2010.
- Chinese Tech Magnate Sees Bubble in Industry That Made Him Rich. Share prices for China’s listed chipmakers have almost tripled over the
past year amid a world-beating rally in mainland equities that added
$6.4 trillion to the country’s market capitalization. About 80 percent
of Chinese semiconductor companies earned less than $50 million in their
last financial year, while almost half trade at more than 100 times
profit.
- Bond Rout Not Enough for Gross as China Stocks Seen Next to Drop. One
of the world’s most famous bond investors can’t take his eyes off
Shenzhen’s stock market. Bill Gross, busy building his new Janus Global
Unconstrained Bond
Fund amid a global rout in debt markets, took to Twitter on Wednesday to
declare that shares in the southern Chinese city are the next big trade
for short sellers. So what’s going on in Shenzhen -- the former fishing village opposite
Hong Kong -- to grab the attention of the erstwhile Pacific Investment
Management Co. bond king 7,300 miles away in California?
- Brazil Signals Worst Recession in 25 Years Won’t Stop Rate Boost. Brazil’s central bank signaled the deepest recession in a quarter
century won’t stop it from extending the only interest-rate increase
among major world economies. Policy makers raised benchmark-borrowing costs by 0.50 percentage
point for a fifth-straight meeting Wednesday to 13.75 percent, matching
the estimates of 55 of 56 analysts surveyed by Bloomberg. Language from
the board’s statement matched that of the previous three communiques. Economists and traders forecast central bank President Alexandre
Tombini will fail to fulfill his pledge of bringing the fastest
inflation in 11 years to the 4.5 percent target next year. Policy makers
are trying to persuade investors that they will do what it takes to
rein in consumer prices as unemployment surges and the economy
contracts.
- Iran Military Prowess Advances Amid Nuclear Talks, Pentagon Says. Iran continues to develop technologies that “could be applicable to
nuclear weapons,” including ballistic missiles, at the same time it’s
working to complete a deal to curb its nuclear program, the U.S. Defense
Department said. Iran has “fulfilled its obligations” under the Joint Plan of Action
reached with the U.S. and five other world powers and has “paused
progress” in parts of its nuclear program, according to an unclassified
summary from a Pentagon assessment of Iran’s military capability.
- China Stocks Slump as Technology Firms Sink on Valuation Concern. China’s stocks fell as a gauge of technology shares sank on concern recent gains have been too far, too fast.
The Shanghai Composite Index slid 1.8 percent to 4,822.42 at the
11:30 a.m. local-time break after changing direction about seven times. A
gauge of hi-tech companies sank 3.6 percent, paring its gain this year
to 124 percent. Shares also declined amid concern a flood of new equity
sales will lure liquidity from existing stocks.
- Asian Stock Indexes Advance Amid Optimism on Greece Debt Talks. Asian stock indexes rose after a rebound in U.S. shares as investors
speculated Greece will reach a deal with its creditors. Japan’s
benchmark gauge climbed as the yen declined against the dollar.
The MSCI Asia Pacific Index traded little changed at 150.23 as of 9:10 a.m. in Tokyo.
- OPEC Braces for More Oil as Iran, Iraq Declare Plans to Grow. Never mind cutting output to staunch a global glut, the talk so far
at this week’s OPEC summit is mostly about pumping more oil. Iraq will increase exports this month as fighting with Islamic State
militants spares its biggest-producing regions, the country’s oil
minister said Wednesday. His counterpart from Iran urged the group to
make room for more output when global sanctions recede. The prospect of
more supply led BP Plc’s chief executive officer to predict price
“softness” will persist.
- Iron Ore Shipments From Port Hedland Surge to Record in May. Iron ore exports from Australia’s Port Hedland expanded to an
all-time high in May on increased low-cost supply from the world’s
largest shipper.
Cargoes from the biggest bulk-export terminal climbed 7.4 percent to
38 million metric tons last month from April, according to data from the
Pilbara Ports Authority. That compares with 36.05 million tons the same
month a year earlier, the figures showed.
- Who Needs Fed as Bond Market Already Lifting Rates Far and Wide. After almost seven years of low borrowing costs engineered by
central bankers, consumers and companies are getting a preview of what’s
next. A global bond selloff is translating into a real world impact, with
yields on U.S. mortgage bonds that guide home-loan rates reaching the
highest level since October and corporate borrowing costs climbing to
the most this year. For all the speculation about when the Federal Reserve will raise
short-term interest rates, the bond market is the ultimate driver of
most borrowing costs. And it’s now showing its power, as a two-month
jump in yields threatens to wipe out all of 2015 returns in bonds
globally.
Wall Street Journal:
- Barack Obama, Re-Founding Father. It isn’t just “Obama’s power grabs.” It’s a revision of the Founders’ original vision. To the list of questions Hillary Clinton will never answer, add one
more: Would a second Clinton presidency continue and expand Barack
Obama’s revision of the American system of government that existed from
1789 until 2009?
Fox News:
CNBC:
Zero Hedge:
- The Definition Of An Unfree Market. Maybe the FOMC is worried that the ‘no free lunch’ concept makes
them suspicious of the possibility of a meaningfully deleterious market
reaction which could have a negative impact on the broader economy.
However, under this logic, delaying a hike would only exacerbate such a
response.
Business Insider:
Telegraph:
Economic Information Daily:
- China May Announce VAT Plan for Finance Industry in July. China
may announce value-added tax reform plan for the real estate, finance
and consumer-oriented services industries in end-June or early-July,
citing people familiar with the matter. VAT rate for real estate sector
may be set at 11% and consumer-oriented services industry at 6%.
Evening Recommendations
Night Trading
- Asian equity indices are -1.5% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 107.5 +1.0 basis point.
- Asia Pacific Sovereign CDS Index 59.75 +.25 basis point.
- NASDAQ 100 futures -.17%.
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- Final 1Q Non-Farm Productivity is estimated to fall -3.0% versus a prior estimate of a -1.9% decline.
- Final 1Q Unit Labor Costs are estimated to rise +6.1% versus a prior estimate of a 5.0% gain.
- Initial Jobless Claims for last week are estimated to fall to 278K versus 2821K the prior week.
- Continuing Claims are estimated to fall to 2207K versus 2222K prior.
Upcoming Splits
Other Potential Market Movers
- The Fed's Tarullo speaking, Challenger Job Cuts for May, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, CSFB Construction Conference, (LSTR) mid-quarter update and the (AEO) annual meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and real estate
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 day.
