Evening Headlines
Bloomberg:
- Merkel Flirts With Failure as Greek Showdown Risks Teflon Legacy. The Teflon chancellor may be vulnerable after all. The specter of insolvency in Greece poses the biggest threat to the legacy of German Chancellor Angela Merkel whose political longevity rests on her crisis-fighting diplomacy. From the threat of the U.K. leaving the European Union to the festering conflict in Ukraine, Merkel’s credibility as the continent’s most powerful leader and her guiding philosophy of a more united, competitive Europe risks unraveling. And it might just be Greece, an economy a fraction the size of Germany’s, that could deal the most painful blow. “This does look a bit like a tipping point,” Ulrike Guerot, founder of the European Democracy Lab at the European School of Governance in Berlin, said in an interview. “If Greece leaves, then she’s taking the first step toward the end. This is what she wants to stop.”
- Why Original Sin Is Returning to Haunt Southeast Asian Borrowers. The last time Southeast Asia mixed a heady cocktail of foreign borrowing with weakening currencies the hangover was a financial crisis. Now, Indonesia and Malaysia are at risk of repeating the mistakes that led to the 1997-98 meltdown. After the crisis, economists Barry Eichengreen and Ricardo Hausmann coined the term ‘original sin’ to describe the difficulties encountered by developing nations borrowing overseas. This year, Indonesian and Malaysian governments and companies have sold more foreign-currency debt than they did in the whole of 2014 as a global bond rout pushes up yields and their currencies weaken. “There are worrying signs that original sin is returning,” said Hak Bin Chua, head of emerging Asia economics at Bank of America Merrill Lynch in Singapore. “Governments are forced to opt for more foreign-currency debt financing, as local bond yields surge and foreign appetite diminishes.”
- Economists Push Back BOJ Easing Calls After Kuroda’s Yen Missive. Barclays Plc to Standard Chartered Plc are among a wave of economists pushing back their calls for a boost in stimulus by the Bank of Japan after Governor Haruhiko Kuroda put the brakes on a weak yen last week, a survey shows. Sixteen of 35 economists surveyed by Bloomberg June 8-15 see the BOJ adding to its unprecedented easing by the end of October, down from 21 of 36 polled in May. While a majority still forecast eventual action, 13 now say the central bank will forgo further stimulus, up from 10 last month.
- China Stocks Headed for 'Notable Crash': BoCom's Hong. (video)
- Audi China Sales Fall For First Time in Two Years. Audi posted its first sales decline in China, its largest market, in more than two years last month, joining BMW AG in recording a slide in demand for premium autos amid a slowing economy. Audi, the best-selling luxury brand in China, saw sales decline 1.6 percent from a year earlier, the first drop since February 2013. BMW and Mini sales fell 4 percent in May, the first decrease in a decade.
- RBA Restates Need for Aussie Drop as Growth Below Average. Australia’s central bank reiterated the need for deeper currency declines to balance economic growth that’s predicted to remain below average until the latter part of 2016. “A lower exchange rate would have an immediate beneficial effect on some sectors such as tourism,” the Reserve Bank said in minutes of its June policy meeting in Sydney Tuesday. “It would need to be lower for a sustained period to have a significant effect on large investment decisions in other trade-exposed sectors.”
- China Stocks Fall as ChiNext Posts Worst Two-Day Drop Since 2012. China’s stocks fell, dragged down by the ChiNext index’s steepest two-day loss in three years, amid concern a flood of share sales may lure funds away from existing equities. Technology, phone and industrial companies, the best performers this year, led declines. East Money Information Co., CRRC Corp. and ZTE Corp. slumped at least 2.6 percent. Huayi Brothers Media Corp. slid 4 percent, paring gains over the past year to 114 percent. Citic Securities Co., China’s biggest brokerage by market value, rose 2.1 percent after saying it plan to sell new additional shares in Hong Kong. The ChiNext index of small-company shares dropped as much as 3.4 percent and was down 2.6 percent at 9:53 a.m., extending losses to 7.7 percent over the past two days.
- Asian Stocks Fall as Investors Weigh Greece Standoff, Await Fed. Asian stocks fell as investors awaited an update from the Federal Reserve on U.S. monetary policy and a meeting of euro-area finance ministers with Greece. The MSCI Asia Pacific Index retreated 0.1 percent to 147.26 as of 9:01 a.m. in Tokyo. The gauge lost 0.5 percent on Monday after the latest round of negotiations between Greece and its creditors fell apart.
- The World Is Facing Its Longest Oil Glut in at Least Three Decades. The world is on the brink of the longest-lasting oil glut in at least three decades and OPEC’s quest for market share makes it almost unavoidable. Oil supply has exceeded demand globally for the past five quarters, already the most enduring glut since the 1997 Asian economic crisis, International Energy Agency data show. If the Organization of Petroleum Exporting Countries were to keep pumping at current rates it would become the longest surplus since at least 1985 by the third quarter, the data show.
- Hidden Hero of Stock Bull Market No Match for Higher Rates. The unsung hero behind the six-year-long bull market in U.S. stocks is at risk of becoming a villain. Record-low interest rates means the cost of servicing debt for companies in the Standard & Poor’s 500 Index fell to an all-time low of 3.5 percent of sales over the past 12 months, according to data compiled by Bloomberg. The decline from 7.4 percent in 2007 represents $310 billion in savings and contributed to a doubling of profits and a three-fold increase in stock prices. The concern now is that Federal Reserve Chair Janet Yellen will reinforce the notion this week when the central bank meets that interest rates will rise before year-end. Seldom have low financing costs lasted long following the start of tighter monetary policy. Analysts already see profit growth of less than 2 percent in 2015.
Wall Street Journal:
- UnitedHealth(UNH) Has Approached Aetna About a Takeover. An acquisition of Aetna would likely be valued at more than $40 billion.
- How Obama Abandoned Israel. Netanyahu and the president both made mistakes, but only one purposely damaged U.S.-Israel relations.
MarketWatch.com:
- China’s MSCI reality check is too big to ignore. In the same week that Chinese A-shares failed to be included in MSCI’s emerging-market benchmark, it was also revealed that global investors pulled $7.9 billion out of Asia. This was the biggest weekly withdrawal in almost 15 years, according to data provider EPFR Global, and the majority reportedly related to China.
Zero Hedge:
- China Mocks G7 As "Gathering Of Debtors", Warns "Confrontation Will Be A Disaster For Europe".
- Deutsche Bank(DB) Exodus Continues As Real Estate Chief Leaves For Blackstone.
- Saxobank CIO: Credit Cycle Has Peaked, Gold Will Be Best-Performing Commodity. (graph)
- Warren Buffett And Weather Forecasts. (graph)
- Gap To Fire Thousands, Close A Quarter Of All Specialty Locations.
- Bilderberg 2015 – Where Criminals Mingle With Politicians.
- Dismal Data & "No Deal" Drive Down Dow To Red Close For 2015. (graph)
- Investors Ditch Cash Market For Futures As Treasury Liquidity Evaporates.
- Saudi Arabia Opens Stock Market To Foreign Investment Amid Low Oil Prices, Yemen War. (graph)
- Consumers Are Not Following Orders.
- China Dumps Record $120 Billion In US Treasurys In Two Month Via Belgium. (graph)
- Bank Of America Begins 66-Day Countdown Until The Terrible Ghost Of 1937 Returns. (graph)
Business Insider:
- A massive discovery in Mexico could mark the dawn of a new oil boom.
- Canada's household indebtedness is pushing to dizzying levels. (graph)
- Obama faces a credibility problem on Ukraine.
- Global coal demand is slowing fast.
Telegraph:
- Greece accuses Europe of plotting regime change as creditors draw up ultimatum. The European Commission braces for a “state of emergency” in Greece, fearing social unrest and a break-down of basic supplies.
Evening Recommendations
- None of note
Night Trading
- Asian equity indices are -1.25% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 112.0 unch.
- Asia Pacific Sovereign CDS Index 63.5 +1.0 basis point.
- S&P 500 futures -.16%.
- NASDAQ 100 futures -.20%.
Earnings of Note
Company/Estimate
- (FDS)/1.56
- (JW/A)/.79
- (ADBE)/.45
- (BOBE)/.41
- (LZB)/.38
Economic Releases
8:30 am EST
- Housing Starts for May are estimated to fall to 1090K versus 1135K in April.
- Building Permits for May are estimated to fall to 1100K versus 1143K in April.
Upcoming Splits
- (PPG) 2-for-1
- (IDXX) 2-for-1
Other Potential Market Movers
- The German CPI report, UK CPI/Retail Sales reports, Australia RBA June minutes, weekly US retail sales, RBC Mining/Materials Conference, Stifel Industrials conference and the (GPS) investor meeting 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 mixed and to
weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.