Monday Watch

Today's Headlines 

Bloomberg: 

• Tsipras Triumphs as Greece Votes Against Austerity. (video) Greece voted against yielding to further austerity demanded by creditors, leaving Europe’s leaders to determine if the renegade nation can remain in the euro. Sixty-one percent of voters backed Prime Minister Alexis Tsipras’s rejection of further spending cuts and tax increases in an unprecedented referendum that’s also taken the country to the brink of financial collapse. Tsipras described the result as a “great victory”, and said Athens would return to the negotiating table on Monday with a strengthened hand.

• Greek Party May End in Euro-sized Hangover. Greeks delivered a clear message to the rest of Europe, and then many partied into the night. As banks remain shut and European leaders prepare to respond to their vote against more austerity, the morning hangover also brings the harsh reality: the country may end up going down fighting, clinging to the euro while refusing the conditions attached to keeping it. Even as economists and European officials warned that the country would move closer to severing ties with the euro area, Greeks celebrated what they see as a better future. Prime Minister Alexis Tsipras, who called for a “no” vote in Sunday’s referendum, said he will restart talks with creditors immediately and use the victory as a bargaining chip. Nikos Panos, 55, a “no” voter in Athens, said the 61-to-39 percent result would give Greece a stronger bargaining position. “The government can go to Brussels on Monday and say we have a mandate,” he said.

• Trillion-Dollar Stock Managers See Chaos on Greek ‘No’ Vote. It shouldn’t have gotten this far. That’s the view of equity managers overseeing more than $3.7 trillion, who say the game of chicken between Greek Prime Minister Alexis Tsipras and creditors threatens lasting damage to a European stock rally that earlier in 2015 added as much as $2.17 trillion to share prices. “The market right now hasn’t priced in a potential ‘no’ vote,” said David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc., which oversees $815 billion. “If we get one, we’re going to see another round of downside volatility in excess of what we saw on Monday. The move would be more violent.”

• JPMorgan to Barclays See Greek Euro Exit Likeliest Scenario. Economists from JPMorgan Chase & Co. to Barclays Plc made a Greek departure from Europe’s monetary union their base scenario after the country’s electorate rejected the austerity needed to secure international assistance. “Although the situation is fluid, at this point Greek exit from the euro appears more likely than not,” Malcolm Barr, an economist at JPMorgan in London, said in a report to clients on Sunday, adding it could come “under chaotic circumstances.” “Exit now is the most likely scenario,” Barclays analysts said in a separate report. “Agreeing on a program with the current Greek government will be extremely difficult for euro-area leaders, given the Greek rejection of the last deal offered, and will be a difficult sell at home.” 

• 10 Consequences of Greece's 'No' by Mohamed A. El-Erian. The implications will be felt primarily in Greece, but also in Europe and beyond. Here are 10 consequences of the vote that could unfold in the next few days:

• China Brokers Dust Off Wall Street’s Playbook From Crash of 1929. (graph) On Wall Street in 1929, it was the great banking houses of J.P. Morgan and Guaranty Trust Company. In China today, it’s names like Citic Securities Co. and Guotai Junan Securities Co. They’re separated by 86 years and 7,300 miles, but Chinese financiers are turning to the same playbook used by their American counterparts to fight a crash that’s wiping out stock-market fortunes on an unprecedented scale. Investors in China are hoping it works out a lot better this time around.

• China Stock Plunge Leaves Market More Leveraged Than Ever Before. (graph) Leveraged bets on Chinese stocks have increased to a record versus the size of the market as prices fall faster than margin traders cut positions. The outstanding balance of margin loans on the Shanghai and Shenzhen bourses climbed to 4.4 percent of overall market capitalization on July 2 from 3.6 percent on June 12, before the rout began, as the attached chart shows. The data doesn’t include unregulated borrowing, which Bocom International Holdings Co. estimates at around $322 billion. That would increase the debt to market cap ratio to more than 9 percent. Higher leverage may undermine government measures to stem the steepest three-week rout in the nation’s equities in a quarter-century. Margin traders reduced positions for nine days through Thursday, the longest stretch of declines on record, even as the central bank cut interest rates and the securities regulator eased margin-trading rules. 

• China Blames Rout on Short Sellers Who Bought as Stocks Tumbled. Rumor-spreading short sellers and foreign investors with a hidden agenda. If you believe China’s state-run media, those are some of the key culprits for a stock-market rout that erased $3.2 trillion of value in three weeks -- or almost $1 million for each minute of trading on mainland exchanges. The underlying message, that market manipulation is fueling the selloff, was reinforced by securities regulators last week as they pledged to crack down on “vicious” short selling. The problem with that narrative, though, is that the numbers tell a different story. Short positions on the Shanghai Stock Exchange totaled just 1.95 billion yuan ($314 million) on Thursday, or less than 0.03 percent of the country’s market capitalization, as bears closed out more than half their bets since June 12. Foreign money managers own fewer than 3 percent of Chinese shares, and they’ve been adding to holdings in Shanghai as prices tumble. The more likely reason for the rout, according to analysts in and outside China, is simply that the nation’s longest-ever bull market pushed valuations to unsustainable levels. Local investors, who borrowed record amounts of money to amplify their bets, lost faith that share prices would keep rising and now they’re heading for the exits. 

• Corker Warns Kerry Against Rush to Finish Nuclear Deal With Iran. The U.S. shouldn’t rush to finish a nuclear deal with Iran simply to meet a deadline that would allow a shorter congressional review period, said Senator Bob Corker, chairman of a committee that will be pivotal in deciding an agreement’s fate in Congress. Six world powers and Iran have been in talks since late June, attempting to complete a deal that would ease economic sanctions while allowing Iran to pursue limited nuclear activities with intrusive international monitoring. 

• Treasuries Surge With Aussie Bonds as Greece Spurs Safety Bid. Treasuries and Australian bonds surged after Greek voters opted against spending cuts being demanded by creditors, increasing concern the nation will lose access to new loans and be forced to leave the euro currency bloc. Japanese bonds rose for a second day. German 10-year yields may drop to 0.65 percent or less when bunds open Monday, after closing at 0.79 percent Friday, said JPMorgan Chase & Co. The turmoil may reduce the prospects for a Federal Reserve interest-rate increase in September, according to BNP Paribas SA.

• Aussie Below 75 Cents First Time Since 2009 Amid Greek Turmoil. The Aussie dollar dropped below 75 U.S. cents to a six-year low as the heightened risk of a Greek exit from the euro added to slumping commodity prices in spurring traders to sell the South Pacific nation’s assets. Australia’s currency was already sliding as iron ore, the country’s biggest export earner, tumbled amid a glut in supply and concern that demand will shrink as China’s economy slows. 

• Emerging Currencies Drop, Led by Forint, After Greece ‘No’ Vote. The Hungarian forint and the Romanian leu led emerging-market currencies lower as Greece’s rejection of austerity measures heightened the chance the nation will exit the euro, damping demand for riskier assets. A Bloomberg gauge of developing-nation exchange rates dropped 0.4 percent as of 9:48 a.m. in Singapore, set for its lowest close since March 19.

• Asian Bond Risk Jumps as Greek No Vote Seen Sparking Volatility. Greek voters’ rejection of austerity sent ripples through Asian credit markets as bond risk surged to a six-month high. The Markit iTraxx Asia index of credit-default swap prices leapt 6 basis points to 117 basis points, prices from Westpac Banking Corp. show. That leaves it set for its biggest daily jump since March and highest close since January, according to data provider CMA.

• Most Chinese Stocks Decline as Large-Caps Gain, ChiNext Tumbles. Most Chinese shares fell, led by technology shares, as government measures to shore up equities failed to drive a rebound outside the nation’s largest companies. About three stocks dropped for each that rose on the Shanghai Composite Index, which was 2.2 percent higher at 3,766.37 at the mid-morning break after a 7.8 percent surge at the open. The benchmark gauge was supported by more than 8 percent rallies in PetroChina Co. and Industrial & Commercial Bank of China Ltd., the two largest members on the gauge. The ChiNext index of smaller companies sank 4 percent, while the Shenzhen Composite Index tumbled 2.6 percent. Mainland shares surged at the start of trading after authorities suspended initial public offerings, brokerages pledged to buy shares and the central bank said it would provide liquidity for margin trading. Central Huijin Investment Ltd., a unit of China’s sovereign wealth fund, said it was buying exchange-traded funds on the secondary market.

• Asian Stocks Slide as Greece ‘No’ Vote Raises Risk of Euro Exit. Asian stocks fell, with the regional benchmark index heading for an almost four-month low, as Greece voted against accepting further austerity. Chinese shares rallied after posting their biggest three-week slump since 1992. Asahi Glass Co., which gets about 21 percent of sales from Europe, dropped 2.2 percent in Tokyo. BHP Billiton Ltd., the world’s biggest mining company, slipped 2.3 percent as copper futures headed for a second day of decline in London. China Airlines Ltd. gained 2.6 percent in Taipei after regulator increases flights to mainland China. The MSCI Asia Pacific Index slid 1.1 percent to 144.78 as of 10:18 a.m. in Hong Kong, heading for the lowest close since March 16.

• Brent Falls Below $60 as Investors Eschew Risky Assets on Greece. Brent crude dropped below $60 a barrel for the first time since April after Greece voted against austerity, increasing the risk of its exit from the euro area. Futures slid as much as 1.6 percent in London, falling for a second day.  

• Iron Stockpiles to Rise Further, Hurting Prices, JPMorgan Says. Iron ore reserves at China’s ports may have hit an inflection point -- and that could be bad for prices. Holdings climbed 2.8 percent last week to 81.55 million metric tons, rebounding from the lowest level since 2013 to post the first increase since April, according to Shanghai Steelhome Information Technology Co. The stockpiles fell in the three months to June, supporting a rally. “Inventories should start to pick up again and will increase,” Daniel Kang, an analyst at JPMorgan Chase & Co. in Hong Kong, said by phone on Monday, citing increased exports. “That should in turn put some pressure on iron ore.”

• Shipping Industry Gloomiest Since 2009 in Survey as Glut Endures. The shipping industry is the most pessimistic in six years about its prospects as a fleet surplus persists, according to a survey by law firm Norton Rose Fulbright. Two thirds of respondents working in the industry said they were pessimistic about its prospects, the most negative outlook since 2009, the London-based company said in a statement. The biggest contributor to their negative view was excess fleet capacity.

Wall Street Journal: 

• Greek Referendum — Live.

• Regulators Probe Marketing of Hot Private Tech Shares. Trading of such shares has boomed in recent months. Securities regulators have launched a broad investigation into whether hedge funds and other investors are improperly selling hot private technology stocks amid a boom in the trading of such shares, people close to the probe say. The regulatory scrutiny, which is at an early stage, follows a March page-one article in The Wall Street Journal that delved into the role of middlemen in the burgeoning market for private shares. The investigation, by the Securities and Exchange Commission, is focused on a burst of new activity recently by people selling pre-IPO shares as valuations of private tech companies have exploded and companies have opted to remain private for longer.

• How the Affordable Care Act Is Reducing Competition. Five big insurers seem set to become three, as Aetna buys Humana and Anthem eyes Cigna. Thanks, ObamaCare. The urge to merge is sweeping managed health care. Aetna announced Friday a $37 billion deal to acquire Humana. Anthem and Cigna are in merger talks and could be next. The national for-profit insurers are on an anxious mission to consolidate. These combinations will sharply reduce competition and consumer choice, as five big insurers shrink, probably, to three. This trend is a direct consequence of ObamaCare, reflecting the naïveté of its architects

CNBC:

• Greece: After the big No, what next?

Zero Hedge:

• Greece Contemplates Nuclear Options: May Print Euros, Launch Parallel Currency, Nationalize Banks.

• Greeks Flood Syntagma Square To Celebrate "No" Vote. (video)

• Volatility, Confusion Reign As PBoC Intervenes: Chinese Stocks Surge Then Tumble. (graph)  

• More Sellside Reactions To The Greek Referendum.

• The "Nightmare Of The Euro-Architects" Is Coming True: JPM Now Sees Grexit, Eurogroup "Split In Coming Days".

• IOUs It Is: Why Greece May Have A Problem Printing "Rogue" Euro Banknotes.

• Marine Le Pen, Anti Euro French Presidential Frontrunner, Applauds Greek Victory Over "EU Oligarchy".

• China "Crosses Rubicon" With Stock Bailout; BofA Says PBoC Risks "Hurting Its Credibility".

• Panic: China Central Bank Steps In To Bailout Stocks. (graph)

• They Want To Use "Hate Speech Laws" To Destroy Freedom Of Speech In America.

• Did They "Fix" The US Economy? (video)

• The Central Bankers Dilemma: The Pendulum’s Back Swing.

Business Insider:

• China is taking extraordinary steps to ensure its reign over the South China Sea.

• We just got the clearest sign yet that Greece could be kicked out of Europe if it votes 'No'.

• Britain's banks aren't as protected from Greece as you may think.

• Europe's very core is being threatened.

• Netanyahu unloads: The Iran deal is worse than North Korea.

• China's stock market faces a make-or-break week.

• The NSA can still do something the US government said was illegal.

• The Trans-Pacific Partnership is bad news for the American labor market.

• The US wins the Women's World Cup after dismantling Japan with 4 goals in 15 minutes.

• Another government funding showdown looms as Congress heads back work.

Reuters:

• Saudi Aramco lowers August Arab Light crude OSP to Asia. Saudi Arabia has cut the official selling price (OSP) for its benchmark Arab Light crude to Asia in August, as expected, while raising the price to European customers. State oil company Aramco has lowered the August price for its Arab Light grade for Asian customers by 10 cents a barrel versus July, setting it at minus $0.10 to the Oman/Dubai average, it said on Sunday.

Daily Caller:

• George Will: Trump A ‘One-Man Todd Akin’ For GOP, Acting Like A ‘Democratic Mole'.

Telegraph:

• Greek referendum results live: 'No' vote to Europe's bail-out terms as Greeks choose to deal. Greeks choose to give the 'Big No' to their bail-out by a 60pc majority putting the country on a collision course with the eurozone. 

• Europe thrown into crisis as Greece nears euro exit after shock referendum result. The European Union is facing its worst crisis since the formation of the euro after Greece voted decisively against the terms of a eurozone bailout deal. 

• Defiant Greeks reject EU demands as Syriza readies IOU currency. Europe suffers biggest bloody nose since failed French and Dutch referenda a decade ago in Greek landslide revolt.

People's Daily:

• China Deflation Risk Is Mounting, Ex-PBOC Adviser Says. China faces a mounting risk of a deflationary spiral, which would be the country's "worst nightmare" amid slowing economic growth and heavy corporate debt, Yu Yongding, a former adviser to the People's Bank of China, writes in a commentary. Downward pressure on prices from overcapacity in industry may push the nation into a "vicious spiral of debt deflation," Yu writes. Long-term elimination of overcapacity requires structural adjustments to improve the allocation of resources that would be "painful and slow," Yu writes.

Caijing:

• China's National Pension Fund Orders Halt to Stock Sales. National Council for Social Security Fund orders fund management cos. to stop selling stocks from portfolios, citing people familiar with the matter.

Night Trading

• Asian indices are -1.75% to -.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 117.0 +7.0 basis points.

• Asia Pacific Sovereign CDS Index 59.25 +.75 basis point.

• S&P 500 futures -1.16%.

• NASDAQ 100 futures -1.24%.

Morning Preview Links

Earnings of Note

Company/Estimate 

• (SHLM)/.77

Economic Releases

9:45 am EST

• Final US Services PMI for June is estimated to rise to 54.9 versus a prior estimate of 54.8.

10:00 am EST

• Labor Market Conditions Index for June is estimated to rise to 2.0 versus 1.3 in May.

• The ISM Non-Manufacturing Composite for June is estimated to rise to 56.4 versus 55.7 in May.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Japan Leading Indicators report could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by technology and financial shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the week.

Weekly Outlook

Week Ahead by Bloomberg. 

Wall St. Week Ahead by Reuters.

Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on Greek debt deal concerns, Fed rate hike worries, global growth fears, European/Emerging Markets/US High-Yield debt angst, China bubble-bursting worries and technical selling. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.

Today's Headlines

Bloomberg:  

• Greeks Head to Polls Divided for Referendum to Chart New Course. Greeks are heading to the polls Sunday, evenly split on a referendum to chart a new course in their five-year economic crisis. “Come Monday, Greece won’t be facing just massive economic problems; it will be a deeply divided country,” said Nikos Marantzidis, a pollster and professor of political science at the University of Macedonia in northern Greece. “If the economic situation deteriorates further, which it probably will, the divide will only run deeper.” A poll commissioned by Bloomberg showed 43 percent of voters intend to reject the creditor proposals, while 42.5 percent will accept the conditions. The survey of 1,042 people conducted by the University of Macedonia had a margin of error of 3 percentage points. 

• Greeks Vote on Place in Euro as Banks Run Dry: The Process. This is a guide to the rules governing the voting.

• ECB Primes European Tranquilizer as Greece Faces Bank Chaos. The European Central Bank claims it can calm any regional market turmoil that follows Greece’s referendum on Sunday. Saving the country’s banking system will be harder. With two asset-buying programs, international swap lines, backstops for eastern Europe and cash tenders in place, the ECB has a wide range of tools at hand should bond yields surge or money markets freeze after the July 5 vote. That’s a possible outcome if voters reject the terms of a European Union-led bailout. Yet even if the Greek people back the EU offer, the nation’s lenders, which have been shut and under capital controls for the past week, won’t be able to reopen soon unless the ECB approves more liquidity. To do that, monetary-policy officials would have to take a leap of faith that the government will be able to strike a new deal.

• China Freezes IPOs, Greek Vote Too Close to Call: Saturday Wrap. Here are highlights of news that broke around the world on the U.S. Independence Day holiday:

Wall Street Journal:

• Iran Nuclear Talks Appear to Advance. But senior diplomats stress elusive deal to end 10-year standoff is far from certain. Key elements of a nuclear agreement between Iran and world powers appeared to be falling into place on Saturday, just ahead of a July 7 deadline, according to officials involved in negotiations in Austria’s capital. Still, senior American and Iranian diplomats stressed an elusive deal to end a 10-year standoff over Iran’s nuclear program was far from certain.

• Greek, German Tensions Turn to Open Resentment as Referendum Looms. Anti-German rhetoric from some Greek politicians is met by mounting frustration in Berlin. At newspaper kiosks in Greece, ahead of Sunday’s referendum, some front pages this week showed swastikas and the word “OXI”, Greek for “no.” On the streets of Athens, a poster showed German Finance Minister Wolfgang Schäuble with the words: “He’s been sucking your blood for five years. Now tell him NO.” In Germany, Greece’s most powerful creditor, the press have this week poured their own contempt and ridicule on Greek Prime Minister Alexis Tsipras, with epithets ranging

ZeroHedge:

• The Greek Bluff In All Its Glory: Presenting The Grexit "Falling Dominoes". (graph)

• China Scrambles to Put Plunge Protection Team Together: Banks Pledge Support For Crashing Market. (graph)

• This Is Why The Euro Is Finished. (graph)

• Sugar Daddies Are Paying Their Share Of The $1.3 Trillion Student Loan Balance. (graph)

• FBI Admits 11 Attacks Against Internet, Power Grid Lines In California This Year.

• Greeks Turn To Bitcoin To Dodge Capital Controls.

• Nomi Prins: In A World Of Artificial Liquidity – Cash Is King.

Business Insider:

• China's new Silk Road is a disaster waiting to happen.

• 'Inhuman and barbaric' Boko Haram militants have unleashed a new wave of terror in Nigeria.

• Britain's government is planning to raid wealthy people's pension pots.

• Tunisia declares state of emergency after hotel attack on foreign tourists.

• Here are the markets most exposed to the crisis in Greece.

• Varoufakis accuses Greece's creditors of 'terrorism'.

• These Chinese companies pledged to buy at least $19.3 billion in shares to stabilise the cratering market.

• The World Bank deleted a section of a report that slammed the Chinese government. 

• GOLDMAN: Here are the 3 main scenarios for Greece after its referendum.

Telegraph:

• The week that Germany turned its back on Greece. After trust between the two broke at a key moment, the Telegraph travels to Frankfurt and Berlin to ask those in the know what will – or should – happen next. 

• US unprepared for coming crash with interest rates still stuck to the floor. The inability of the US central bank to raise interest rates since the crisis leaves it vulnerable when the next recession strikes.

Bild:

• Schaeuble Says Tsipras Doesn't Want Reform Program. Greek govt doesn't want reform program given economic data, statements by Alexis Tsipras before and after election, German Finance Minister Wolfgang Schaeuble says in interview.

Caijing:

• China Suspends New IPOs. Suspension was decided by a State. Suspension was decided by a State Council meeting and executed by the China Securities Regulatory Commission.

Today's Headlines

Bloomberg:  

• Tsipras Faces Off With Europe Over Austerity Before Sunday Vote. Greek and European leaders dug into their positions before the country’s referendum on Sunday, as polls showed the outcome is impossible to predict and what happens next even more uncertain. Officials from Berlin to Madrid reiterated that a “no” to the latest proposals by creditors would deepen Greece’s economic misery. Greek Prime Minister Alexis Tsipras told supporters in Athens that a “no” vote was the ticket out, as he appealed for a 30 percent cut in his nation’s debt.

• Greeks Face German Parliament Hurdles Even If Vote Is ‘Yes’. Any future bailout program for Greece faces hurdles in Germany’s lower house of parliament even if Greeks ignore their government’s advice to reject a creditor offer in Sunday’s referendum and vote “yes,” German lawmakers said. Sentiment has soured among members of Chancellor Angela Merkel’s bloc since Prime Minister Alexis Tsipras took office and adopted a confrontational stance, said the lawmakers. Tsipras, or any possible successor, may struggle to get the Bundestag to even authorize Merkel to start negotiations on a third aid program, they said.

• Schaeuble Popularity Soars as Germans Doubt Greece’s Euro Future. German Finance Minister Wolfgang Schaeuble scored his highest-ever approval rating in an ARD-DeutschlandTrend poll that identified a decline in public support for Greece remaining in the euro. Seventy percent of Germans said they were satisfied with Schaeuble’s work, placing him second on a list of Germany’s leading politicians above Chancellor Angela Merkel, who was in third slot with 67 percent, according to the poll conducted by Infratest Dimap released Friday. Foreign Minister Frank-Walter Steinmeier topped the list with 73 percent approval.

• Euro Area Said to Weigh Push for Aid Deal Even If Greeks Vote No. Euro-area finance ministers may be ready to start work on a third bailout agreement for Greece after Sunday’s referendum, even if voters reject the bloc’s last aid proposal, according to two officials familiar with negotiations. A broad majority of finance chiefs have agreed to examine an official request from Greek Prime Minister Alexis Tsipras for aid from the European Stability Mechanism, the people said, asking not to be identified because the talks are confidential. That process could begin as soon as next week, one of them said.

• The Other Contagion: What If Greece Thrived After Euro Exit? It is the scenario few talk of: What if Greece left the euro area and its economy thrived? The reason for the silence may be that it’s too ridiculous a concept to even consider. As the country’s referendum on austerity nears, economists are lining up to warn that quitting the euro and defaulting on its debts would make Greece an even bigger pariah in financial markets and push it toward a deeper depression with the bankruptcies, unemployment and social unrest that entails. Such pain, so the conventional wisdom goes, would scare the likes of Spain and Portugal into rededicating themselves to the German-branded austerity and economic reform that membership of the single currency demands. To some, a euro zone without Greece would be smaller yet possibly stronger. But economists at Oxford Economics Ltd. and Citigroup Inc. this week gave voice to the question of what would happen if Greece dusted itself down within a couple of years and rode a falling currency back to economic growth. That would challenge the theory that leaving the euro was economic suicide. And it could encourage other members to consider devaluation and default more appealing than life within the euro and so pose an even bigger threat to the currency bloc’s sustainability than if Greece stayed.

• ECB Said to Extend Backstop to Bulgaria Amid Greek Fallout. The European Central Bank is set to extend a backstop facility to Bulgaria and is ready to assist other nations in the region to ward off contagion from Greece, according to people familiar with the situation. The ECB would provide access to its refinancing operations, offering euros to the banking system against eligible collateral, the people said, asking to remain anonymous because the matter is confidential. The ECB and the Bulgarian central bank declined to comment.

• Can China Catch the Falling Knife in Equity Markets? (video) Bloomberg’s Stephen Engle reports on the current drop in Chinese equities and the government’s attempt to restore confidence in those markets.

• European Stocks Fall as German Bunds, Yen Rise Before Referendum. European stocks fell for a second day and German bonds gained as Greece called for a writedown on its debt and investors braced for a referendum this weekend. The yen and the Swiss franc strengthened. The Stoxx Europe 600 Index decreased 0.5 percent at 10:46 a.m. in New York. The yield on Germany’s 10-year bund fell five basis points to 0.79 percent. The yen and the franc climbed 0.3 percent against the dollar. Humana Inc. jumped in German trading as Aetna Inc. agreed to buy the company. Chinese shares capped their biggest three-week slide since 1992. Oil was set for its worst week since March. U.S. markets were shut for a holiday. Stocks extended declines in a week where more than $1.5 trillion was erased from the value of global equities after Greek Prime Minister Alexis Tsipras short-circuited bailout talks by calling a referendum. Tsipras said today that a 30 percent so-called haircut and a 20-year grace period was the only way the country’s debt could become sustainable. 

• Europe Stocks Fall Most Since December. The Euro Stoxx 50 Index lost 5 percent in the week after Greek Prime Minister Alexis Tsipras announced a surprise referendum on creditors’ bailout demands. 

• Seven-Day Plunge in Iron Ore Sinks Vale as Brazilian Stocks Fall. A seven-day selloff in iron ore sent Vale SA, the world’s largest producer of the commodity, to its worst week since January. The Ibovespa joined a slide in emerging-market stocks. Shares of Vale extended their weekly tumble to 8.8 percent as shipments of the steelmaking ingredient surged and data showed the slowdown in China’s steel industry deepened. The miner, whose top export market is the Asian nation, accounts for about 6 percent of Ibovespa’s weighting.

• Iron Ore Routed on Jump in Cargoes as Citi, Goldman Get It Right. Iron ore capped the biggest weekly loss since April as shipments surged and data showed the slowdown in China’s steel industry deepened, vindicating banks from Goldman Sachs Group Inc. to Citigroup Inc. that had forecast declines. Ore with 62 percent content delivered to Qingdao lost 0.7 percent to $55.26 a dry metric ton on Friday, falling for a seventh day, according to Metal Bulletin Ltd. Prices lost 11 percent this week to the lowest level since April. Producers’ shares sank, with Rio Tinto Group dropping to the lowest since 2009 in London and Anglo American Plc falling to a 12-year low.

Wall Street Journal:

• Regulators Warn Banks on Loans to Oil, Gas Producers. Move could limit ability of energy companies to obtain financing. U.S. regulators are sounding the alarm about banks’ exposure to oil-and-gas producers, a move that could limit their ability to lend to companies battered by a yearlong slump in prices. The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. are telling banks that a large number of loans they have issued to these companies are substandard, said people familiar with the matter, as they issue preliminary results of a joint national examination of major loan portfolios. The substandard designation indicates regulators doubt a borrower’s ability to repay or question the value of the assets that back a loan. The designation typically limits banks’ ability to extend additional credit to the borrowers.

• Holiday Weekend Brings Worries of Islamic State Terror Attacks. U.S. Officials monitor potential suspects ahead of July 4; scare at Washington Navy Yard. Federal counterterrorism officials are on edge heading into the July 4 weekend, monitoring hundreds of potential suspects they fear could be contemplating attacks on behalf of Islamic State, officials said.

MarketWatch.com:

• Know this about Sunday’s Greek referendum! Here’s a guide to what’s happening and what’s at stake.

• As China stocks sink, some accuse Morgan Stanley(MS), other foreign forces. The recent, drastic stock-market meltdown in China seems to have freaked out the country’s government and central bank, as their repeated efforts to stabilize the markets have failed, at least so far. And now, some segments of Chinese society are now raising the possibility that “evil” market forces going short to ruin the economy, and even suspecting investment “predators” of lurking behind the turmoil, with Morgan Stanley among the names mentioned.

Fox News:

• Man arrested in connection with San Francisco killing had been deported several times, officials say. (video) The man arrested in connection with the seemingly random killing of a woman who was out for a stroll with her father along the San Francisco waterfront is an illegal immigrant who previously had been deported five times, federal immigration officials say.

ZeroHedge:

• What It All Comes Down To On Sunday. 

• Massive "No" Demonstration Floods Athens' Syntagma Square As Tsipras Speaks - Live Webcast. (video) 

• Greek Banks Considering 30% Haircut On Deposits Over €8,000: FT. 

• BofA's Dire Prediction: Only Direct Government Buying Can Save China Stocks Now. (graph)

• Martin Armstrong: Troika Is Maneuvering To Rig The Greek Referendum.

• Barack Obama Tells Another Whopper - He Did Not Create 12.8 Million Jobs. (graph)

• Do Share Buybacks Create Value? (Spoiler Alert: No). (graph)

• Crude Carnage Continues - WTI Hits $55 Handle, Brent Tests $60. (graph)

• 3 Things: Valuations, Employment, Sectors. (graph)

• Egypt Is On The Edge Of Full Blown Civil War.

• Contagion Continues: Italy, Spain Stocks Tumble To Post-Greferendum Lows. (graph)

• Chinese Stocks Plummet Despite Government Threats To Shorts, Europe Lower, US Closed. (graph)

Business Insider:

• The Iran deal is the worst agreement in US diplomatic history.

• 9 photos show the chaos in Greece right now. (pic)

• China's slowdown is bad news for the world's big industrial exporters.

Reuters:

• Greek FinMin Varoufakis says bail-in report "malicious rumour". Greek Finance Minister Yanis Varoufakis said on Friday a Financial Times report that Greece was making contingency plans for the possible bail-in of deposits was a "malicious rumour". Varoufakis made the comment on his Twitter account. The Financial Times said the contingency plans could include a 30 percent bail-in on deposits above 8,000 euros.

Financial Times:

• Renzi threatened by political contagion from Greece. Beppe Grillo, the comedian and leader of Italy’s populist Five Star Movement, was so gleeful at Alexis Tsipras’s decision to call a bailout referendum last weekend that he quickly hatched plans to travel to Greece for the occasion. “Power to the people, not the banks,” Mr Grillo wrote on his blog as he announced he would be in Athens’ Syntagma Square on Sunday to cheer on the embattled Greek prime minister.

Telegraph:

• Whether Greece votes yes or no, the euro cannot survive in its current form. Best case scenario? The EU will undergo years of painful convulsions, precipitating a new treaty that imposes greater centralisation and restrictions on the fiscal independence of nation states.

• Enough of this charade: Greece must be told to leave the euro. It is no use pretending that the buffoons who pass for a government in Athens can solve this economic crisis. 

• Greece crisis live: Banks will run out of money on Monday morning as Tsipras urges Greece to reject "blackmail". Yes and No voters come out in force in Athens tonight after it is revealed Brussels tried to block IMF report calling for Greek debt relief.

Friday Watch

Evening Headlines
Bloomberg:  

• Greek Drama Won’t End With Vote as Polls Indicate a Tight Race. Germany and the rest of the euro region are bracing for more Greek political upheaval followed by tortuous negotiations even if the country votes for more austerity in Sunday’s referendum. There is no quick fix to the crisis because European Union rules make negotiations on financial aid difficult to re-start, according to an official in Chancellor Angela Merkel’s government. Adding to the murky landscape are polls showing the outcome of Sunday’s referendum on austerity too close to call.  

• Greece Tugs at Euro’s Heartstrings Amid Economic Case for Exit. (video) Some economists don’t fear a Greek exit from the euro because they can count the costs. Most political leaders are petrified because they can’t. No one quite knows how a Grexit would be engineered, but the case for it runs like this: with 11 million people, Greece represents 3.2 percent of the population and 1.8 percent of the output of the 19-nation euro zone’s 10.1 trillion-euro ($11 trillion) economy.

• China Stocks Plunge to Extend Biggest Three-Week Rout Since 1992. China’s Shanghai Composite Index headed for its steepest three-week decline since 1992 as government measures to shore up equities failed to stop margin traders from unwinding positions at a record pace. The benchmark stock gauge sank 7.1 percent to 3,635.03 at 10:26 a.m. The measure has tumbled 30 percent from its June 12 peak, helping wipe out at least $2.8 trillion of value. Eighty stocks fell for each that rose on the index Friday. China’s markets regulator said Thursday it will investigate and “strictly” punish manipulation. The China Securities & Regulatory Commission is examining recent short-selling activity for stock-index futures amid the slump, people with knowledge of the matter said. Regulators have made late-night announcements almost every day since the benchmark index entered a bear market this week. “For now, the mood is verging on panic, and it is extremely hard to calm a bear who is in a rage,” said Bernard Aw, a strategist at IG Asia Pte Ltd. in Singapore. “Chinese brokers may still be looking at reducing their risk exposure by closing more margin debt.” The outstanding balance of margin debt on the Shanghai Stock Exchange dropped for a ninth day on Thursday, sliding to 1.29 trillion yuan ($208 billion) in the longest losing streak since the city’s bourse began to compile the data on March 31, 2010. A five-fold surge in margin debt had helped propel the gauge up more than 150 percent in the 12 months through June 12. The Shanghai Composite has fallen 13 percent this week. The CSI 300 Index declined 7.4 percent Friday, while Hong Kong’s Hang Seng Chinese Enterprises Index slumped 1.6 percent and the Hang Seng Index dropped 0.6 percent.

• Chinese Tycoons Lose $34 Billion in June. The worst monthly slump in Chinese stocks in two years wiped away more than $34 billion in combined net worth of the richest people in China and Hong Kong in June. Of those 45 wealthy people on the Bloomberg Billionaires Index, more than 80 percent lost money in June as the Shanghai Composite Index tumbled. “The fortunes of billionaires are closely tied to the rise and fall of stocks,” said Zhang Lu, a Shanghai-based analyst at Capital Securities Corp. “When the market is more unstable, like now, their fortunes go down.”

• Good Idea at the Time: China Learns Cost of Relying on Stocks. It sounded like a good idea at the time: encourage growth in China’s stock market as a way for companies to raise capital. And if that paid down some of the nation’s record debt load in the process, so much the better. The problem: promoting a market where retail investors dominate daily trading left policy makers vulnerable to swings in sentiment that are tough to control. That’s a reality Premier Li Keqiang’s government faces now as it steps up efforts to stop the bleeding in China’s volatile equity market.

• Dreams Collide With China Slowdown for Job-Seeking Graduates. Dang is among 7.5 million college graduates entering China’s job market this summer, the most ever and almost seven times the number in 2001. Their dreams are colliding with an economy growing at the slowest pace in a generation, adding pressure on policy makers to spur the employment-intensive services sector. “Every year it’s the most difficult job-seeking season for graduates in history, and the next year is even more difficult,” said Xiong Bingqi, deputy director of the 21st Century Education Research Institute, a Beijing-based think tank. “The services sector isn’t developed enough to create enough effective demand for college grads.” 

• The Chinese Descend on Japan's Property Market, Pushing Prices Up. The trend has already hit Sydney, Vancouver and the U.S. Now it’s happening in Japan: busloads of real estate buyers from China coming in, buying up homes and pushing prices higher. Realty agencies in Beijing are organizing twice-monthly tours to Tokyo and Osaka, where 40 Chinese at a time come for three-day property-shopping trips, seeking safe places to invest their cash abroad. They’re being prompted by the yen’s decline to 22-year lows and excitement over the 2020 Tokyo Olympics driving up prices, as they did in Beijing in 2008. Property tours will soon start from Shanghai too. 

• Asia Stocks Swing Before Greek Vote as Investors Weigh U.S. Jobs. Asian stocks fluctuated, with the regional benchmark gauge set for a weekly decline, as investors awaited Greece’s referendum and weighed U.S. jobs data. The MSCI Asia Pacific Index added 0.1 percent to 147.08 as of 9:20 a.m. in Tokyo after falling as much as 0.1 percent. The measure is headed for a 0.5 percent decline this week.

• Shale Boom Shows Strength as Rigs Gain With Oil Under $60. For the first time in almost seven months, America’s shale drillers put rigs in oil fields back to work, and they’re doing it at a lower price. The last time they added rigs, crude futures were trading near $70 a barrel. Now, even after a rebound, they’re under $60. And yet drilling rigs rose in almost every major U.S. oil basin in the country this week, raising the total by 12, according to field-services company Baker Hughes Inc.

Wall Street Journal:

• Europe’s Great Project Faces Its Biggest Challenge in Greek Bailout Referendum. The euro is EU’s crowning glory and the instrument that may most seriously challenge European unity. The great project that some hoped would eventually create a European superstate faces the biggest challenge of its 65-year history on Sunday, when Greeks vote in a referendum that could decide whether they crash out of the eurozone—and shift the continent’s destiny. The European Union, whose precursor brought the region’s nations together after World.

• As Mergers Multiply, U.S. Antitrust Cops Raise Their Game. Corporate deal making is at an eight-year high at the same time the Obama administration’s antitrust enforcers are on their strongest footing ever, setting up a tug-of-war over industry consolidation.

• Prominent Obama Fundraiser Joins Effort to Press Biden to Run in 2016. A prominent Obama fundraiser who says a Joe Biden presidential campaign is a “strong possibility” has signed on to the independent group working to nudge the vice president into the 2016 race.

• Hillary’s Email Story Unravels. Now that we know she edited the emails before turning them over, the entire record is suspect. Clinton scandals have a way of bumping and rolling along to a point where nobody can remember why there was any outrage to begin with. So in the interest of clarity, let’s take the latest news in the Hillary email escapade, and distill it into its basic pieces: • Nothing Mrs. Clinton has said so far on the subject is correct. The Democratic presidential aspirant on March 10 held a press conference pitched as her first and last word on the revelation that she’d used a private email server while secretary of state. She...

Fox News:

• IT boss ‘blown away’ that IRS backup tapes in Lerner case erased, watchdog says. (video) The chief technology officer at the IRS was "blown away" after learning backup tapes that likely contained messages to and from controversial ex-official Lois Lerner were destroyed, according to an internal government watchdog report.

CNBC:

• Greece latest: IMF fuels tensions with $66BN aid call. Stay tuned for more analysis on Greece as the country heads towards a referendum on Sunday, with tensions running even higher after an International Monetary Fund (IMF) report said the country needed 60 billion euros in additional aid. The IMF also said Greece would need comprehensive debt relief. The report sparked another defiant message from Prime Minister Alexis Tsipras, who used a television interview to urge Greeks to vote against the lenders' most recent offer.

ZeroHedge:

• Did The IMF Just Open Pandora's Box?

• Chinese Government "Losing Control": Stocks Are Collapsing, Hitting New Bear Market Lows. (graph)

• Government Trolls Are Using "Psychology-Based Influence Techniques" On YouTube, Facebook And Twitter.

• Trading Stocks - It's Easier Than Farmwork... And Porn. (video)

• JPMorgan(JPM) Banker: "We Can't Make Money Anymore..."

• "There Are Obvious Signs Of Distress" In The Manufacturing Industry. (graph)

• NSA Leak Reveals Both Merkel And Schauble Saw Greek Debt As Unsustainable Even After Haircut.

• "It Could Never Happen Here" - America Is Not Greece. (cartoon)

• Plunge In Export Prices Is Now Worse Than The Great Financial Crisis. (graph)

• Jobs Jolt Sparks Bond Bid; Stocks Skid As "Day Of Greckoning" Looms. (graph)

Business Insider:

• Greece's largest industry is suddenly in shambles.

• Foreign brands are struggling in China.

• The enormous ISIS attack in Egypt is a game-changer.

• Here comes another mega-merger: Aetna and Humana are reportedly close to a multi-billion deal.

• Obama's counterterrorism policy is facing mounting criticism. 

• In New York City and Chicago, the smart city is here — and it's keeping track of everything. (video)

• Study says if you're driving an electric car on the East Coast, you're probably polluting more than your gas-guzzling neighbor.

• The South China Sea is now a 'core interest' of Beijing — and that's a problem for its neighbors.

NY Times:

• White House Orders Review of Rules for Genetically Modified Crops. The Obama administration said on Thursday that it would update the way the government regulated genetically modified crops and some other biotechnology products, saying that the nearly 30-year-old system had become outdated and confusing and did not foster public confidence.

Reuters:

• U.S. probe sees no links among black church fires in South. Federal law enforcement officials have found no links among any of several recent fires at African American churches in the U.S. South and have determined that two were started by natural causes and one was due to an electrical fire. "All of the fires remain under active investigation and federal law enforcement continues to work to determine the cause of all of the fires," Justice Department spokeswoman Melanie Newman said in a statement. "To date the investigations have not revealed any potential links between the fires."
  
  According to an opinion poll conducted for Efimerida ton Syntakton newspaper between Saturday and Tuesday, 54% of surveyed Greeks are planning to vote "no" with33% planning to vote "yes."
  The poll conducted by the ProRata institute also showed that 86% of those surveyed planned to vote on Sunday.
  - See more at: http://wbponline.com/Articles/View/49857/oxi-no-leads-in-polls-before-sunday-vote-in-greece#sthash.nuL4mSxl.dpuf
  'Oxi' (No) Leads in Polls Before Sunday Vote in Greece - See more at: http://wbponline.com/Articles/View/49857/oxi-no-leads-in-polls-before-sunday-vote-in-greece#sthash.nuL4mSxl.dpuf

The Straits Times:

• China futures exchange temporarily suspends 19 accounts from short-selling: Sources. China Financial Futures Exchange (CFFEX) has suspended 19 accounts from short-selling for one month, sources with direct knowledge said on Friday. The move came after China's securities market regulator launched an investigation into suspected market manipulation, citing evidence from the CFFEX and stock exchanges. The stock market has slumped more than 20 per cent since mid-June.

Night Trading

• Asian equity indices are -1.5% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 110.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 58.5 -.5 basis point.

• S&P 500 futures +.03%.

• NASDAQ 100 futures -.01%.

Morning Preview Links

BOTTOM LINE:  US equity markets are closed for Independence Day.