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.
- 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.”
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:
Business Insider:
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.
- 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:
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
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.
- NASDAQ 100 futures +.20%.
Earnings of Note
Company/Estimate
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
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.
