Stocks Falling Substantially into Final Hour on China Bubble-Bursting Fears, Global Growth Worries, Emerging Markets/US High-Yield Debt Angst, Commodity/Biotech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Every Sector Declining
  

• Volume: Slightly Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 19.24 +19.38%

• Euro/Yen Carry Return Index 13.48 -1.05%

• Emerging Markets Currency Volatility(VXY) 9.44 +1.61%

• S&P 500 Implied Correlation 62.01 +5.84%

• ISE Sentiment Index 73.0 +19.7%

• Total Put/Call 1.40 +12.0%

• NYSE Arms 2.01 +138.72% 

Credit Investor Angst:

• North American Investment Grade CDS Index 72.99 +2.86%

• America Energy Sector High-Yield CDS Index 1,269.0 +.24%

• European Financial Sector CDS Index 98.58 -1.93%

• Western Europe Sovereign Debt CDS Index 32.87 +3.20%

• Asia Pacific Sovereign Debt CDS Index 64.35 +4.08%

• Emerging Market CDS Index 319.0 +.91%
  

• iBoxx Offshore RMB China Corporates High Yield Index n/a

• 2-Year Swap Spread 25.50 unch.

• TED Spread 27.5 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -22.5 +.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 166.0 -1.0 basis point

• China Import Iron Ore Spot $44.59/Metric Tonne -10.10%

• Citi US Economic Surprise Index -20.7 +.8 point

• Citi Eurozone Economic Surprise Index -6.4 +.3 point

• Citi Emerging Markets Economic Surprise Index -18.0 +.6 point

• 10-Year TIPS Spread 1.85 -4.0 basis points

Overseas Futures:

• Nikkei 225 Futures: Indicating -422 open in Japan 

• China A50 Futures: Indicating -1,044 open in China

• DAX Futures: Indicating -41 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:     

• China Bans Stock Sales by Major Shareholders for Six Months. China’s securities regulator banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months, its latest effort to stop the nation’s $3.5 trillion stock-market rout. Investors with stakes exceeding 5 percent must maintain their positions, the China Securities Regulatory Commission said in a statement. The rule is intended to guard capital-market stability amid an “unreasonable plunge” in share prices, the CSRC said. While China has already ordered government-owned institutions to maintain or boost their stock holdings, the CSRC’s directive expands the ban on sales to non-state companies and potentially foreign investors who own major stakes in mainland businesses. Regulators have unveiled market-boosting measures almost every night over the past 10 days, steps that have so far failed to revive investor confidence. Foreign traders sold Chinese shares at a record pace this week in part due concerns over the government’s meddling in markets. “It suggests desperation,” Mark Mobius, chairman of Templeton Emerging Markets Group, said by phone Wednesday. “It actually creates more fear because it shows that they’ve lost the control.”   
• Inside China's Stock Market Collapse. (video)
• Is China Having a Crisis of Legitimacy Over Markets? (video)
• This Is Why So Many Chinese Companies Are Suspende. China's corporations have been big fans of stock-based loans, too.  At least 1,331 companies have halted trading on China's mainland exchanges, freezing $2.6 trillion of shares, or about 40 percent of the country’s market value, Bloomberg reported on Wednesday. The Shanghai Composite Index fell 5.9 percent on Wednesday. It's now about 32 percent below the peak of 5,166 it reached on June 12. The unwinding of margin loans is adding fuel to the fire. Individual investors in China, as we all know by now, have used generous margin financing terms to enter the stock market and then build up their portfolios. Less-known is that Chinese companies have been doing the same thing by using their own corporate stock to secure loans from banks. This means that they stand to lose a lot when those share prices start trending dramatically lower.
• China Ousts Russia as Riskiest BRICS Market for Options Traders. China’s market meltdown is making even Russia look good. Shanghai stocks overtook Moscow-listed equities as the riskiest for investors in the so-called BRICS universe on Wednesday for the first time since the build-up to Russia’s military intervention in Crimea in February 2014. Expectations for price swings in China jumped 23 percent today, extending the 2015 increase to 71 percent, compared with a 39 percent drop in Russian volatility this year, according to options data.
• Greeks Work on Crafting Now-or-Never Reform Plan to Keep Euro. Greece is working against the clock on a package of proposed reforms to convince European leaders headed by German Chancellor Angela Merkel that it can keep the euro. The country has until midnight Thursday in Brussels to present measures to reform its economy and cut spending in exchange for a new European bailout. Merkel is willing to let Greece go if Prime Minister Alexis Tsipras’s government doesn’t deliver plans Germany views as credible, according to two government officials familiar with her strategy, who asked not to be identified discussing private deliberations. 
• Greece Faces Euro Exit Unless Demands Accepted by Sunday. (video) European leaders talked openly about a Greek exit from the euro ahead of a weekend summit on the country’s economic future, breaking dramatically with years of denial about the possibility. Europe has “a Grexit scenario prepared in detail,” European Commission President Jean-Claude Juncker said late Tuesday night, hours before Austrian Chancellor Werner Faymann said Greece’s Plan B is “another currency.” The European Union set a Sunday deadline to reach a deal with Greece on a rescue in exchange for austerity measures and economic reforms, while the country formally requested a new three-year bailout and promised to pay back its debts.
• Bond Traders Worry Central Banks Are Firing Guns Without Bullets. What happens when central bankers do everything they can to spur economic growth and prop up markets -- and still fail? That’s a question that’s come to the fore in the past few days as China unsuccessfully tries to support its plunging stock market and the European Central Bank pledges to use its monetary tools to prevent fallout from a Greek default. Even after trillions of dollars of central-bank stimulus globally, bond traders are showing they’re still worried about stagnant global growth.
• Russian Stocks Test Bearish Gauge as China Turmoil Pounds Oil. Russian stocks breached a bearish threshold that signals they may extend declines as China’s equity-market rout spread across the world, wiping out oil’s gains this year. The benchmark Micex Index fell as much as 2.5 percent to 1,573.98, bringing it temporarily below the 200-day moving average of 1,585.7 for the first time since December, data compiled by Bloomberg show.
• Stocks Gain From Italy to Portugal as Two-Day Selloff Is Pared. Equities rallied in European countries that bore the brunt of a two-day selloff following the Greek vote, with stocks in Italy and Portugal leading the way. The FTSE MIB Index and the PSI 20 Index advanced at least 1.4 percent, rebounding from losses of 6 percent or more in the past two days. Spain’s IBEX 35 Index climbed 0.8 percent. The Euro Stoxx 50 Index added 1 percent to 3,327.5 at the close.
• Iron Ore Slumps to Lowest Since at Least 2009 in China. Iron ore retreated to the lowest level in at least six years as a rout in China’s stock markets threatened to hurt demand in the largest buyer just as the biggest producers plan to raise output. Ore with 62 percent content delivered to Qingdao sank 10 percent to $44.59 a dry metric ton on Wednesday, according to Metal Bulletin Ltd. That’s the lowest price on record dating back to May 2009, the data show. The raw material was until the past several years traded predominantly through annual benchmark prices. Compared with those benchmarks, this would be the lowest since 2005, data compiled by Clarkson Plc show.
• Goldman(GS) Sees Negative Loop in Commodities From Excess Money. It’s going to take a prolonged slump in commodities to break a cycle of too much money and excess production, according to Goldman Sachs Group Inc. The market is caught in a “negative feedback loop,” where lower raw-material prices are strengthening the dollar and lowering production costs for countries with weaker currencies, Goldman analysts wrote in a report. That boosts the prospects of higher U.S. interest rates and a reduction in emerging-economy debt, according to the bank. Demand for commodities will subsequently decline, capping prices and further reinforcing the greenback, it said. “Commodity markets still have access to far too much capital relative to future demand and a declining cost structure,” analysts including Jeffrey Currie in New York wrote in the note. “Long-term surpluses in most commodity markets require prices to remain lower for longer to balance both the near-term physical supply and demand, but more importantly, the longer-term supply and demand for capital to fund future investments.”
• Mining’s $143 Billion Stock Rout Signals Escalating China Fears. Fears of faltering Chinese growth ignited a $143 billion meltdown in global mining stocks as investors confront sputtering demand in the world’s biggest consumer of commodities. The Bloomberg World Mining Index of 79 producers dropped 17 percent in the past 10 days as prices for industrial metals such as copper, nickel and aluminum sank to six-year lows. The price of iron ore, a key profit driver for top-ranked BHP Billiton Ltd. and Rio Tinto Group, slumped 10 percent Wednesday to its lowest since at least 2009 as new supply floods the market.
• NYSE Suspends Trading in All Securities. Investors were forced to steer orders away from the New York Stock Exchange as the biggest U.S. share venue halted trading to fix a computer malfunction. The suspension, announced to securities firms through notices on the NYSE website around 11:32 a.m., dropped the biggest U.S. share platform out of the interconnected network of venues that make up the American equity market. That network continued to operate, however, as other exchanges such as the Nasdaq Stock Market and Bats Global Markets Inc. picked up the runoff.
• Attack on U.S. Power Grid Could Cost $1 Trillion, Lloyd’s Says. A cyber attack on the U.S. power grid could cost more than $1 trillion because of property damage, higher death rates and crippled infrastructure, according to Lloyd’s of London. “The scenario predicts a rise in mortality rates as health and safety systems fail; a decline in trade as ports shut down; disruption to water supplies as electric pumps fail and chaos to transport networks,” according to a report from the insurance market and Cambridge University.
• Fed’s Williams Still Sees 2015 Rate Rise as Growth Trumps Risks.
• Hedge Funds Are a Holdout in Fed’s Plan to Prevent the Next Lehman. Regulators need help from hedge funds to make sure a bank failure in the future doesn’t roil markets the way Lehman Brothers Holdings Inc. did. The problem is hedge funds don’t see what’s in it for them. The Federal Reserve, Federal Deposit Insurance Corp. and Bank of England have met with representatives for firms such as Citadel LLC, D.E. Shaw & Co., BlackRock Inc. and Pacific Investment Management Co., to try to persuade them to wait before canceling contracts with a collapsing lender, said three people with knowledge of the matter. The purpose is to give regulators more time to resurrect a failed bank so derivative trades and lending arrangements that underpin the global financial system don’t have to be terminated. Money managers who account for trillions of dollars of swaps trades are resisting, because they’re concerned that giving up their right to quickly kill contracts with a bankrupt firm could stick them with losses and violate a requirement that they act in their investors’ best interests. 
• Microsoft(MSFT) to Cut Jobs, Take $7.6 Billion Writedown on Nokia. Microsoft Corp. plans to cut as many as 7,800 jobs and write down about $7.6 billion on its Nokia phone-handset unit, wiping out nearly all of the value of a business it acquired just 14 months ago.

Wall Street Journal:

• Apple(AAPL) Plans Record Number of New iPhones. Apples asks suppliers to make up to 90 million of the expected next models by year-end.

Barron's:

• Commodities, China and Greece Hint at Deflation. Like a falling barometer, sliding commodity prices can often signal an approaching storm for investors. The contagion from the crisis in Greece and the crash in China to other major securities markets so far has been relatively muted. The far greater impact appears to be in commodities, which have fallen hard this week. Losses have been across the board, from crude oil to corn. And while there hasn’t been any single, strong linkage from the commodity pits to the tumult in Athens and Asia, the decline shouldn’t be ignored. Like a falling barometer, sliding commodity prices can often signal an approaching storm.

CNBC:

• 'Cautious' Fed worries over Greece, sets framework for future hikes: FOMC minutes. Federal Reserve officials struck a notably dovish tone in their most recent discussions about monetary policy, while at the same time setting the groundwork for future rate hikes. Minutes released Wednesday from the June Fed Open Market Committee meeting reveal the thinking behind yet another delay in normalizing policy. Members agreed the economy was getting better yet felt unready to exit a policy of zero interest rates that began in late 2008.
• The real bubble behind China's selloff.
• China's wealth plunge claims billionaires.

ZeroHedge: 

• All Trading Halted On NYSE, White House Monitoring Outage, Software "Glitch" Blamed. (graph)
• Is This What The First World Cyber War Looks Like: Global Real Time Cyber Attack Map. (map)
• It Has Begun: Greek Businesses Now Listing Prices In Drachma.
• Europe Readies Emergency "Humanitarian" Action Plan For Greece.
• Suddenly The "Experts" Are Dumbfounded.
• Greece Preparing "Alternative Currency", Kathimerini Says.
• USDJPY Breaks Key Technical Support: Next Target 118.96 According To Goldman. (graph)
• "I'm A Tad Worried At The Market's Complacency".
• Crude Carnage Continues After Another Inventory Build & Production Rise. (graph)
• Nationwide Computer "Glitch" Grounds All United Airlines Flights.
• Germany Crushes All Hope Of Greece Getting Debt Relief. (graph)

Business Insider: 

• China's market crash is reversing the most important thing the government has been trying to do in decades.
• Greece's full exit from the euro and issuing of a new currency would happen in 7 chaotic steps.
• Here's a simple explanation of why Chinese stock markets are in free fall right now.

Telegraph: 

• Greece news live: Athens submits three-year bail-out plan as leading economists now predict Grexit. Greece applies for a new three-year bail-out programme after Tsipras is warned banking collapse and humanitarian crisis are four days away.

ZDF TV:

• Tsipras Showing No Willingness to Reform His Country. German Social Democratic Party lawmaker Carsten Schneider, an SPD deputy group leader in parliament, says on ZDF TV he doesn't see any kind of willingness on the part of Greek Prime Minister Alexis Tsipras to overhaul his country's economy. "That's why I'm not talking about debt reduction if everything goes on afterward as before". "Only when I have certainty that this Greek government works in a serious fashion on solving the country's problems, only then can the debt load be discussed in a second step, but not before". Schneider says he's "skeptical" that agreement between Greece, creditors can be reached by Sunday.

Le Figaro:

• Poll Shows 62% of French Against Greek Debt Writedown. Poll also shows 73% of Germans against Greek debt writedown. 44% of the French trust German Chancellor Merkel to solve the crisis between the EU and Greece; 24% trust French President Hollande. 45% of the French and 60% of the Germans want Greece to exit the euro area.

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.62%

Sector Underperformers:

• 1) Oil Tankers -5.01% 2) Gaming -4.75% 3) Alt Energy -3.45%

Stocks Falling on Unusual Volume:

• SEP, KTWO, FCAM, CLM, PRFT, EPC, TGH, AOS, DL, EFOI, CAF, CBPO, ALV, DQ, SOHU, VXUS, TTM, ST, NVRO, CNW, NOAH, CHU, BCPC, DEPO, NAV, YUM, CMA, GDDY, IBKR, COMM, TSLA, SYNT, SWKS, GM, BWA, LEA, TEN, NVRO, INVN, DK, MGM, THRM and NHTC

Stocks With Unusual Put Option Activity:

• 1) EWH 2) EWC 3) EWJ 4) XHB 5) SCHW
  

Stocks With Most Negative News Mentions:

• 1) HOG 2) TSLA 3) MXIM 4) M 5) SCHW
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value -1.22%

Sector Outperformers:

• 1) Gold & Silver +.06% 2) Utilities -.50% 3) REITs -.64%
  

Stocks Rising on Unusual Volume:

• RPTP and QUNR

Stocks With Unusual Call Option Activity:

• 1) PEP 2) FTR 3) RPTP 4) CONN 5) TAP
  

Stocks With Most Positive News Mentions:

• 1) ALGT 2) BBW 3) RTN 4) SSS 5) GSBC
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 12.8% Above 100-day average
• 0 Sectors Rising, 10 Sectors Declining
• 19.8% of Issues Advancing, 77.8% Declining
• 11 New 52-Week Highs, 106 New Lows
• 43.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 39.3
• Vix 17.9
• Total Put/Call 1.40
• TRIN/Arms 1.79

Wednesday Watch

Evening Headlines 

Bloomberg:  

• China Freezes Trading in 1,300 Companies, Locking Up 40% of Market Cap. A wave of Chinese companies halted trading in their shares and regulators unveiled new measures to prop up the value of small-cap stocks in the latest attempts to stem a rout that’s wiped more than $3.5 trillion of value. At least 1,301 companies have halted trading on mainland Chinese exchanges, locking up $2.6 trillion of shares, or about 40 percent of the market’s capitalization. The central bank said Wednesday it will provide “ample liquidity” to the stock market, while China Securities Finance Corp. was said to seek more than 500 billion yuan ($80.5 billion), according to people familiar with the matter. The China Financial Futures Exchange raised margin requirements for sell orders on CSI 500 index futures.

• China’s $3 Trillion Stocks Rout Puts Car Sales in ‘Meat Grinder’. Automakers in China are finding themselves in a “lose-lose situation” after a world-beating stock-market boom that diverted funds away from purchases turned into a bust, further denting demand in the world’s largest car market. An increasing number of car buyers in China are canceling their purchases and risking forfeiture of their down payments after a stock-market rout that has erased about $3.2 trillion in value, according to Cui Dongshu, secretary-general of China’s Passenger Car Association. “The plunging stock market is essentially a meat grinder, shredding money meant for buying cars,” Cui said in a phone interview. The association is scheduled to release monthly sales data Wednesday, with Cui describing the results as the “worst June ever” with all car categories badly hit.

• Holding Chinese Brokerages’ Bonds Is Risky Business Amid Rout. Investors are demanding ever steeper yield premiums to hold the offshore bonds of some Chinese brokerages as Moody’s Investors Service warns about the risks of relaxing margin financing rules. The extra spread over Treasuries on Haitong Securities Co.’s $670 million of 3.5 percent notes due 2020 soared to a record 227 basis points Monday, the most since they were sold in April, Bloomberg-compiled prices show. The spread on Citic Securities Co.’s $800 million of 2.5 percent debentures due 2018 registered their worst-ever one month performance. China’s securities firms raised more than $32 billion selling bonds in the second quarter, using the proceeds to help fuel a stunning 468 percent rise in margin lending in the 12 months to June 15, when stocks began to nosedive. Equities have lost more than $3.2 trillion since, prompting authorities to relax lending rules, including allowing real estate as an acceptable form of collateral for traders.

• China Tries Japan's Approach to a Stock Bubble. In any discussion of historical precedents for China's ongoing battle with stock traders, Japan's epic "price-keeping operations" deserve pride of place.

• Greece Must Meet Sunday Deadline to Reform or Face Euro Exit. European leaders set a Sunday deadline for Greece to accept a rescue, saying otherwise they’ll take the unprecedented step of propelling the country out of the euro. At a Brussels summit, Greece’s anti-austerity government was ordered to make new economic reform proposals that could earn it another aid package and head off financial ruin. “We have only a few days left to find a solution,” German Chancellor Angela Merkel told reporters late Tuesday after euro-area leaders met in Brussels. She conceded that she is “not especially optimistic.” Sunday now looms as the climax of a five-year battle to contain Greece’s debts, potentially splintering a currency that was meant to be unbreakable and throwing more than half a century of European economic and political integration into reverse. 

• EU Commission Has Grexit Scenario Prepared, Juncker Says. (video) Greece’s creditors have prepared a blueprint to remove the indebted nation from the the 19-nation euro, an unprecedented move after failing for five months to agree on an aid bailout. “The commission is prepared for everything,” European Commission President Jean-Claude Juncker said after a meeting of euro-area leaders in Brussels. “We have a Grexit scenario, prepared in detail.”

• Gundlach Sees Greek Euro Exit Opening ‘Pandora’s Box’. Greece’s likely exit from the euro currency group “opens Pandora’s box” by setting a precedent that makes membership porous, according to Jeffrey Gundlach, co-founder of DoubleLine Capital. Greece will exit the euro currency area in “slow motion,” which should be positive in the short run for the currency since it removes an economic drag, Gundlach said on a wide-ranging webcast on Tuesday from Los Angeles. But that would raise questions about whether other members of the bloc may eventually leave, he said. “There’s never one cockroach.” The five-year-old DoubleLine Core Fixed Income Fund has returned 1.4 percent this year, beating 95 percent of comparable funds, according to data compiled by Bloomberg. Over the past five years, the $4.4 billion fund has beaten 97 percent of peers. The firm’s $46.6 billion Total Return Bond Fund has also returned 1.4 percent this year, beating 77 percent of peers. Over five years, it’s returned 6.8 percent, outpacing 99 percent of rivals.  

• Bull Herd Is Culled in Europe as JPMorgan Says Fear the Selloff. A crack has formed in what had been a consensus of confidence among European stock strategists. JPMorgan Chase & Co. told clients this week to hold off on fresh purchases of the shares, reducing its suggested allocation to the equivalent of a hold. In so doing, it became the only brokerage of eight surveyed by Bloomberg News that has anything but a buy on the region’s equities. 

• How a Chaotic Grexit Could Wipe Out $1.4 Trillion in Global M&A. (video) The fallout of a Greek exit from the euro could wipe out as much as $1.4 trillion in future mergers and acquisitions, according to a study by law firm Baker & McKenzie. A disorderly ‘Grexit’ -- where the financial impact spreads unconstrained across global markets -- could stymie about $250 billion of dealmaking next year in Europe, excluding the U.K., according to the study, which is based on financial modeling by Oxford Economics.

• Westpac, ANZ Tighten Investor Mortgage Lending as Prices Surge. Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd. are further tightening lending to investors in residential real estate amid efforts to cool the housing market. Westpac, the largest lender to landlords, said in a statement Wednesday it will lend a maximum of 80 percent of the value of a home to be rented out, down from 95 percent. ANZ Bank said it cut the loan-to-value ratio to 90 percent from 97 percent, and will introduce an interest rate “floor” to ensure borrowers can repay mortgages if borrowing costs rise. The moves follow similar curbs by National Australia Bank Ltd. last month after pressure from the regulator to limit the growth in lending to investors. Home prices have surged 43 percent in Sydney since May 2012 amid record low interest rates, fueling concern of a property bubble in the nation’s largest city. 

• China’s Stocks Plunge as State Intervention Fails to Stop Rout. China’s Shanghai Composite Index plunged amid concern a raft of measures to stabilize equities is failing to stop the bear-market rout as traders unwind margin bets at a record pace. The Shanghai Composite tumbled as much as 8.2 percent, the most since 2007, before paring losses to 4.8 percent to trade at 3,549.92 at 9:56 a.m. local time. There were four gainers among the 1,106 stocks that trade on the benchmark gauge, which has slumped 28 percent since the June peak. PetroChina Co., the biggest stock, tumbled 4.9 percent as nine out of 10 industry gauges dropped at least 4 percent in the CSI 300 Index.

• Asian Stocks Enter Correction Amid China Rout, Greece Crisis. Asian stocks slipped into a correction, with the regional benchmark index falling 10 percent from its April peak, as Chinese shares extended a rout and European leaders gave Greece until Sunday to submit a new set of reforms. Chinese brokerages Huatai Securities Co. and Citic Securities Co. slumped at least 16 percent in Hong Kong, leading losses on the regional benchmark index. Hong Kong Exchanges & Clearing Ltd. dropped 7.8 percent, heading for a record ninth day of decline. Fortescue Metals Group Ltd., Australia’s third-largest iron ore producer, sank 3.6 percent as the raw material used to make steel dropped below $50 a metric ton for the first time since April. The MSCI Asia Pacific Index dropped 2.1 percent to 140.59 as of 11:11 a.m. in Tokyo.

• Iron Ore Sinks Below $50 as Wolfe Sees Risk of Extended Collapse. Iron ore’s bear market deepened, with prices dropping below $50 a metric ton for the first time since April, on concern that low-cost production from Australia and Brazil will expand further while demand stumbles in China. “Supply is now outpacing demand, pointing to renewed price pressure,” said Gordon Johnson, an analyst at Wolfe Research LLC in New York. Iron ore may collapse significantly below the $47-a-ton low that was set earlier this year, he said. Commodities tumbled this week, led by metals, on increased concern that China’s consumption is stalling, and as investors confront the prospect Greece may be ejected from the euro zone. Iron ore’s renewed drop highlights that the same factors of surging supply and weaker demand growth, which dragged prices to the decade-low early April, remain at the forefront. Miners’ shares sank, with Rio Tinto Group at the lowest in two years.

• China’s Peak Steel Demand Threatens to Spark Trade Hostilities. China’s demand for steel has peaked, if the Japanese experience of the 1970s is anything to go by. That could spur more trade conflicts as the nation ships its excess production overseas. The current decline in Chinese steel output signals the growth period for the commodity has ended in a country where the pace of economic expansion is slowing. Risaburo Nezu, a senior research adviser at RIETI, a think-tank linked to Japan’s trade ministry, expects a prolonged slump, with an absence of growth in demand likely for the next 10 or 20 years. 

• Aluminum Bear Market Piles Pressure on World’s Biggest Smelters. The world’s biggest aluminum makers will be under even more pressure to make deeper production cuts and stave off a price slump that saw the metal trade near its lowest level in six years on Tuesday. China, which accounts for half of the world’s aluminum output, is on pace to export record amounts of metal products this year, helping to deepen a worldwide glut. Producers outside China, including Alcoa Inc. and United Co. Rusal, had already cut back capacity through last year. Still, 1 million metric tons more, enough to supply Japan for six months, will probably be curtailed within a year, according to Macquarie Group Ltd.

Wall Street Journal:

• Beijing’s Response to Stock Selloff Reveals Deep Insecurity. All-out push to force up markets comes amid new law to combat ‘dangers’. Far more than simply a market crisis, the turmoil on the Shanghai Stock Exchange is viewed by China’s leadership as a potential security threat to the regime. That helps explain the barrage of measures unleashed by financial authorities to counter a sudden market downturn that threatened to shake public confidence in the.. 

• 5 Things to Watch in the Fed’s June Meeting Minutes.

• China’s Stock Plunge Is Scarier Than Greece. There are four basic signs of a bubble, and the Chinese stock market is on the extreme end of all four. China’s state-sponsored stock-market rally is unraveling, with potentially dangerous consequences. The first major sign that all wasn’t going according to script came on June 15. Chinese had awakened expecting big gains because it was President Xi Jinping’s birthday, but the Shanghai market fell more than 2%. One deeply indebted day trader committed suicide by jumping out a window, his net worth wiped out by the collapse of a single stock that he had borrowed heavily to purchase. The market has since fallen...

• Twilight of the Euro Welfare State? It’s not from charitable impulse that Germany is reluctant to let Greece leave the common currency.

Fox News:

• US Army plans to cut 40,000 troops over next two years. (video) The U.S. Army is planning to cut more than 40,000 troops over the next two years, a senior U.S. defense official confirmed to Fox News Tuesday. General Martin Dempsey announced at a Senate Armed Services Committee Hearing Tuesday that dwindling resources was a major factor in the decision to cut the number of active troops from 490,000 to 450,000.

MarketWatch.com:

• China’s government had no reason to intervene in the stock market. Over the past three weeks, the benchmark index for China’s A-share (yuan-denominated) market has plunged by more than 30%, despite government efforts to break the fall. 

• Copper sinks to 2009 levels as China worries weigh. 

• Container Store(TCS) shares jump after posting smaller-than-expected loss. 

CNBC:

• Why oil could revisit its lows and then some. (video) After another volatile session, oil looks increasingly set to test its lows of the year, and that could mean a temporary decline of near 20 percent. Analysts say crude futures could continue to trade lower for now if the twin pressures on risk markets from Greece and China continue, and Iran succeeds in striking a nuclear deal that would ultimately mean more oil would hit an already oversupplied crude market.

Zero Hedge: 

• China Crashes Most Since 2007 Amid "Panic Sentiment"; Over Half Stocks Suspended, PBOC Promises "Liquidity Support". (graph)

• China Now Risks "Financial Crisis"; Loses Could Be "In The Trillions" BofA Says.

• When Does The Chinese Carnage Stop? (In 3 Charts). (graph)

• The Greferendum Shocker: Tsipras "Intended To Lose" And Is Now "Trapped By His Success".

• Merkel Mocks Greece And The Referendum: There Is Money, But The Deal Is Much Harsher Now (And No Debt Haircut).

• Presenting China's Plunge Protection Playbook. (graph)

• Just One Chart. (graph)

• Europe's Spiralling Game Of Chicken - Politics Always Trumps Economics.

• Cronyism Pays: Eric Holder Triumphantly Returns To Law Firm That Lobbies For Banks.

• Surprise! CEOs Are Getting Rich By Buying Back Stock. (graph)

• Why GM(GM) Is Back Below Its IPO Price - Pictures From GM's China "Parking Lot". (graph)

• Disorderly Collapse - The Endgame Of The Fed's Artificial Suppression Of Defaults. (graph)

• Dow Swings 670 Points In V-Shaped-Hope-Recovery Despite Commodity Carnage. (graph)

Business Insider: 

• 'Events are now spinning out of control' in Greece.

• Iran is winning — and they know it.

• Both Greece and China can 'ignite a global systemic meltdown'.

• It looks like Apple Watch sales are tanking. (graph)

Reuters: 

• Gartner cuts worldwide device shipment growth forecast for 2015. Research firm Gartner Inc said worldwide shipment of devices such as PCs, tablets and smartphones is expected to grow by 1.5 percent to 2.5 billion units this year, slower than the 2.8 percent it forecast earlier. The cut in growth forecast is mainly due to the slowdown in PC purchases in western Europe, Russia and Japan as a stronger dollar pushed up prices, Gartner said on Tuesday.

Telegraph: 

• The really worrying financial crisis is happening in China, not Greece. China looks like it is heading for its version of the 1929 stock market crash. 

• Greece news live: bail-out talks collapse without agreement forcing leaders into emergency weekend summit to resolve Greece's fate. "This is the most critical moment in our history" - EU puts firm deadline as preparations for Grexit and possible humanitarian crisis begin  

• The starkest pictures that show the emotional effect of the Greece debt crisis. (pic)

21st Century Business Herald:

• China Stock Rout Risks Pledged Shares of Listed Companies. Chinese listed companies face increasing pressure to pledge more shares as collateral if market plunge persists as capitalization of 132 listed companies has halved since they pledged shares for funds, citing statistics from financial data provider Wind Info. Almost one-third China listed companies pledged some of their shares for funds this year as of July 7, the report said.

National Business Daily:

• More Than 51% of China-Listed Companies Halted From Trading. More than 51% of 2,776 Shanghai- and Shenzhen-listed companies will suspend trading today based on statements as of 11:20 pm yesterday, citing its calculation.

Evening Recommendations 

Maxim:

• Rated (GES) Buy, target $24.

• Rated (JVA) Buy, target $7.

Night Trading

• Asian equity indices are -2.75% to -.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 118.75 +5.75 basis points.

• Asia Pacific Sovereign CDS Index 61.75 +1.25 basis points.

• S&P 500 futures -.75%.

• NASDAQ 100 futures -.79%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (AA)/.23

• (WDFC)/.76

Economic Releases

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -488,890 barrels versus a +2,386,000 gain the prior week. Gasoline supplies are estimated to fall by -222,220 barrels versus a -1,757,000 barrel decline the prior week. Distillate inventories are estimated to rise by +944,440 barrels versus a +392,000 barrel increase the prior week. Finally, Refinery Utilization is estimated to rise by +.18% versus a +1.0% gain prior.
  

2:00 pm EST

• FOMC Minutes from June 16-17 Meeting.

3:00 pm EST

• Consumer Credit for May is estimated to fall to $18.5B versus $20.541B in April.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, Australia Unemployment report, $21B 10Y T-Note auction, weekly MBA mortgage applications report, Cantor Fitzgerald Healthcare conference and the (UAL) sales performance could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by industrial and technology 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 day.