Equity Markets

Unlike previous quarters when JPM's earnings release was a jumble of legal addbacks, MBS charge offs and loan-loss reserve releases, this time it was positively tame by comparison.

One day after the Greek "pre-deal" was announced and the world breathed a sigh of relief, sending US stocks soaring and Greek halted stocks, well, tumbling (via ETFs and ADRs), things are oddly quiet and in fact quite red in Europe, with futures in the US modestly lower, following both China's first red close in several days (SHCOMP -1.2%), and a Europe which is hardly looking very euphoric at this moment: it is almost as if the algos finally got to read the fine print of the Greek deal after trading all day on just the headlines.

Despite the euphoria in global equity markets, The FT's Wolfgang Munchau - once one of the keenest euro enthusiasts - warns regime change is coming in Europe. The actions of the creditors has "destroyed the eurozone as we know it and demolished the idea of a monetary union as a step towards a democratic political union," Munchau exclaims, fearing they have "demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order." He concludes rather ominously, "we will soon be asking ourselves whether this new eurozone, in which the strong push around the weak, can be sustainable."

We have detailed just what a total farce of a day this has been in Brussels, but even more farcical is the reaction in equity markets in the last few minutes...

Equity markets roared higher Thursday and Friday as they 'knew' a deal was imminent in Greece because Tsipras appeared to backpedal. However, after someone told Merkel the truth, and "everyone knows you can't believe" the Greeks, The Eurorgoup Meeting ends with zero agreement after 9 hours of rumor-mongering and escalating tensions. Local reporters noted the leaders could not even agree on what to disagree about as an increasing number of EU member states pushed for either a Grexit or considerably tougher sanctions austerity on the Greeks. There is no press conference and the meeting will resume tomorrow at 11am... shortly before FX markets open.

Non-bombastic look at the price action and speculative positioning, with the hope of anticipating next week's developments.

"The explosion in margin financing behind the recent astonishing run-up in Chinese A shares is a new twist on China credit concerns, a long-standing grey swan for Chinese and global growth. As of the beginning of June, the balance of margin financing outstanding was RMB2.2tn, an estimated 12% of the free float market cap of marginable stocks and 3.5% of GDP—easily the highest in the history of global equity markets."

Despite the exuberance in US and European equity markets, it appears Bitcoin is sending a different (avoid the looming capital controls) message... Does someone know something?

"With the drastic fall in share prices recently, social stability is clearly at stake," Credit Suisse says. With the bubble now finished it is only a matter of time before all the 'nouveau riche' farmers and grandparents see all their paper profits wiped out and hopefully go silently into that good night without starting mass riots or a revolution.

Markets are beginning to signal that policy makers are losing control.  Many second-order-effects of the unprecedented and experimental global actions taken since the 2008 crisis are beginning to manifest.  There are always causes and effects that develop; but they do so at different speeds. Many actions in recent years have prioritized 'benefits today' over 'consequences tomorrow'.  'Tomorrow' is approaching ever more quickly. There is no 'free lunch'.

It's officially Groundhog day... and month... and year... and so on.

With just six days to go until the government begins Jade Helm 15, expect the rumor mill to come alive because as The Washington Post reports, the media will not be given access to the drills. 

In the wake of China's unprecedented attempt to rescue its collapsing equity markets, Deutsche Bank is out with a history lesson for Beijing where officials can learn some "sweet and sour" lessons from the crash of '87.