Italy

"Both the US and China have a vital interest in reaching an understanding because the alternative is so unpalatable," Soros wrote in an article for the New York Review of Books, with the danger imminent if Chinese economic reforms fail forcing President Xi Jinping to "foster some external conflicts to keep the country united and maintain himself in power." These "conflicts" would present themselves in the form of a Sino-Russo alliance which could draw the entire world into war.

All those saying the Fed will never be able to raise rate are looking particularly smug this morning, because if the market needed a green light that despite all the constant posturing, pomp and rhetoric, the US economy is simply (never) ready for a rate hike, it got it late last night when Goldman is pushing back its forecast for the first Fed rate hike from  September to December 2015 saying that "in large part this reflects the fact that seven FOMC participants are now projecting zero or one rate hike this year, a group that we believe includes Fed Chair Janet Yellen. We had viewed a clear signal for a September hike at the June meeting as close to a necessary condition for the FOMC to actually hike in September, but the committee did not lay that groundwork today."

The tension in the Eurosystem is getting unbearable...

• Greek central bank issues 'Grexit' warning if aid talks fail (Reuters)
• Kerry says 'patience wearing thin' on Syria's Assad (Reuters)
• Juncker accuses Athens of misleading Greek people (FT)
• Al Qaeda kills two Saudis accused of spying for America (Reuters)
• Hedge-Fund Bet Hits Pensions (WSJ)
• ‘Flash Crash’ Trader Navinder Sarao Worked With Fund Network Now Under Investigation (WSJ)
• 'Me? Rich?' U.S. presidential hopefuls play middle-class card (Reuters)
• You’ve Been Warned: Central Bankers Turning Less Market-Friendly (BBG)

With the Fed's June FOMC statement in just over 7 hours and a Yellen press conference to follow shortly, one in which nobody expects the Fed will announces its first rate-hiking cycle in nine years despite repeated clues by Yellen that not only is there froth in the market but that the Fed has no dry powder to contain the next crisis when it emerges (even though a rate hike will catalyze the next crisis), traders have chosen to ignore the chatter from Greece which is getting worse by the hour, and unlike recent days, have bought risk overnight based on one simple technical: of the five press conferences in ten Fed meetings held by Yellen as Chairman, the S&P finished higher 80% of the time.

Is Goldman right that the Bundesbank really is sabotaging Draghi's QE effort by "under-extending" its bond purchases? Or...

Is this a warning From Draghi's mouthpiece to Weidmann to stop being stingy with the bond buying?

German notes begin with an X, while Greek notes start with a Y. Spain is V, France U, Ireland T, Portugal M and Italy S. Belgium is Z, Cyprus G, Luxembourg 1, Malta F, Netherlands P, Austria N, Slovenia H, Slovakia E and Finland L.

The one most recurring laments coming out of peripheral European countries which boast near record youth unemployment, in most cases around the 50% area, is that the only reason why there is no growth is due to "evil austerity", imposed upon them by Germany and other frugal Northern Europe overseerers, who do not permit the rampant issuance of debt to fund domestic spending and fiscual stimulus programs. There is one problem with that: the peripheral European countries are not only issuing debt at a pace that is greater than the "pre-austerity" period, but these nations' debt to GDP ratios have never been higher!

Haven’t you ever sat there in hindsight, drinking history down retrospectively like an already-bad whisky that has been mixed with some equally worse soda and a couple of rocks thrown in for good measure and wondered what life would be like if this or that event hadn’t actually happened?

With his back against the wall, and with Syriza party hardliners apparently no closer to backing concessions, Alexis Tsipras looks set to once again play the ‘Russian pivot” card, as the Kremlin says a “working meeting” between the Greek PM and Russian President Vladimir Putin is now scheduled for Friday in St. Petersburg.

Another day of constant Grexit chatter, and this time the futures are really starting to react as what was seen as mostly impossible for the past 4 months is now almost inevitable. The first tremors emerged when Greece announced it would not present a new proposal to the Eurogroup to unlock aid, relying instead on what has already been submitted and which the Troika said was inadequate. Then, confusing matters, a new GPO poll posted on Greece's Mega TV showed that increasingly more, or over 56% at last count, of Greece would prefer a "bad" deal with creditors than being kicked out of the Eurozone putting the future of Tsipras' cabine tin jeopardy. And then, hinting that the endgame is officially here, the FT reported that "Eurozone officials discuss holding emergency summit on Greece", suggesting a second Lehman weekend may be just around the corner.

"This is what happens when you let money run riot and you allow industries to police themselves. This is what happens when the rich and powerful are endlessly granted special privileges, celebrated and permitted or even encouraged to place themselves above the law. And this is what happens when ordinary people feel bored by and excluded from politics, largely because their voices matter so little..."

Despite weeks of reassurances and repetitions that Grexit is "contained" - it's not! Bond spreads for Portugal, Italy, and Spain are blowing out (now up 35-50bps in the last 2 days). While Draghi desperatly soaks up selling pressure, Spanish bond yields have surpassed US yields for the first time since October. But while bonds are turmoiling (Bunds/TSYS -5-7bps, everything else ugly), the real carnage is in Greece. Greek bank bonds are pushing to new record lows and the broad ASE is down over 13% from last week's exuberant surge when Greece was fixed again (based on a Reuters headline rumor).

European shares remain lower, close to intraday lows, with the banks and autos sectors underperforming and food & beverage, retail outperforming. Tsipras hardens Greek stance after collapse of bailout talks. The Italian and Swedish markets are the worst-performing larger bourses, the U.K. the best. The euro is weaker against the dollar. Greek 10yr bond yields rise; Spanish yields increase. Commodities decline, with copper, nickel underperforming and natural gas outperforming. U.S. Empire manufacturing, net TIC flows, NAHB housing market index, industrial production, capacity  utilization due later.

The narrative being sold through the media is that Greece is to blame, that German taxpayers are on the hook for Greek debts (while they’re really on the hook for German banks’ losing wagers). And that is, no matter how you twist it, not the same story. It’s again just a narrative. Brussels is toxic - and so is the IMF - and Greece should leave as soon as possible, as should Italy, Spain, Portugal. We should all resist the spin-induced attempts to demonize Putin, Athens and China any further, and instead focus on the rotten apples in our own basket(s). In short, the propaganda we should be worried about is not Russia’s, it’s our own. And it comes from just about every news article we’re fed. We’re much less than six degrees removed from Orwell.