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Will Greek "Hope" Offset "Limit Down" Contagion From The "Frozen" China Crash
Today's market battle will be between those (central banks) "hoping" that a Greek deal over the weekend is finally imminent (which on one hand looks possible after a major backpeddling by Tsipras - who may never have wanted to win the Greferendum in the first place - yesterday in Brussels and today during his speech in the Euro Parliament, but on the other will be a nearly impossible sell to Greece as any deal terms will be far harsher than the deal offered by the Troika 2 weeks ago and will have no debt reduction), and those who finally noticed that the Chinese central planners have effectively lost control.
For those who may have missed the overnight fireworks, here are some more indicative Bloomberg headlines about China:
- China’s Stocks Plunge as State Intervention Fails to Stop Rout
- China Freezes Trading in 1,300 Companies as Stock Market Tumbles
- China’s State-Owned Firms Ordered Not to Cut Share Holdings
- China’s Market Rescue Makes Matters Worse as Prices Lose Meaning
- China Ramps Up Policy Response as Panic Grips Stock Market
While pundits have been eager to downplay what is now a historic rout in Chinese risk assets, one that is matched by the depression of 2008 and which has sent the SHCOMP from up 60% for the year 3 weeks ago to barely green losing some 15 Greeces in market cap since mid-June...
... the same pundits to whom neither the oil crash nor a Grexit nor the imminent collapse in Q2 corporate revenues and GAAP EPS, or anything else matters, the reality is that the Chinese stock rout is very clearly starting to have contagion effects on the rest of the economy, crashing commodities such as crude, gold, copper, iron and virtually everything else where China has been a marginal source of demand, but leading to forced selling of anything that is not nailed down.
As Bloomberg reported, raw materials from silver to lead and sugar to eggs fell to daily trading limits as the Shanghai Composite Index crashed to a three-month low Wednesday. A raft of measures to stabilize equities is failing to stop the bear-market rout in the country’s stock market, which had lured a record number of amateur investors and grown to become the world’s second-largest outside the U.S.
“People are selling everything in sight to get their hands on cash,” Liu Xu, a trader at private asset-management company Guoyun Investment Co in Beijing, said by phone. “Some need to cover their margin calls in the stock market while others are gripped by fear that the Chinese economy will be affected by this crisis.”
Metals including copper, nickel and silver in Shanghai fell to their daily down limits, while rubber entered a bear market. Steel rebar and iron ore, as well as eggs, sugar and soybean meal dropped to the lowest level allowed by their exchanges.
“Agricultural products in my view are collateral damage in this sell off,” said Liang Ruian, a fund manager at Shanghai-based Jianfeng Asset Management Co. “Pigs are still going to eat, so what does this stock market stampede have to do with soybean meal?”
The problem with the Chinese plunge is that the value of collateral is dropping faster than the amount of outstanding maring debt, thus perpetuating a vicious circle of selling.
Worse, with well over half of the Chinese market frozen and not trading, the real extent of the selloff won't be known until such time as all stocks resume trading, which like the Greek capital controls, will take a while.
Incidentally, it was almost exactly one year ago when we wrote "How The Market Is Like CYNK." For those who still don't get it, China is a perfect example of how the next monster crash will play out: stock trading or rather selling will be halted, first gradually then completely. To those needing liquidity, better luck next time.
As for the S&P which is now tractored to the 200DMA, the NY Fed and the BOJ will do everything in their power to offset the impotence of the PBOC. If the 200 DMA in the S&P is solidly breached, and if suddenly the Greek "hope" turns to despair again, 1-handle in the S&P500 here we come. Which is why expect some very dramatic central bank BTFD of E-minis via the CME's Central Bank Incentive Program, because if there is one thing the Chinese crisis has shown it is that central banks now openly and without prejudice buy stocks, and quite desperately at that.
* * *
Looking around other markets, Asian equities were dragged lower by Chinese markets, where the Shanghai Comp (-5.9%) began the session with its largest decline since 2007, with losses of 8% as 'panic selling' continued with nearly half of Chinese stocks halted for trade, while margin trading fell by the most on record. Stocks initially recovered over half its losses after the PBoC vowed to support the market, however this was not sustained, with the Hang Seng (-5.8%) being dragged lower in tandem to see its largest drop since 2008. On a sector specific basis, Financials are the worst performers in the Hang Seng Index with HSBC and Standard Chartered both ending the session lower in Hong Kong. Furthermore, Bank of China which is one of the largest companies globally and boasts a market cap of USD 234BN, ended the session down 6.9%.
Nikkei 225 (-3.1%) broke below 20,000 to hit a 2-month low, while the ASX 200 (-1.8%) fell amid a slump in basic materials. Finally, JGBs rose 32 ticks amid safe haven buying in fixed income markets coupled with weakness in stocks.
European equities trade in positive territory today (Euro Stoxx +0.7%) as the latest update on Greece appears more upbeat after the sell-off seen in the last couple of days. On a sector specific note, this morning has seen a substantial amount of news regarding the banking sector after the sacking of Barclays chairman Antony Jenkins, seeing the Co. shares among the best performers in Europe (+3.3%). Meanwhile, HSBC (-1.5%) were impacted by the aforementioned weakness in China overnight, while many will be looking ahead to the UK Budget expected at 1230BST/0630CDT, with many anticipating the scrapping of the proposed banking levy.
Elsewhere, UK retailers and pension names may also be in the limelight during the budget with the possibility of the loosening of Sunday trading hour restrictions and UK press suggesting that in order for the government to hit their deficit targets they may need to cull some of the tax reliefs that pensions currently enjoy. Market participants will also be watching earnings from Alcoa aftermarket today, with the company unofficially kicking off this quarter's earnings season. Meanwhile T-Notes trade higher heading into the North American crossover, with a USD 21Bn 10yr Note auction scheduled for 1800BST/1200CDT.
The latest update from Greece suggests that a proposal will be offered in writing by Friday morning at the latest, with a Eurogroup meeting and EU leaders' summit scheduled for Saturday and Sunday respectively in order to potentially approve any short-term deal. The news strikes a more conciliatory tone than has been noted in recent days and as such has seen a period of respite for the EUR, which resides in positive territory this morning back above the 1.1000 handle.
Elsewhere, USD/JPY has fallen throughout the Asian session and into the European morning as risk off sentiment bolsters JPY amid concerns regarding the aforementioned ongoing volatility in Chinese equities. This has seen the USD dragged lower, currently residing down 0.3% on the day ahead of this afternoon's FOMC minutes and with comments expected from Fed's Williams.
The metals markets have been weighed upon heavily with copper at its lowest level since 2009 and spot gold at its lowest level since March 18th on the back of aforementioned dampened Chinese sentiment. The energy complex has seen weakness this morning on demand fears despite yesterday API drawdown (-958K vs. Prey. 1900K) and EIA increasing their forecast for 2015 and 2016 oil demand growth by 20k bpd and 60k bpd respectively. Of note for the energy complex, DoE Crude Oil Inventories are expected at 0k.
Bulletin headline summary from RanSquawk and Bloomberg
- Greece are set to offer a written proposal by Friday morning at the latest, with a Eurogroup meeting and EU leaders' summit scheduled for Saturday and Sunday respectively in order to potentially approve any short-term deal.
- Asian equities was dragged lower by Chinese markets, with Shanghai Comp (-5.9%) seeing its largest decline since 2007 and the Hang Seng (-5.8%) seeing its largest drop since 2008.
- Today sees FOMC minutes, comments expected from Fed's Williams and earnings from Alcoa.
- Treasuries gain for a fourth day, curves flatten as Greece, China stocks spur flight-to-quality flows; supply continues with $21b 10Y, WI 2.205% vs. 2.461% in June.
- Rout in China shares continued, Shanghai falls 5.9%; with at least 1,331 companies halted on mainland exchanges and another 747 falling by the 10% daily limit, sellers were locked out of 72% of Chinese market
- Goldman says China’s large-cap CSI 300 index will rally 27% over next 12 months as government support measures boost investor confidence, monetary easing spurs growth
- Greece has requested a 3Y loan facility from ESM, according to documents obtained by Bloomberg; proposes to implement reform measures from next week, commites to tax/pension reforms, will set out details by July 9
- 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
- EU set Sunday deadline to reach deal; Merkel said in briefing last night that she “isn’t especially optimistic” about Greece, rules out debt haircut
- EC President Juncker said Tuesday Europe has “a Grexit scenario prepared in detail,” hours before Austrian Chancellor Faymann said Greece’s Plan B is “another currency”
- ECB is set to confer on how to keep Greek banks alive long enough for political leaders to craft a last-ditch deal and stop the country spinning out of the euro area
- ECB’s Noyer says “we’re starting to be very worried”; ECB will stop its support to Greece if “there is no more political accord in sight for a program”
- Travel bookings to Greece from Germany plunged 39% in the week through July 5 from a year ago, according to Amadeus IT Holding SA, a co. that processes flight reservations for airlines
- Japanese investors sold net 4.09t yen ($33.6b) of overseas bonds in June, most on record, according to finance ministry data going back to Jan. 2005
- Sovereign 10Y bond yields higher; Greek 10Y yields 19.381%. Asian stocks plunge; Hang Seng -5.8%. European stocks post modest gains. U.S. equity-index futures fall. Crude oil gains, WTI and Brent remain below $60/bbl; gold lower, copper higher
US Event Calendar
- 7:00am: MBA Mortgage Applications, July 3 (prior -4.7%)
- 3:00pm: Consumer Credit, May, est. $18.5b (prior $20.541b)
- 1:00pm: U.S. to sell $21b 10Y notes in reopening
DB's Jim Reid completes the overnight recap
There’s been many ‘deadlines’ and countless meetings of politicians and finance ministers throughout this Greece saga but this Sunday now looks set to be the most important yet. Late last night and post the US close, German Chancellor Merkel confirmed that an emergency EU summit has been scheduled for Sunday in what is being branded as a last chance saloon to reach a new bailout deal and to avoid Grexit. A barrage of stern rhetoric from European officials accompanied the headlines and was summed up by EU Council Head Donald Tusk stating that ‘I have no doubt that this is most critical moment in the history of the EU’.
Bourses in Asia have opened weaker this morning although further steep falls in China equity markets appear to be leading much of the broader move lower. We’ll take a look in more detail shortly, but the Shanghai Comp and Shenzhen have tumbled -3.88% and -3.27% respectively as we go to print. Those losses have also filtered across other bourses with the Hang Seng (-4.20%), Nikkei (-2.60%), Kospi (-1.00%) and ASX (-1.78%) all lower as we type. S&P 500 futures are -0.8% while the Euro spiked late last night to pare most of yesterday’s selloff and is unchanged versus the Dollar this morning. Asia credit is +4bps wider on the back of the moves in China, while China CDS is +5bps. 10y Treasuries are 4.6bps lower in yield at 2.212%.
So back to Greece. A Eurogroup meeting has now been scheduled for Saturday with a full EU summit planned for Sunday. In the meantime Athens has been given until Thursday evening to submit detailed reform proposals (although EC President Juncker suggested that this may be Friday morning). Greece will also have to commit to a list of prior actions to be voted through parliament before any financing can be provided and it’s likely that an even greater level of detail and commitment will be required from the Greece side relative to the previous EFSF negotiations given the deteriorating economic conditions Greece has faced over the last week. Should the Greek proposals be deemed acceptable, then the Europeans will formally open negotiations for the ESM program as well as a possible short term bridge loan given that any disbursements under an ESM program are likely to take time (given the process of various parliamentary approvals).
DB’s George Saravelos noted that in the event of no agreement, then he would expect the Euro Summit to discuss Grexit. There were certainly some signs of this yesterday. The EC’s Juncker in particular was quoted as saying that ‘I am strongly against Grexit but I can’t prevent it if the Greek government is not doing what we expected’. Juncker also confirmed that ‘we have a Grexit scenario prepared in detail’ while Tusk mentioned that ‘our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system’. George notes that, assuming no agreement, we would likely see the ECB suspend ELA financing on Monday morning and therefore effectively putting the entire Greek banking system into resolution, moving the country a step closer to leaving the Eurozone.
So the calendar is set for the next five days. The referendum result gave Tsipras the political boost needed to pass an agreement through parliament, albeit perhaps with the loss of some Syriza MP’s. The debate now will be around what conditionality is required from the Greek government and it’s likely that this has only gotten more significant in the days since the referendum result. George attaches a marginally higher probability to a post-midnight agreement being reached but notes that it is a close call. One way or another, the saga is approaching an end game and the future of Greece in the Eurozone is likely to be decided by the end of the week.
Once again the Chinese equity market is the other notable headline grabber this morning. It’s been another morning of huge swings with the Shanghai Comp and CSI 300 initially opening nearly 8% lower before paring around half of those losses as we go to print, while the Shenzhen opened just over 4% lower. The latest sharp declines have come despite renewed attempts at trying to halt the selloff. Over 1300 stocks or more than 40% of the market cap of the mainland China exchanges have been suspended from trading with the bulk frozen pre-market open. As well as this, the China Financial Futures Exchange has raised margin requirements for sell orders on CSI 500 index futures, while the China Securities Finance Corp put out a statement saying it will ‘increase the force of its small and mid cap share purchases in order to relieve the problem of strained liquidity’. Meanwhile, the PBoC reiterated its support minutes after bourses plunged at the open, saying it will provide ‘ample liquidity’ to the stock market and ensure no systematic and regional financial risks occur. Finally on China, The SASAC (the state owned administrator of SOEs) has ordered central govt-administered companies not to cut holdings of stocks of their listed companies. So a multitude of things the authorities are trying to do to stem the severe bleeding. I suppose the main question is whether this is a bigger story than Greece. Our answer would be that a freefalling Chinese economy (if it came to that) would be much more important than a 'Grexit' for global markets. We're not at that stage yet but if the authorities aren't able to stabilise things soon then there will be collateral damage so this is a crucial story to watch. Expect more intervention to come.
Looking back at markets yesterday, a renewed optimism for negotiations with Greece getting underway helped support a bid for risk assets mid way through the US session as the S&P 500 turned around an initial 1.2% intraday decline to finish +0.61% at the closing bell. The Dow (+0.53%) also closed higher with utility stocks leading the way. 10y Treasury yields bounced off their intraday lows (of 2.183%) to close at 2.259%, still 2.7bps lower in yield on the day and the lowest level now since early June. The Dollar Index firmed 0.59%, while it was a softer day for Gold with the commodity falling 1.29%. Oil markets took something of a breather meanwhile. WTI (-0.38%) finished modestly lower at the close although Brent (+0.55%) ended slightly firmer.
In terms of data yesterday, the May trade balance didn’t add a whole lot to the debate after the deficit rose to $41.9bn from $40.7bn in April, although behind expectations of $42.7bn. In the details net exports data was supportive enough to see the Atlanta Fed raise their GDPNow model forecast for Q2 growth to 2.3%, from 2.2% previously and putting it more or less at the low end of the market range now. Elsewhere, JOLTS job openings for May rose to 5.36m from a revised 5.33m in April, the highest now since the series began in 2000. In the details the quits rate was unchanged at 1.9% while the hiring rate eased to 3.5% from 3.6%. Finally the IBD/TIPP economic optimism survey was unchanged at 48.1 (vs. 48.9 expected).
With much of the optimism for Greece negotiations coming in the latter half of the US session, it was another softer day all round for European equities as the Stoxx 600 (-1.57%), DAX (-1.96%), CAC (-2.27%), IBEX (-1.84%) and FTSE MIB (-2.97%) all slipped. The risk-off tone helped support a bid for Bunds with the 10y yield 12.1bps lower at 0.640% and the lowest level now since June 1st. Despite Greek 10y yields moving 68bps wider, Spain (-11.4bps), Italy (-11.7bps) and Portugal (-4.3bps) all enjoyed a better day which is probably giving European leaders a boost in their decision making with regards to Greece. Data wise we saw a slightly below market German industrial production reading (0.0% mom vs. +0.1 expected) for May while over in the UK data was more mixed. Industrial production (+0.4% mom vs. -0.2% expected) was well ahead of consensus, however this was slightly offset by a soft manufacturing production print (-0.6% mom vs. +0.1% expected).
Away from the obvious Greece headlines, it’s a quiet calendar data-wise today. We have a post election budget in the UK which may impact the market's perception of the path of the deficit over this parliament. Elsewhere French business sentiment and UK house price data are due in the European time zone while the FOMC minutes will be due this evening along with the May consumer credit print. It’ll be interesting to see if we get much in the details of the minutes with regards to Greece, but clearly a lot has happened in the time since the June 16th/17th meeting. Finally earnings season also commences today in the US with Alcoa due to report after the closing bell.
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for some reason i think the next chinese bubble will happen in bitcoins and other e-coins
um why is it that the market isn't affected negatively by greece due to lack of "contagion" - but IS affected positively due to "hope"?
Greece Looks Screwed; China Looks In Trouble Too
China Crash
Apparently you didn't get the China memo......the word crash is forbodden.
I believe "Happy joyfoo crosed mahket" is the accepted term.
Greece’s Economy Is Screwed And Nobody Can Agree On How To Save It
But the cancer is real, they didn't get that memo either.
Thank goodness I've saved $2400 on my health insurance this year.
There is no deal that can save Greeks from a great deal of suffering.
The debt level is not repayable or serviceable, the productive capacity of the nation cannot meet the demands and expectations of the electorate and the nation still insists on clinging to systems that are beyond comprehension let alone justification.
Just one example of the madness for readers:
There are over 900,000 pensioners receiving two pensions.
There are over 297,000 pensioners receiving three pensions.
There are over 50,000 pensioners receiving four pensions.
There are over 11,000 pensioners receiving five pensioners.
There are over 1900 pensioners receiving 6-10 pensions.
And all this in a nation sporting 25% plus unemployment and only 11,000,000 population.
That's a good point. I see it in a borader context: The more broke a government becomes the greater the entitements they promise, accelerating not decelerating as they approach collapse.
I guess the closer to the drain, the faster things spin.
We were pretty broke when we needed to make that "new deal", now we are broker because of it.
I vote I keep getting free money......just keep it coming.
Yeah....don't care where it comes from.....just work it out.
in the UK, we have a concept called "tax credits" - ministry of truth style - which are paid to people who don't pay tax.
.
.
Assuming your numbers are correct,
that is exactly *why* "a great deal of suffering" is right, well and good.
Would America's EBT Generation be "suffering" if their Obamaphones were turned off?
I submit: NO.
They would merely be experiencing reality...and the consequences of ending previous corruption.
1) I would like to see the same type of numbers for other countries?
Germany, Netherlands, etc.
I doubt they get less than the Greeks
2) In other countries there are other ways of social "networking" ... in Austria each and every person with no income from work gets at least "Mindestsicherung" - and that is 827 €. In Deutschland Hartz 4 399€. Each month. For doing "just nothing".
In Greece?
Fuck off - bad luck.
Better have somebody who gets a pension!
It's all just about propaganda.
They need to state an example, they have NO NADA clue how to deal with this situation - and so they need somebody to sacrifice and for finger pointing and to hide that they are just clueless idiots who should resign themselfs.
Finally:
Germans Forget Postwar History Lesson on Debt Relief in Greece Crisis
http://www.nytimes.com/2015/07/08/business/economy/germanys-debt-history-echoed-in-greece.html?_r=0
1953 Germany giot it's foreign debt cut in half.
And germany never paid back its debt.
It's all just propaganda. And bankers and their puppets work.
Nothing changed since Stonage.
Greed and ignorance are still the fucking leading genes.
Humans are a miserable failed race.
To hell with them.
"Nothing changed since Stonage.
Greed and ignorance are still the fucking leading genes."
So true, I can picture cavemen trading precious meat for shiny stones.
There are some that know this and will always be there to capitalize on it. I guess that's why they call capitalism.
We should have a caption contest on that photo: Son yawning, father gaping in shock, grandfather gasping for air.
Don't think that's a son yawning.
More like a Pat screaming;)
See no evil, speak no evil, take a fuckin drink.
That's his wife, and she's yawning because she has no idea that her husband put all their life savings in the market.
Soviet Central Planning is just ducky,
which is always hard on us ducks.
Are you watching Mr. Yellen? Soon be you!
Ghost cities are for looking at.....not living in.
Until word comes down from central planning.....and good luck with that.
What China crash? It is return to normal levels 3 months back. ZH is overly pushing the news. Technical issue - yes, crash - only for crazy players.
Look at a longer term chart- 10-15 years.
i guess 2007-8 was a "technical issue" as well to some
even marketwatch think china's crashing - it's right there on the front page.
http://mw4.wsj.net/MW5/content/images/backgrounds/daypart-stripe-bkgd.pn...) 0% 0% repeat #e2ae05;">2007 was much worse in %% to the current level - some banks dropped 90% and would not have survived without help. China situation is due to regulation attempt to stop uncontrolled growth. Yes, it is ugly and it is bad for some players. But it is not a structural failure of the market.
Greece and China current stories are no big deals. The really big deal is how the US market continues mathematically impossible balancing (playing music so all can dance).
Plus Japan is pumping Yen like noones business. Another +2 Tril Yen announced. Something is rotting in Asia.
Well, there's the problem right there, damn 'maring debt' will gitcha' every time!
- Ned
I'm not so sure those are unintentional spelling mistakes. I think they slide those sorts of things in on purpose sometimes.
Last week they called Obama's TPP trade deal his "tarde deal" which was an absolutely perfect description.
200 dma will be defended by the PPT, aka "da fed". command econ 101. ha,,,
Even more significant was the announcement that trading in 1,476 stocks—more than 50 percent of all listed companies on China’s two principle exchanges—had been suspended, freezing $2.6 trillion worth of equity. (WSWS)
Those are very severe actions and yet the Shanghai composite fell 5.90%. If all stocks had been trading, would it have fallen double that?
There you go with the math again.
Math is racist. (I really whish I had come up with that one, but I have to credit another board member)
There you go with the math again.
I vote we make calculators illegal.....it's not in the Constitution.
If we have to go to SCOTUS.....Roberts will rubberstamp it for us.....he's our our "go to" guy.
there's that fag talk we talked about
I'm going to Chick-Fil-A lor lunch.
If I can fight my way past the 82% that is...
After the limits, it was 72%!
http://www.bloomberg.com/news/articles/2015-07-08/china-trade-halts-hit-...
Don't forget the limits!!!
Idiots should just ban selling like we did here in the US several years ago.... why bother with down daze in the "Market"
loss of control. "i'll quit tomorrow" said the stumbling banker. ha...
the greeks are showing how cloward piven works in real time..good experiment for the coming collapse in the West. wonder what lessons from greece the reptile elite will learn. one take away for amerika is you can push people much harder than reason would indicate.
Leave the fucking Eurozone already. This is worse than dating a teenager.
How come no production company decided not to make this into a reality show?
The top two stories about the China crash show the same picture with three people, one yawning, one looking upwards wit a kind of dumb look and another one drinking water.
I'm wondering what the message is here. I don't get it.
there is no message behind it. it's a photo from one of those gambling dens in China where people look into the screens and watch which horse is winning
only it's stocks, not horse races. the whole point would be that Chinese are (generally) fond of gambling, and treat their domestic stock market as a pure gamble, imho
IMF out now talking problems in Spain and Italy. Can't pay either. Dominoes set to fall:
http://elpais.com/elpais/2015/07/08/inenglish/1436347050_481404.html
Careful....someone is going to label you a KWN freak.
Just thought I'd out in front of the traffic.
Stay tuned, next in line Europe stock markets and then the icing on the cake: USA crash. Hold on to your gold and silver, they are going to be necessary if you want to have something worth after that.
"DEBT CLUSTERFUCK" TM
There's that word again. Debt, the common thread in every financial catasrophe.
Seems you can't have one without it.