B+

After a day-long meeting of the Eurogroup, the European FinMins were unable to reach a conclusion on the third Greek bailout and instead once again punted the revised term sheet, this time with absolutely draconian terms, back to Tsipras, and told him he has until tomorrow to agree to the terms, and until Wednesday to pass them into law, for talks to even begin!

Initially it was just an unconfirmed rumor circulating in the German FAS media that the local FinMin had proposed a "temporary Grexit" option. It now appears that this was not only not a rumor, but Schauble's sentiment is contagious: moments ago Finnish broadcaster MTV reported that first Finland, and then the Eurozone's smaller, if somewhat more solvent nations, Estonia, Lithuania, Slovakia, Slovenia and even the Netherlands, support the German position on temporarily suspending Greece' Euro membership.

Spontaneous combustion. Alien invasion. Zombie apocalypse. What do these have in common? Their likelihood is next to impossible. So why worry? This is how people tend to think about the financial system. Mentioning even the possibility, for example, that the US could default on its debt is met with so much scorn and contempt it would be safer to stand on the street corner warning about an alien invasion. The same goes for the imposition of capital controls. Or a collapse in the banking system. Or a currency crisis. And yet the most casual glance at the headlines proves that these events not only can happen, they do happen... and for one underlying reason...

This time it is different, but not in the way that the cheerleaders intended.

When you shred democracy and the central tenants of a legal system in order to benefit the very few, it’s only a matter of time before the whole system collapses.

The Shanghai Composite Index had dropped as much as 3.8% to a 4 month low before the news that the cops were going to arrest anyone who was caught "maliciously shorting stocks", when everything suddenly took off, and the SHCOMP closed  a "Dramamine required" 5.8% higher, the biggest daily increase since March 2009! Stocks around the globe followed, with US equity futures wiping out much of yesterday's losses and up 1% at last check.

The long-awaited BRICS bank has officially launched, marking yet another milestone on the road to global de-dollarization and lending further credence to the notion that the sun is finally setting on the US-dominated multilateral institutions that have defined the post-war world and served to underwrite six decades of dollar dominance.  

A shocking and uncharacteristic display of common sense

With equity markets jumping vertically on every possible 'hope' of a deal - no matter what the consequence - we look to the asset class that is a) not driven by headline-reading algos and HFT, and b) is by far the most sensitive to reality - Greek Bank Bonds... and they are carnaging!!

The rescue of AIG should not serve as a source of comfort to investors.

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.

Over the past two weeks, China has resorted to an eye-watering array of policy maneuvers and pronouncements in a desperate attempt to resurrect the country's margin-fueled equity bubble. Amid the chaos, Morgan Stanley — whose "don't buy this dip" call might well have been the straw that broke the dragon's back, so to speak — is out with a detailed history of Beijing's plunge protection playbook.  

It seems China better hurry up and a) enable HFT on Shanghai and Shenzhen bourses, and b) enable options trading directly...

Should markets fret, and ECB action becomes necessary then we think the markets will price ECB action well before highly stressed levels. If we for instance take it view of the monetary policy stance impact seriously then market moves that take real yields to levels that persisted before the ECB started easing policy (negative rates started in Jun 2014) may be a trigger point.

• N1 – Soft deal: The most unlikely scenario is that the euro-area partners offer a much softer programme to Greece.
• N2 – Default-and-stay: Moderately less unlikely is a scenario where Greece defaults but stays in the euro thanks to a direct recapitalisation of Greek banks by the euro-area partners, with the Greek government using only domestic resources for the country’s fiscal needs.
• N3 – New deal: The third scenario is one in which the rising economic and political cost of a closed banking system results in the Syriza government being replaced by a new government of national unity and a new deal with creditors being reached.
• N4 – Grexit: In our view, Grexit and Scenario N3 are the most likely – with about equal probabilities.