Morgan Stanley

While China is scrambling to launch a plunge protection team after every other initiative to support its burst stock market bubble has failed, one wonders when the real asset bubble will go pop: that, of course, is the global - but mostly US - merger and acquisition bubble.

BACKGROUND

The referendum on Sunday will likely have a significant impact on the prospects of Greece reaching a new bailout agreement and the immediate future of the governing Syriza party. Following the expiration of the second bailout and the missed IMF repayment on 30th June, Greece has had to impose capital controls while negotiations between the country and its creditors have been put on hold until after the referendum. Eurozone officials have indicated that a “No” vote would likely mean a Greek exit from the currency union although the Greek government sees the vote as only pertaining to the terms of a bailout programme.

The ECB is moving to backstop Bulgaria's banking sector in an effort to get ahead of a Greek contagion."The ECB would provide access to its refinancing operations, offering euros to the banking system against eligible collateral," Bloomberg reports, citing unnamed sources. 

The Greece impasse set to culminate on Sunday continues to have a massive impact on at least one stock market, unfortunately it is the wrong one, located on a continent which is mostly irrelevant to the future of the Greek people (unless that whole AIIB bailout does take place of course). We are, of course, talking about China which as noted earlier, started off horribly, plunging over 7% with over 1000 stocks hitting 10% limit down, then in the afternoon session mysteriously recovering all losses and even trading slightly higher on the day, before the late selling returned once more, and the Shanghai Composite plunged to close down 5.8%: an unimaginable 20% total roundtrip move!

While we showed what the all important Goldman jobs preview looks like, here is a quick snapshot of what consensus expects will be reported in 15 minutes:

• US Change in Nonfarm Payrolls (Jun) M/M Exp. 233K (Low 160K, High 290K), Prev. 280K, Apr. 221K
• US Unemployment Rate (Jun) M/M Exp. 5.4% (Low 5.3%, High 5.5%), Prev. 5.5%, Apr. 5.4%
• US Average Hourly Earnings (Jun) M/M Exp. 0.2% (Low 0.1%, High 0.3%), Prev. 0.3%, Apr. 0.1%

We warned previously that when (not if) the market crashes next, The Fed is going to need a scapegoat (other than British traders living at home with their parents) and judging by The Fed's Lael Brainard's comments today, high-frequency-traders (HFT) are in the crosshairs. Crucially, Brainard warns that HFT "may amplify market shocks," and The Fed is "studying possible changes in liquidity resilience." 

"Millions of people in ex-Communist Bulgaria, Macedonia, Albania, Serbia and Romania have deposits in banks owned by Greek lenders, putting this corner of south-eastern Europe in the frontline if there is contagion from the Greek crisis."

Late Friday night a solid blow was struck for sound money, free markets and limited government by a most unlikely force. Namely, the hard core statist and crypto-Marxist prime minister of Greece, Alexis Tsipras. He has now set in motion a cascade of disruption that will shake the corrupt status quo to its very foundations.

Global equities plunged on Monday as both carbon-based traders and HFTs tried in vain to keep their composure which watching in horror as Greece, the birthplace of Western civilization, quickly became Venezuela. With Europe’s “Lehman weekend” now in the books and as the currency union stares into an uncertain future, the sell side tries to make sense of it all.

• China’s Stocks Enter Bear Market as Rate Cut Fails to Stop Rout (BBG)
• Stocks Tumble Around the World on Greek Crisis (WSJ)
• Some say back to the drachma for a Greek reboot (Reuters)
• Greece Imposes Capital Controls as Fears of Grexit Grow (BBG)
• Panic Sets in Among Hardy Hedge Fund Investors Remaining in Greece (NYT)
• Euro off Greece-driven lows after SNB intervenes (Reuters)
• Western Union to close in Greece for rest of week (Reuters)
• European banks, bonds shaken by Greek turmoil (Reuters)

It’s happening. As expected, dynastic politics is prevailing in campaign 2016. After a tease about as long as Hillary’s, Jeb Bush (aka Jeb!) officially announced his presidential bid last week. Ultimately, the two of them will fight it out for the White House, while the nation’s wealthiest influencers will back their ludicrously expensive gambit. And here’s a hint: don’t bet on Jeb not to make it through the Republican gauntlet of 12 candidates (so far). After all, the really big money’s behind him.

People are already freaking out that Greece is just days away from defaulting on a $1.72 billion loan payment.  Just wait till the margin call on the $370 billion margin debt in China's stock markets. 

For the first time since October, 2008, China cuts both the benchmark lending rate and RRR on the same day, in a frantic attempt to sustain the country's equity bubble after stocks collapsed to the edge of bear market territory on Friday.

Following yesterday's furious market drop in Chinese stocks, just before the overnight open, Morgan Stanley came out with a much distributed report urging investors "Not to buy this dip", and so they didn't. As a result, the Shanghai Composite imploded, at one point trading down 8% while the Chinext and Shenzhen markets crashed even more. This was the single biggest Shanghai Composite one-day drop since 2007, and with a close at 4192.87 the SHCOMP is now on the verge of a bear market, down 19% from its June 12 highs. China's second largest market, Shenzhen, is now officially in a bear market.

Is it time to step in and buy the dip in Chinese mainland shares after last week’s harrowing 13% decline on the SHCOMP? Absolutely not, Morgan Stanley says.

*CHINEXT PLUNGES 8.3%, BIGGEST ONE-DAY LOSS EVER (down over 27% from highs)