Mike’s Morning Brief – Greece

Market looking to bounce after yesterday’s beating took the DOW down to 5-month lows.  Both the DOW and S&P are in the red for 2015.  Only the NAS is still positive amongst the big 3.  The NYSE opened normally after a very abnormal day yesterday.  International Markets were higher overnight, including a 6% pop for China.  Trading in China has been a very dangerous prospect, and the government has been involved in unprecedented measures to try to ensure stability. Sometimes that makes things worse.  The big concern is chaotic activity in China spilling throughout the global system.  They are the 2nd largest economy in the world.  There wasn’t much in terms of new developments for Greece overnight; for better or for worse.  Sunday is the next date of focus.  We have another Greek weekend to look forward to.    Back home, earnings started in solid fashion with Alcoa having some important things to say, particularly about China and natural gas.  This helped put a bid in today’s trading.  It’s an important day.  How stocks and bonds react to yesterday, and really the recent price activity, will be critical to gauge how H2 fares.  There was really nothing good about yesterday’s activity.  Today is starting out strong.  Stay tuned.

China had a strong session overnight amidst a lot of chaos.  Beijing stepped up its barrage of measures to boost liquidity and calm investors following days of sharp declines. China’s securities regulator banned shareholders with stakes of more than 5% in a company from selling stock over the next 6 months, and vowed to “punch back” against illegal market activities by investigating “malicious short selling.” Dozens more companies have also requested their shares be halted from trading, adding to the list of more than 1,400 that have suspended their stock.  I’m not sure how “punch back” is translated in Mandarin or Cantonese, but it sounds intriguing.  Imagine if the SEC mandated a moratorium on selling for 6 months here.  It couldn’t happen.  China does things very differently.

ECB President Mario Draghi said that ending the Greek crisis and saving the country from bankruptcy will be very difficult.  He said he does not believe Russia will come to its rescue, which has been a growing concern with many dangerous implications. Despite the muted tone, European stocks were higher on hopes of a deal. Yesterday, Athens submitted an application for a new 3-year bailout from its Eurozone creditors and is expected to reveal their full proposal before today’s midnight deadline. Greece’s stock exchange will also remain closed until July 13, after authorities decided to extend a bank holiday and capital controls.

The IMF cut its forecast for global growth this year, citing a weaker Q1 in the U.S. and warning that financial-market turbulence from China to Greece clouds the outlook.  The world economy will grow 3.3% in 2015, less than the 3.5% pace projected in April and slower than the 3.4% expansion last year, the International Monetary Fund said in revisions to its World Economic Forecast released this morning. They left the forecast for growth next year unchanged at 3.8 percent.  While the IMF left its 2015 projections for China and the Euro area unchanged from April, it singled out both economies as areas sources of potential risk. “Chinese stocks have tumbled in recent weeks and Greece is struggling to reach a deal with European creditors to stay in the euro area. Disruptive asset price shifts and a further increase in financial market volatility remain an important downside risk,” the fund said in the report.  Much of the global downgrade was driven by the U.S., which the fund now sees growing 2.5% this year, compared with 3.1% in April. The IMF reiterated its recommendation that the Fed hold off raising interest rates until the first half of next year, when wage and price inflation are expected to pick up.  The Fed acknowledged the international issues in its statement release yesterday, but did not change their perspective or lead anyone to believe that they have decided not to raise rates.

The Iranian nuclear talks seem to be stalling, and have gotten pretty “heated” according to the WSJ.  Most Americans are not supportive of a deal with Iran, though it was looking like President Obama was going to get one done.

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