Tuesday, June 30, 2015

Greek D(efault)-Day Arrives, As Does China's Plunge Protection Team

The Greek D-(efaultday has arrived, and with it so has quarter-end window dressing for many underwater hedge funds (recall the S&P is now red for the 2015) which means the rumor mill today will be off the charts.
And sure enough, less than an hour ago, futures exploded higher as did the EURUSD, following another "report/rumor" of a last minute detente between Greece and the Troika when Greek Ekathimerini said that  "Tsipras is reconsidering the last-ditch offer made by European Commission President Jean-Claude Juncker, sources have told Kathimerini."
According to the Greek newspaper's rumor "the pressure caused by the closure of banks as well as the expiration of the Greek bailout program on Tuesday has caused some members of the government to urge Tsipras to accept Juncker’s offer. Sources said the prime minister’s office has already informed the Commission that it is examining the proposal. According to what is known of the proposal Tsipras would have to send a written acceptance of the version of proposals from the lenders published on Sunday, with a pledge to campaign for them to be accepted in the planned July 5 referendum."
This follows a report yesterday that following his clearly intoxicated speech, Juncker had sent a last minute, ad hoc offer to Greece, one without Troika preapproval, which Greece quickly rejected had ever been received. 
However, as last night, so today there was little sign that Tsipras was prepared to drop his repeated rejections of the bailout offer, which he has dismissed as a "humiliation" for Greece.
Sure enough, just a few moments after the Kathimerini rumor emerged it was denied.

Then again, since this is last minute endgame posturing mostly as to who gets stuck with the blame, expect a relentless surge of such rumors and denials, starting off stop hunt avalanches and epic momentum ignitions in today's market in which there will be zero liquidity, until the very last minute, which means midnight for Athens, at which point the IMF program runs out unless there is a €1.6 billion payment, which however there won't be as the wheels of the last bluff are now in motion, which will ultimately end with the bursting of the "irreversible currency and union" bubble.
And in other bursting bubble news, after an early crash which sent the Shanghai Composite down 5.1% in early trading and nearly down 20% in just 4 days, the Chinese Plunge Protection Team finally arrived and after the PBOC almost literally threw the kitchen sink at the stock market as described yesterday, decided to go all in stocks, leading to an unprecedented 11.2% swing from the lows to close up 5.6% - this was the single biggest intraday swing since 1997 and the largest point swing since 1992!
Because when you are a central bank, you go big or go home, and when the opportunity cost is civil war, as is the case in China, one can be sure that 11% intraday swings are just the beginning.
It remains to be seen if this clear intervention will do anything to halt the public panic that the stock bubble has indeed finally burst.
However, with the PBOC finally doing its sworn duty, it meant that the SNB did not have to intervene for a second consecutive day and bid up the EUR. As a result the EUR tumbled from its "tractor beam" level around 1.125 dropping nearly 100 pips overnight before the fake rumors drove it modestly higher.
As a result, Asian equities mostly rose to shrug off yesterday's global sell-off, which saw the S&P 500 and DJIA erase their YTD gains. Nikkei 225 (+0.6%) and ASX 200 (+0.7%) failed to sustain any solid direction as participants traded cautiously amid the continued Greek bailout drama. Elsewhere, the Shanghai Comp. (+5.5%) set its biggest gains since 2009. As a guide, volatility in Chinese stocks are now at its highest level since 2007. Furthermore, participants continue to digest reports from China that the government are considering cutting the stamp tax for stock trading as well as talk of suspending IPOs, while the PBoC injected CNY 50bIn into the market. JGBs fell amid profit taking in long end following yesterday's risk off trade coupled with a lack of BoJ buying.
In Europe, so far today the session has seen the continuous conflicting newsflow that has been typical of the Greek saga with stocks initially selling off in a similar, although less dramatic fashion to yesterday. Sources then noted a poll suggesting that Greece is currently in favour of a no vote in the upcoming referendum, with this meaning that Greece would reject the latest bailout terms, with European leaders suggesting that a No vote is a vote to leave the Eurozone. However shortly after sources in Greek press stated that the Greek government is reconsidering EC President Juncker proposal made last night, which they initially rejected. However, this was later denied by a Greek official although did claim Greece may make a counter proposal.
As such, despite the initial weakness in equites, European indices did see a bid later on in the morning (Euro Stoxx: 0.0%), with the periphery trade back green. Elsewhere, the news that Syriza are reconsidering Juncker's offer has seen Bunds come off their highs to fall into negative territory, however the German benchmark still outperforming its US counterpart, with USTs down around 9 ticks heading into the North American crossover.
In FX markets, EUR lifted off lows following the Juncker news, with the currency broadly weaker throughout the morning. EUR/GBP briefly broke below 0.7100 amid EUR weakness and after GBP saw a bout of strength on the back of an improved final reading of UK GDP, with the Y/Y figure beating expectations (2.9% vs. Exp. 2.5%, Prev. 2.4%.), however the cross was unable to sustain the move, with source comments from Europe seeing the pair break back above the level.
The USD (+0.25%) resides in positive territory, bolstered by EUR weakness as a consequence of the aforementioned Greek uncertainty as the pair trades back below the 1.1200 handle, while other pairs fairly unmoved during the European session. Of note, RBA Stevens continued his recent jawboning rhetoric and stated it is highly probable that AUD will weaken and that the country needs it to.
The commodity complex has seen little price action throughout the session, with commodity specific news flow fairly light, with Brent crude futures outperforming WTI after Libya's Nafoura and Majid oilfields have shut due to recent protests; an electricity outage has also led to the closure of the Albayda oilfield, according to the AGOCO spokesman
Looking ahead, this afternoon sees Canadian GDP, US Chicago PMI, API
Crude Inventories as well as Fonterra Dairy Auction and comments from
ECB's Nowotny, Fed's Bullard and Dudley.
In summary: European shares fall with the basic resources and oil & gas sectors underperforming and banks, autos outperforming. Greece said to reconsider yday’s Juncker offer, Ekathimerini reports. Greek stocks trading outside of Athens are either falling or untouchable after this weekend’s drama. The U.K. and Swedish markets are the worst-performing larger bourses, the Italian the best. The euro is weaker against the dollar. Japanese 10yr bond yields rise; Irish yields increase. Commodities gain, with zinc, nickel underperforming and corn  outperforming. U.S. consumer confidence, ISM Milwaukee due later.
Market Wrap
  • S&P 500 futures up 0.7% to 2065.2
  • Stoxx 600 down 0.3% to 384.9
  • US 10Yr yield up 4bps to 2.36%
  • German 10Yr yield little changed at 0.79%
  • MSCI Asia Pacific up 0.8% to 146.2
  • Gold spot down 0.4% to $1174.8/oz
  • Asian stocks rise with the Shanghai Composite outperforming and the Sensex underperforming; MSCI Asia Pacific up 0.8% to 146.2
  • Nikkei 225 up 0.6%, Hang Seng up 1.1%, Kospi up 0.7%, Shanghai Composite up 5.5%, ASX up 0.7%, Sensex up 0.5%
  • All 10 sectors rise with staples, financials outperforming and consumer, tech underperforming
  • Basque Phone Carrier Euskaltel Valued at $1.3b in IPO
  • Sumitomo Mitsui Said Poised to Buy GE Europe Buyout-Funding Unit
  • Sony to Raise $3.6b Selling Stock and Convertible Bonds
  • Willis Group, Towers Watson Agree to Combine in All-Stock Merger
  • Euro down 0.52% to $1.1178
  • Dollar Index up 0.46% to 95.22
  • Italian 10Yr yield down 2bps to 2.37%
  • Spanish 10Yr yield little changed at 2.35%
  • French 10Yr yield little changed at 1.24%
  • Greek 10Yr yield up 31bps to 15.39%
  • S&P GSCI Index up 0.4% to 433.5
  • Brent Futures up 1% to $62.6/bbl, WTI Futures up 0.6% to $58.7/bbl
  • LME 3m Copper down 1.1% to $5727/MT
  • LME 3m Nickel down 1.4% to $11665/MT
  • Wheat futures up 0.6% to 587.3 USd/bu
Bulletin headline summary from RanSquawk and Bloomberg
  • Today's session has seen the continuous conflicting newsflow that has
    been typical of the Greek saga, with European equities coming off their
    worst levels heading into the North American crossover
  • Sources
    noted a poll suggesting that Greece is currently in favour of a 'no'
    vote in the upcoming referendum, before sources in Greek press suggested
    that the Greek government is reconsidering EC President Juncker
    proposal, which was denied shortly after
  • Looking ahead, this
    afternoon sees Canadian GDP, US Chicago PMI, API Crude Inventories as
    well as Fonterra Dairy Auction and comments from ECB's Nowotny, Fed's
    Bullard and Dudley
  • Treasuries decline, headed for first quarterly loss since 2013 as expectations Fed to raise interest rates later this year offset looming possibility of Greek default.
  • Greece said it will miss a payment to the IMF today, leave the protection of Europe’s bailout regime at midnight as PM Tsipras dared European leaders to throw his country out of the euro
  • EC President Juncker contacted Tsipras Monday and set out details of how a bailout accord could still be reached, according to an EU official
  • To keep the money flowing, Greeks must first endorse in a July 5 referendum the package of austerity measures rejected by Tsipras this weekend; should the “yes” side prevail, voters then might need to elect a government that can return to the negotiating table
  • BofAML head of European currency strategy Athanasios Vamvakidis expects Greeks banks will soon exhaust cash supplies, leading to shortages of imports including medicine unless the ECB expands assistance
  • Failure to resolve crisis has the potential to prompt a Greek withdrawal from NATO, increase the influx of refugees into Europe and threaten Greek support for international sanctions against Russia over Ukraine
  • Britain’s economy grew 0.4% in 1Q,, the Office for National Statistics said, revising its previous figure of 0.3%
  • Euro-area consumer prices rose 0.2% in June, gaining for a second month
  • German joblessness fell a seasonally-adjusted 1,000 to  2.79m,  the Federal Labor Agency in Nuremberg said on Tuesday; economists had predicted a drop of 5,000
  • Eleven of 21 economists surveyed by Bloomberg expect the PBOC will cut rates at least once more by year end, according to a June 27-29 poll after the weekend’s stimulus announcement
  • Sovereign 10Y bond yields mostly higher; Greece 10Y yields over 15%. Asian stocks gain, European stocks mixed, U.S.equity-index futures gain. Crude oil higher, copper and gold fall
US Event Calendar
  • 9:00am: ISM Milwaukee, June (prior 47.7)
  • 9:00am: S&P/Case-Shiller 20-City m/m, April, est. 0.8% (prior 0.95%)
    • S&P/CS 20-City y/y, April, est. 5.5% (prior 5.04%)
    • S&P/CS 20-City Index NSA, April (prior 175.2)
    • S&P/CS U.S. HPI m/m, April (prior 0.12%)
    • S&P/CS U.S. HPI y/y, April (prior 4.14%)
    • S&P/CS U.S. HPI NSA, April (prior 168.03)
  • 9:45am: Chicago Purchasing Managers, June., est. 50 (prior 46.2)
  • 10:00am: Consumer Confidence Index, June., est. 97.4 (prior 95.4)
DB's Jim Reid completes the overnight recap
Welcome to the last day of H1 2015, the good news is that we'll all get a second extra in bed tonight due to an adjustment made to international clocks in response to the earth's ever slowing rotation. Enjoy the lie-in tomorrow. Apparently when the dinosaurs ruled the planet there were only 22-23 hours in the day. How they managed to fit everything in I'll never know.
There might be a few days ahead that feel like a few hours have been added. The market at the moment is in controlled risk-off mode with little panic yet following the weekend developments. However this could change with any opinion polls that come in ahead of the Greek referendum. It seems how the question is interpreted by the electorate could be the decisive factor. Prior to the announcement of the poll, the Greeks were firmly in favour of remaining in the Euro. However the Government will likely want to try to make the vote about austerity not Greek Euro membership. In contrast, yesterday slowly saw a procession of EU spokespeople and Government leaders try to emphasis that this could be more of an 'in-out' vote.
The European Commission President Juncker grabbed most of the spotlight, saying that the ‘whole planet’ would see a ‘no’ vote as Greece turning its back on Europe while the ECB’s Coeure, in an interview with Les Echos, said that ‘exit from the eurozone, which was a theoretical point, can unfortunately no longer be excluded’. Elsewhere, despite German Chancellor Merkel still somewhat waiting on the sidelines, her Vice-Chancellor Gabriel said that a ‘no’ vote was ‘a clear decision against staying in the euro’.
Meanwhile, in a live interview on Greek TV station ERT, PM Tsipras was typically defiant saying that ‘the referendum will give us a stronger negotiating position when the talks resume’ before then going on to say that the higher the participation and number of people voting ‘no’, the stronger the government’s position will be. There was a hint however that in the event of a ‘yes’ outcome, Tsipras would honour the result saying that he ‘would act in line with the constitution’ and when questioned on whether or not he would resign in the face of a ‘yes’ outcome replied ‘I’m not attached to the chair’.
On a DB conference call yesterday, I was slightly surprised DB's George Saravelos suggested a no vote would just about be his current expectation. Over the weekend I was thinking a yes vote slightly more likely. I suspect that the market was also leaning towards a yes yesterday and as George said the relative calm (albeit at lower levels) for risk could be down to two reasons. Firstly due to expectations of a yes vote or secondly due to investors generally being relatively relaxed by the thought of a no vote and a potential Greek exit. The first one would be more worrying for risk if George is right.
As mentioned earlier the risk-off move yesterday was one that was well contained on the whole, although saying that we did see US equities drift steadily lower into the close. The moves were in fact enough to take US equities back into negative territory YTD although it’s a slightly better start in markets in Asia this morning. The Nikkei (+0.48%), Hang Seng (+1.21%) and Kospi (+0.39%) have all moved higher in choppy trading. The Euro is down around 0.4% against the Dollar while Asia credit is around a basis point wider.
Over in China meanwhile and after another volatile session yesterday where we saw the weekend’s rate cut positively impact the Shanghai Comp for all of 30mins before then plummeting to finish -3.34% at the close (including an 8% fall intraday), the index has followed up this morning with another hugely volatile session. Having fallen as much as 5% intraday, the Shanghai Comp is currently unchanged (-0.01%) as we go to print although again this may look very different by the time this reaches your inbox. With the bear market run the index is now 20% off the peaks of June 12th, which includes daily declines of at least 3% in 6 of the 12 trading sessions since that date (including the previous 3 sessions). In fact, we’ve heard this morning that the China government is considering a delay in the IPO of China Nuclear Engineering on the back of the volatility. There also appears to be signs in the Chinese press of a ramping up of soothing rhetoric. The Economic Observer is running a story that the China regulator is mulling measures to stabilize the stock market, while the China Securities Journal is running a front page story with the headline ‘An improving economy and continued loose liquidity will provide support for China’s stock market’.
Back to markets yesterday, having moved nearly 3.5% lower at the open, the Stoxx 600 recovered slightly over the course of the session to trade in a roughly 5 point range, eventually ending -2.69% at the close. There were similar moves for both the DAX (-3.56%) and the CAC (-3.74%), while the bulk of the pain was felt in the periphery where the IBEX (-4.56%) and FTSE MIB (-5.17%) both tumbled although again with much of the sharp move lower coming at the open before the rest of the day’s trading was relatively well contained. The Greek equity market was closed yesterday however we saw hints as to the pain there with a US ETF tracking Greek stocks tumbling 19% and another Athex ETF falling 15% before trading was suspended. In the US meanwhile, the S&P 500 (-2.09%) and Dow (-1.95%) both moved steadily lower after the European close. The fourth consecutive daily move lower for the S&P 500 has taken it to -0.06% YTD now, while the fall in the Dow saw it drop back to -1.27% YTD. In terms of credit, Crossover (+48bps) and Main (+10bps) ended the session at the wides, while there were meaningful moves in wider in Senior (+15bps) and Sub (+21bps) Fins in Europe. The cash credit market was marked wider but in a low liquidity market not much traded.
It was a similar story in sovereign markets for the most part yesterday. 10y Bunds eventually closed 12.7bps lower in yield at 0.793%, having gone as low as 0.703% at the open. There was a predictable sell-off in the periphery meanwhile, although again much of the move was fairly orderly. 10y BTP’s went as much as 50bps wider at the open, before then rallying back to close at 2.383% on the day, an overall move wider of 25.2bps on Friday’s close and the highest level now since early November. There were similar moves for Spain (+23.6bps) and Portugal (+33.8bps) also, while other core European markets saw a decent flight-to-quality bid including Netherlands (-9.2bps), Sweden (-8.0bps) and Switzerland (-6.0bps). There was an unsurprising sell-off in the Greek curve as we saw 2y (+1430bps), 4y (+730bps) and 10y (+387bps) yields move sharply higher. The risk-off tone extended into the US where we saw 10y Treasuries eventually end -14.8bps tighter at 2.325% and more or less at the lows (and have declined a further 1.1bps this morning). In terms of Fed Funds contracts the Dec15, 16 and 17 contracts fell 2.5bps, 8bps and 12.5bps respectively.
Some of the interesting price action yesterday was in FX markets. We noted in yesterday’s EMR that the Euro was around 1.5% lower versus the Dollar in the Asia session (with similar moves against other currencies). Well, as the day wore on we saw the Euro actually recover and more than reverse the early declines to eventually finish +0.62% up at the end of the US session at $1.124. The Euro has largely traded in an inverse relationship with European equity markets of late. The re-pricing of the Fed may have played a part in yesterday’s move, while there have also been suggestions that weakness in European equities of late is seeing prior QE trades unwind and triggering a stronger Euro.
Despite all the Greece attention, there was also some data for the market to keep an eye on yesterday. In the US in particular we got a slightly softer than expected pending home sales print for May (+0.9% mom vs. +1.0 expected), which was enough to drag the non-seasonally adjusted annualized rate down to +8.3% yoy from +12.6%. Meanwhile, we saw some improvement in the Dallas Fed manufacturing activity index, rising 13.8pts in June although to a still lowly -7.0 (vs. -16.0 expected). Before this in Europe, the main data release was out of Germany where we saw the preliminary June CPI reading come in well below expectations (-0.1% mom vs. +0.2% expected), the first negative print since January. Elsewhere, economic confidence for the Euro area for June (103.5 vs. 103.8 expected) was slightly below consensus, although there was no change to the final consumer confidence print of -5.6.
Before we take a look at today’s calendar, if Greece wasn’t enough, Puerto Rico is also generating some default-related headlines too after the Island Governor Padilla said that the nation will look to delay payments on the current debt load of around $72bn for ‘a number of years’, while also seeking a debt restructuring plan. Quoted in the NY Times, Padilla said that ‘there is no other option’ while a House Speaker for the government said that ‘it’s not that the debt will not be paid, it’s a matter of when Puerto Rico can pay’.
Looking ahead to today’s calendar now, the Euro area CPI print for June will be closely watched this morning, while we also get German retail sales and unemployment data, as well as French consumer spending and the final UK Q1 GDP print today. Over in the US this afternoon, the May Chicago PMI is due, as is the ISM Milwaukee, S&P/Case Shiller house price index and June consumer confidence reading. Of course the IMF repayment for Greece is due today and given the likely scenario of non-payment, there will be much focus on whether or not we see subsequent cross-default provisions triggered. For us it’s unlikely that any official institution will want to escalate this situation too aggressively ahead of the vote on Sunday though.

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