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Greek Banks Crash Limit Down For Second Day; China And Commodities Rebound; US Futures Slide

After a lukewarm start by the Chinese "market", which had dropped for the past 6 out of 7 days despite ever escalating measures by Beijing to manipulate stocks higher, finally the Shanghai Composite reacted favorably to Chinese micromanagement of stock prices and closed 3.7% higher as Chinese regulators stepped up their latest measures by adjusting rules on short-selling in order to reduce trading frequency and price volatility, resulting in several large brokerages suspending short sell operations. At this pace only buy orders will soon be legal which just may send the farce of what was once a "market" limit up.

Elsewhere in Asia, equities traded mixed following a lackluster Wall Street close amid further declines in commodity prices, after Brent crude dropped below $50/bbl for the first time since January, only to rebound in overnight trade. ASX 200 (+0.3%) traded in the green with gains in financials offsetting losses seen in commodity names. Elsewhere, the Nikkei 225 closed lower by 0.1% while JGBs rose following the latest 10-yr auction which drew highest b/c since Jan with 10-yr yields at a 9-week low.

Speaking of "buy only" trading, Greece may want to consider that soon because on the second day after reopening its market for trading, Greek banks traded limit down for the second day in a row. End result: banks such as Piraeus is now down over 50% in two days.

This is Piraeus Bank -51% in two days... We need a name for this chart.

— Jonathan Ferro (@FerroTV)

The reason: the same one we explained in "Greek Banks Just Became A "Strong Sell" At Any Price" - a recapitalization and an equity wipe out are now virtually assured, In fact, judging by the amount of jawboning against it, as seen by these headlines that hit the BBG tape moments ago...


... a bail in of depositors is also practically assured. Only this time anyone who puts their money in the bank really has nobody but themselves to blame.

Elsewhere, the energy sector continues to underperform despite the complex seeing a mild turnaround with Brent and VVTI Sep'15 futures both in the green, with the former retaking $50.00 handle. The European morning has seen Brent Crude pare some of its recent losses to rise above $50 heading into the NYMEX pit open, with WTI following suit and also residing in firm positive territory on the session . The metals complex have also seen a modest bout of strength during European hours, with gold trading higher by around $5.00 at USD 1090, while platinum and palladium are both off their multi year lows, with platinum earlier reaching its lowest level since 2009 and Palladium reaching its lowest level since 2012.

Brent oil, which has slumped more than 20 percent over the last month, was up almost 1 percent. Copper seen as a bellwether of global growth, nudged off a six-year low. 

The dollar also helped relieve the pressure, with it pegged back by another bout of weak U.S. data on Monday. Raw material reliant Canadian and Australian dollars both got lifts, alongside Russia's rouble and other emerging FX.

The Aussie dollar was by far the biggest mover. It rose 1.25 percent to an almost two-week high of $0.7375 after a major change in tone from its central bank that suggested it was now more satisfied with the currency level. "You have had a key shift from the RBA that they don't need to intervene as strongly, so that has triggered a considerable Aussie bounce," said John Hardy, head of FX strategy at Saxo Bank.

"And the (U.S.) dollar view is just flat and we are just waiting for payrolls on Friday. We have had a relatively hawkish set-up from Yellen and co (that interest rates may go up next month) but the rates market just doesn't believe it."

European Equities reside in mixed territory (Euro Stoxx: -0.3%) heading into the North American crossover, with financials the worst performing sector after Credit Agricole (-9.5%) reported earnings pre-market and announced that they are delaying structural reforms.

Bunds reside in positive territory albeit off their best levels, gaining amid the weakness in equities, while the German curve has flattened in line with the post FOMC trend, following the trend set in USTs. While also of note, the ECB announced further QE details yesterday, which showed extending maturities in German debt. Bunds also took out yesterday's highs to reach their highest level since May 29th before paring some of these gains amid profit taking with macro news flow fairly light, while the UK 30Y also reached 2.5%, its highest level since April before the weak UK Auction (b/c 1.37, Prey. 1.54, tail 0.4bps, Prey. 0.2bps) saw a weakness in UK fixed income products.

In FX, AUD was the notable outperformer after the RBA dropped comments that a further fall in AUD is 'likely and necessary', with the central bank leaving rates unchanged, while Australian retail sales (0.7% vs. Exp. 0.4%) and trade balance data both beat expectations. Meanwhile the USD (USD-Index: -0.1%) remains relatively flat today amid a tight range in major pairs.

The notable tier one data from the European morning saw UK Construction PMI (57.1 vs. Exp. 58.5) print its lowest figure since May, but fail to have a sustained affect in GBP. Also of note, the Greek finance and economy ministers are set to meet the Quadriga (Troika + ESM) regarding bank recapitalisation and privatisation.

Looking ahead, today's highlights include US ISM New York, factory orders and IBD/TIPP economic optimism, Canadian Manufacturing PMI and New Zealand unemployment.

In Summary: European shares decline, though pare the worst of earlier declines as U.S. equity index futures also slip. Asian shares gain. Oil rises for first day in 4. Gold, silver rise with metals, food commodities, cotton, while platinum, palladium fall. Italian, Spanish stocks among largest underperformers in Europe. Yields on eurozone 10-yr notes fall; dollar also declines. U.S. ISM New York, factory orders, IBD/TIPP economic optimism,  due later.

Market Wrap

  • S&P 500 futures down 0.1% to 2089
  • Stoxx 600 down 0.2% to 398.5
  • US 10Yr yield up 1bps to 2.16%
  • German 10Yr yield down 2bps to 0.61%
  • MSCI Asia Pacific up 0.3% to 141.5
  • Gold spot up 0.4% to $1091.1/oz
  • Eurostoxx 50 -0.2%, FTSE 100 +0.3%, CAC 40 -0.2%, DAX +0%, IBEX -0.4%, FTSEMIB -0.8%, SMI +0.1%
  • Asian stocks rise with the Shenzhen Composite outperforming and the Sensex 30 underperforming; MSCI Asia Pacific up 0.3% to 141.5
  • Nikkei 225 down 0.1%, Hang Seng down 0%, Kospi up 1%, Shanghai Composite up 3.7%, ASX up 0.3%, Sensex down 0.4%
  • Apollo Buys Spain’s Lico Leasing From Fortress: El Confidencial
  • Euro up 0.18% to $1.097
  • Dollar Index down 0.14% to 97.36
  • Italian 10Yr yield down 4bps to 1.74%
  • Spanish 10Yr yield down 4bps to 1.91%
  • French 10Yr yield down 3bps to 0.91%
  • S&P GSCI Index up 1% to 372.3
  • Brent Futures up 1.4% to $50.2/bbl, WTI Futures up 1.5% to $45.9/bbl
  • LME 3m Copper up 0.3% to $5236/MT
  • LME 3m Nickel up 1.3% to $10885/MT
  • Wheat futures up 1.1% to 504.5 USd/bu

Bulletin Headline Summary from Bloomberg and RanSquawk

  • Treasuries drift lower as commodities recover from yesterday’s rout; markets wait for ADP tomorrow, nonfarm payrolls Friday for  clues on Fed’s next move; data calendar light, with Factory Orders at 10am.
  • European Equities reside in mixed territory heading into the North American crossover, with financials the worst performing sector, weighed on by Greek banks and Credit Agricole, who reported earnings pre-market
  • AUD is the notable outperformer after the RBA dropped comments that a further fall in AUD is 'likely and necessary', with the central bank leaving rates unchanged
  • Oil and industrial metals led a rebound in commodities, boosting Russia’s ruble as emerging-market currencies  rallied and supporting shares of raw-material producers
  • Stocks in Athens fell almost 5%, extending biggest slump since at least 1987 as the nation seeks a return to  normal after a five-week shutdown of its exchange; Piraeus Bank SA slumping 30%, while National Bank of Greece SA tumbled 29%
  • Daniel Yu, best known for betting against companies via his short-selling firm Gotham City Research LLC, says he’s waiting in the wings for Greece to leave the euro - so he can start buying
  • Puerto Rico’s debt crisis escalated as it suspended deposits into a fund that pays its general-obligation bonds and one of its agencies defaulted for the first time, jeopardizing the cash-strapped government’s ability to raise money
  • Indian central bank Governor Raghuram Rajan kept interest rates unchanged, rebuffing pressure from the  Finance Ministry to reduce borrowing costs that are among the highest in Asia
  • Aetna Inc. raised its full-year earnings forecast after reporting profit that topped analysts’ estimates as it added more members in government insurance programs
  • Sovereign 10Y bond yields mixed. Asian stocks mixed, European stocks, U.S. equity-index futures fall. Crude oil, copper and gold rise

US Event Calendar

  • 9:45am: ISM New York, July (prior 63.1)
  • 10:00am: Factory Orders, June, est. 1.8% (prior -1%); Factory Orders Ex Trans, June (prior 0.1%)

DB's Jim Reid completes the overnight event recap

Commodities continue to be the main game in town at the moment with the highlight being Brent (-5.15%) hitting 6 month lows yesterday at $49.52/bbl. This helped send 10 year Treasuries to two-month lows at 2.149% (-3.2bps) while Fed Funds contracts fell for a second consecutive session with the Dec15 (-0.5bps), Dec16 (-2.5bps) and Dec17 (-4.0bps) contracts down to 0.300%, 0.960% and 1.555% respectively. Despite some resilience, US equity markets succumbed to the sell-off in energy stocks with the S&P 500 eventually finishing -0.28% with the energy component tumbling 2% as some of the larger cap names including Chevron (-3.25%) and Exxon Mobil (-1.45%) led the move lower.

China’s soft PMI numbers from the weekend and yesterday, as well as the latest ISM numbers out of the US didn’t help but it was supply noise out of Iran where the bulk of the blame was centered. Iran’s Oil Minister, speaking on Sunday, said that production out of the country can increase by as much as 500k barrels a day within a week after sanctions end and by 1m barrels a day within a month following that. The Minister added that he expects sanctions against the country to be lifted by late November.

Talking of Iran, I was reading over the weekend that the country has been enduring a 'heat dome' with a heat index of 72C (162F) which measures heat and humidity and is kinda the opposite of the wind chill factor reading (ie how warm/cold it actually feels). Such a number is extraordinary and reflects a heatwave in the region. I've cooked pizzas at lower temperatures than this!! I showed this article to my wife who at the moment is struggling when it gets above 18 degrees and she nearly had a funny turn just reading it.

Once again it wasn’t just Oil markets where we saw weakness yesterday with most of the commodity complex enduring another tough session. In the metals space Gold (-0.82%), Silver (-1.79%) and Platinum (-2.22%) tumbled while Aluminum (-0.37%) and Copper (-0.19%) followed suit. Commodity sensitive currencies also felt some of the pain yesterday too with the Aussie Dollar (-0.30%), Russian Ruble (-2.84%), Norwegian Krone (-0.90%) and Canadian Dollar (-0.52%) some of the notable movers.

Staying on credit, DB’s Oleg Melentyev touched upon the latest moves in US credit markets on the back of the recent fall in oil in a note at the back end of last week. Oleg noted that last week we saw US HY energy spreads touch their peak levels from mid-December of last year (860bps) and that that weakness has now extended to metals where spreads are now at their widest level since the 2011-2012 peaks. Interestingly, Oleg notes that cross-asset volatility has experienced its biggest drop since October in recent weeks despite the weakness in commodities. The fall has come since the resolution in Greece in mid-July and right around the time of the commodity-driven widening in HY resulting in the regression-estimated HY spread being materially inside of its actual values (50-75bps depending on the time horizon) for the first time since December 2014. Oleg notes that, absent any meaningful bouts in volatility higher in the coming days and weeks, this should help encourage a rebound in US credit. However this hasn’t yet convinced Oleg that it’s a good enough reason to tighten spread target levels. In particular he notes of material headwinds from commodities, EM, rising credit risks and deteriorating issuer fundamentals which muddles the picture leaving him predisposed to keep existing longer term spread targets in place.

Looking at how markets in Asia are trading this morning, it’s been another choppy session in China but bourses are in positive territory as we hit the midday break with the Shanghai Comp (+1.34%), Shezhen (+1.76%) and CSI 300 (+1.16%) all up, supported in part by news on Reuters that the Shanghai and Shezhen bourses are cracking down on short-selling. The new rules are restricting the ability for day-traders to short-sell, forcing investors now into a T+1 settlement and so mitigating intraday volatility. Elsewhere this morning the Kospi (+0.50%) and ASX (+0.32%) are also up, however it’s a weaker start for the Nikkei (-0.20%) and Hang Seng (-0.13%). It’s been a much quieter session for commodities meanwhile. Brent (+0.34%) and WTI (+0.71%) have recovered slightly while Gold (-0.19%) is modestly lower. Asia and Australia credit markets are +2bps and +1bp respectively. The RBA have left rates unchanged as we go to print.

Back to yesterday, data in the US, which along with the moves in Oil, helped support the move lower in yields. Despite no change in the final July manufacturing PMI reading of 53.8, the ISM manufacturing reading for the same month attracted some disappointment with the print falling 0.8pts to 52.7 (vs. 53.5 expected) with employment, export orders and order backlogs components all falling. The ISM prices paid print was also disappointing, falling 5.5pts to 44.0 (vs. 49 expected). Construction spending data for June was the other notable disappointment yesterday, with just a +0.1% mom rise during the month versus expectations of +0.6%, the smallest monthly increase since January although we did see a reasonable upward revision to the May print (+1.8% from +0.8% previously). Elsewhere the June personal spending print of +0.2% mom was as expected while the personal income reading print came in a touch ahead of consensus (+0.4% mom vs. +0.3% expected). In terms of the PCE readings the deflator was as expected at +0.2% mom for June, although the annualized rate ticked up a notch to +0.3% yoy (from 0.2%). The core was also as expected for the month at +0.1% mom, keeping the annualized rate unchanged at +1.3% yoy. Finally July vehicle sales rose to a slightly firmer than expected 17.46m saar pace (vs. 17.20m expected), up a touch from June.

It was a quieter session on the earnings front yesterday with just a post-market beat from AIG the notable report yesterday. At the latest count of 370 S&P 500 companies having now reported, both earnings and sales beats are unchanged versus yesterday’s tally at 74% and 50% respectively. Over in Europe meanwhile, the trend has also remained unchanged at 63% and 65% respectively.

Elsewhere in the US yesterday we also saw the latest Fed Senior Loan Officer Opinion Survey on Bank Lending which showed that on the whole banks reported little change in their standards on commercial and industrial and commercial real estate loans, while on the household side the survey suggested that banks have reported a slight easing of lending standards for a number of residential mortgage loans over the past three months.

Moving on, Puerto Rico attracted its fair share of attention yesterday after halting payments into a fund used to cover its general obligation debt and as a result defaulting on a $58m bond payment. The default looks likely to be the trigger to start a restructuring of Puerto Rico’s roughly $72bn debt load with the WSJ noting that a group of policy makers are working on a restructuring plan and are due to present their findings at the of the month.

In the European session yesterday there was much focus on the reopening of the Greek stock market after a five-week closure. The ASE closed the session down 16.23% having initially plunged as much as 25% with banks (-26%) unsurprisingly leading the move lower. Elsewhere it was actually a fairly constructive day for European markets, offsetting a weak start on the back of the China data to close in positive territory with earnings reports from Heineken, Commerzbank and TomTom in particular helping sentiment. The Stoxx 600 (+0.77%), DAX (+1.19%) and CAC (+0.75%) all enjoyed their fifth consecutive daily gain. A 0.2pt upward revision to the final Euro area manufacturing PMI print to 52.4 in July only helped support a better tone in the European session yesterday. Regionally Germany (+0.3pts to 51.8) and Italy (+1.2pts to 55.3) were both revised up, with France unchanged at 49.6 and Spain (-0.9pts to 53.6) falling. In the UK the print was revised up 0.5pts and above expectations to 51.9. It was a much more mixed session in the European sovereign bond market. 10y Bunds eventually closed 1.6bps lower in yield at 0.627% as the US session kicked in while Gilts closed 1.5bps lower. The periphery was generally a basis point wider. Elsewhere the Euro closed down 0.3% versus the Dollar, not helped by the news that S&P has revised the outlook on the European Union to Negative from Stable (at AA+) on the expectation that the EU will provide first-loss guarantee support for financing connected to the Juncker Plan as well as the repeated use of its balance sheet to provide higher-risk financing to EU member states.

Taking a look at today’s calendar now, data-wise June factory orders is the highlight in the US while the ISM New York and IBD/TIPP economic optimism survey are also due. Earnings season continues meanwhile with Walt Disney and CVS Health Corp two of the notable reporters.