The Daily Shot

July 7th, 2015


We begin with China, where the government is stepping up efforts to stabilize the equity markets. Of course nobody wanted to stabilize them on the way up. The central government has purchased equity ETFs (via Huijin Investment Co) and forced brokers to buy those as well. It also limited trading activity in equity futures where those evil speculators supposedly were shorting the market. The intervention announcements continued.
Xinhua: - China Securities Finance Co.(CSF) said it would raise funds through multiple channels and expand its business scale to help stabilize the market. The central bank also committed to providing liquidity to CSF.
The 5% declines have been halted but the market deleveraging continues. Here is the latest Shanghai Composite.
Meanwhile the nation's metals markets continue to collapse. Here are the most active contracts for hot-rolled coil and steel rebar on the Shanghai Futures Exchange. There doesn't seem to be much faith in China's industrial/construction demand.
Source: barchart
Source: barchart
China's metals rout is hitting some international markets. Here is US copper and the overall CRB BLS Metals sub-index.
Source: barchart
Source: CRB
Turning to everyone's favorite topic, here is the latest on Greece:

1. The ECB turned down Greek government's request to increase ELA financing. Greek banks remain shut, with capital controls in place. This is not very sustainable.

2. The ECB apparently has just increased margin requirements for the ELA collateral (not clear by how much). The collateral includes Greek government bonds and bank bonds guaranteed by the government - one bankrupt entity guaranteeing another. Once the collateral hits 60%, it's lights out for the Greek banking system. It's important to note that without a major Greek bailout, the ELA collateral is worthless - increasing haircuts further will not help safeguard the ECB's assets.
Source: @ReutersJamie
3. The markets are already treating Greek banks as defaulted, with many bank bonds trading below 30% of par.
Source: @MktOutperform
4. Government bonds are having a tough time finding a bid, with yields spiking again.
6. Greek sovereign CDS spreads have blown out further. Here is the 5yr and the 1yr spread.
Source:  ‏Barclays Research
7. Greece is staring a some large payments in the weeks ahead, particularly on bonds held by the ECB. That's where the official sector missed payments will show up next.
Source: FT
8. More importantly, about €2.5bn is due by July 15 in government salaries and pension payments. Time for IOUs and long lines in the soup kitchen.

9. There is talk of Greece being given another chance to come up with a proposal. But several Eurozone nations are unlikely to support such efforts as the leadership faces increased opposition at home. Nevertheless, with Yanis Varoufakis out, some are hoping for a deal. Note that several nations that really want Greece out of the EMU are most exposed to Grexit risks (bottom).
Source: @BBGVisualData
There is not much time left before emergency funds will be needed for humanitarian support.
It's important to point out that markets outside of Greece had a fairly benign response.

1. We saw less than 10bp move on Portuguese 10 yr government bond yield in response to the events in Greece 
2. And Italian bonds showed less of a reaction to the "no" vote than to the referendum announcement.
At least for now, the Eurozone's economic recovery continues. Here is Spanish industrial production. The Eurozone's leadership is no longer as concerned about contagion as it was in 2011/12.
Shifting to emerging markets, a number of readers correctly pointed out that the Malaysian ringgit selloff on Monday was a result of a major domestic corruption scandal. Having said that. the scandal has made the currency more vulnerable to jitters in the international markets - including Greece.
Also in emerging markets we see the Mexican peso hit a record low. We will see more US and even Chinese firms opening shop there.
Russian inflation moderates on extremely weak demand - more rate cuts are coming. Here is the month-over-month CPI.
Having said that, the Russian ruble is under a renewed pressure as crude prices decline.
Indeed, the WTI futures fell below $53/bbl again - the sharpest selloff this year.
US upstream energy shares are getting smoked as a result. 
In other commodities news we see milk prices in New Zealand continue to fall ...
... and so is the New Zealand dollar.
Source: barchart 
The next three charts teach us about boosting corporate margins.

1. Coffee prices.
Source: barchart
2.  Starbucks doing what Starbucks does best - raise prices.
Source: People
3. Starbucks share price.
Source: Google
Finally, a surprising surge in US factory construction,
Source: @Callum_Thomas 
Now some Food for Thought - 6 items:

1. The phrase "Pearl Harbor"  has been trending on Twitter as a result of US women's soccer team victory over Japan. Quite sad... 
2. E-commerce growth by country.
Source:  ‏@csapac
3. More people are convinced that the media is biased. Some like it this way.
Source: @FactTank 
4. 30 most edited Wikipedia pages.
5. Average number of firearms held by the public per 100 people.
Source: @Amazing_Maps 
6. According to some, Russia may not be too interested in the Iran sanctions being lifted.
Source: @A_Riley17
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