More than even the unfolding “chaos theory” pandemonium in Greece, market watchers were even more focused on whether or not China and the PBOC will succeed in rescuing its market from what is now a crash that threatens social stability in the world’s most populous nation. And, at the open it did. The problem is that as the trading session progressed, the initial 8% surge in stocks faded as every bout of buying was roundly sold into until every other index but the benchmark Shanghai Composite turned sharply red.
The reason the SHCOMP stayed above water is because China’s sovereign fund Huijin was in the market to keep large caps like PetroChina, ICBC up. And then, shortly after it was announced that China’s National Security Fund had ordered all of its managers “not to sell a single stock”, the Composite briefly dipped into the red and the local Chinese bank was on the verge of a total loss of control.
Luckily, by the end of the session, the Composite managed a modest 2.4% recovery even as investors in the vast majority of Chinese shares suffered another day of losses and as the PBOC’s credibility came this close to being fully wiped out.
Elsewhere in Asia, central banks were less forceful and the Nikkei 225 (-2.1%) fell to within close proximity to the 20,000 level while JPY strength further weighed on the index. ASX 200 (-1.3%) was dragged lower by weakness in the commodities complex.
And while China was a rollercoaster, Europe’s volatility wasn’t far behind: as was to be expected, the price action was dominated by the Greek ‘No’ vote victory, in turn prompting a risk-off tone which was observed overnight with US equity futures slumping 1.5% while T-notes gapping higher by over 1 point. However, the subsequent shocker that Yanis Varoufakis is to step down, citing preference of some Eurogroup participants, resulted in EUR and equity markets recovering off the worst levels. According to the latest reports, Greece’s chief negotiator Tsakalotos is the favourite to replace Varoufakis as the Greek Finance Minister.
EUR/USD staged an impressive recovery overnight, largely supported by the resignation of the Greek finance minister and the upside in EUR/CHF driven mostly by another post-weekend day of relentless Swiss National Bank intervention. However, in recent hours the central bank bid appears to have fizzled and the EUR is once again grinding slowly lower as the selling wave appears to have overcome European central banks just as it did in China earlier.
Gold failed to hold onto early gains and trended lower overnight, before consolidating in negative territory in early European trade, amid the ongoing concerns over growth prospects in China. The drop in gold is due to further central bank intervention, this time by the BIS’ FX and gold trading desk under the auspices of Benoit Gilson. At the same time, the risk averse sentiment weighed on the energy complex, with WTI and Brent Crude futures trading lower.
Notable energy stories:
Saudi Arabia has cut the OSP for Arab light crude to Asia in August by USD 0.10 per barrel, while increasing the price to European customers by USD 0.25 per barrel. (RTRS). Iranian Oil Minister Bijan Zanganeh will release a template for international oil contracts in the near future, as companies wait for deal that will open up one of the world’s premier oil markets to foreign investment. (RTRS) FCC (36.9k bpd ) has been shut down at the CVR — Coffeyville refinery (155.7k bpd) having been recently restarted. (Genscape) The CDU (64k bpd ) and VDU (30k bpd) have been restarted at the Phillips 66 – Wood River refinery (306k bpd). (Genscape) The FCC (80k bpd) was shut down at the Valero — Port Arthur Refinery (292k bpd) (Genscape)
On the macro economic calendar today we have ISM non-manufacturing, and the Markit U.S. composite/services PMI due later but these will be absolutely meaningless in light of the headline Greeknado that simply refuses to go away.
In summary: European shares remain lower, off opening lows, with the banks and basic resources sectors underperforming and travel & leisure, health care outperforming. Varoufakis quits as Greek finance minister, Greeks voted “no†in Sunday’s referendum. Merkel to meet Hollande today ahead of emergency summit of European leaders Tuesday. ECB governing council due to talk today on support to Greek banks. Hang Seng index enters correction with 11% drop from April peak, Shanghai Composite rises.
The Italian and Spanish markets are the worst-performing larger bourses, the U.K. the best. The euro is weaker against the dollar. Greek 10yr bond yields rise; German yields decline. Commodities decline, with WTI crude, nickel underperforming and gold outperforming. U.S. ISM non-manufacturing, Markit U.S. composite PMI, Markit U.S. services PMI due later.
Market Wrap
- S&P 500 futures down 0.6% to 2056.3
- Stoxx 600 down 0.8% to 380.2
- US 10Yr yield down 8bps to 2.3%
- German 10Yr yield down 5bps to 0.74%
- MSCI Asia Pacific down 2% to 143.5
- Gold spot down 0.3% to $1165.1/oz
- All 19 Stoxx 600 sectors fall
- Eurostoxx 50 -1.5%, FTSE 100 -0.5%, CAC 40 -1.3%, DAX -1.2%, IBEX -1.6%, FTSEMIB -2.4%, SMI -0.6%
- Asian stocks fall with the Shanghai Composite outperforming and the Hang Seng underperforming; MSCI Asia Pacific down 2% to 143.5
- Nikkei 225 down 2.1%, Hang Seng down 3.2%, Kospi down 2.4%, Shanghai Composite up 2.4%, ASX down 1.1%, Sensex up 0.4%
- Euro down 0.79% to $1.1026
- Dollar Index up 0.37% to 96.47
- Italian 10Yr yield up 9bps to 2.34%
- Spanish 10Yr yield up 10bps to 2.31%
- French 10Yr yield down 2bps to 1.22%
- S&P GSCI Index down 3.3% to 419.4
- Brent Futures down 2.3% to $58.9/bbl, WTI Futures down 4.3% to $54.5/bbl
- LME 3m Copper down 3.2% to $5573/MT
- LME 3m Nickel down 3.4% to $11595/MT
- Wheat futures down 2.5% to 575.8 USd/bu
