Asia: Japan -2.9% to 20110. Hong Kong -2.6% to 25967. China -3.3% to 4055. India -0.6% to 27645.
Europe: London -1.8%. Paris -3.5%. Frankfurt -3.4%.
Futures: Dow -1.1%. S&P -1.1%. Nasdaq -1.2%. Crude -2.3% to $58.58. Gold +0.3% to $1176.70.
Ten-year Treasury Yield -1 bps to 2.32%
10:00 Pending Home Sales
10:30 Dallas Fed Manufacturing Outlook
Key earnings after the close
Stocks take a global hit as Greece appears set to default on tomorrow’s debt repayment and the reality of a Grexit hits the markets. With emergency aid to the country frozen, Athens has imposed capital controls to halt bank runs and confirmed that the country’s banks would remain shut for six working days. ATM withdrawals are being capped at €60/day. Over the weekend, Greek Prime Minister Alexis Tsipras shocked European policy makers by announcing a July 5 referendum on whether to accept the latest offer from Greece’s creditors.
With a default on the horizon, a divergence in the direction of eurozone bond yields is at work today, with money flowing into Germany’s fixed-income market, and out of Spain, Italy, Portugal and Greece. The turbulence is in contrast to last week, when benchmark German bunds fell and Spanish securities advanced amid optimism a deal would be reached. 10-year bond yields: Germany -18 bps to 0.74%; Spain +24 bps to 2.34%; Italy +24 bps to 2.39%; Portugal +30 bps to 2.99%. The yield on Greek 10-year securities jumped the highest since December 2012, shooting up 379 bps to 14.63%.
The Swiss National Bank intervened in foreign exchange markets over the weekend in an effort to hold down the franc’s rise amid uncertainty over Greece’s future. A default would likely spark massive safe-haven flows into the Swiss currency and spur the SNB into action.
Greece is not the only one in hot water. Puerto Rico’s long-simmering debt crisis is coming to a boil. The commonwealth’s governor, Alejandro García Padilla, is expected to lay out in a speech next steps that could include calls for significant concessions from the island’s creditors. Many also anticipate Puerto Rico’s electricity provider, which has borrowed $9B, to miss a payment to creditors this week, in what would be one of the largest municipal defaults ever.
Delegates from 57 countries gathered in Beijing today to launch the Asian Infrastructure Investment Bank and finalize each member’s stake in the institution. China, the lender’s largest shareholder, will contribute $29.7B of the bank’s $100B capital base, and have 26.06% of the total votes in the institution. In the lead-up to the launch, China vowed to operate a transparent bank and pledged to decrease the bureaucracy that slows projects at existing multilateral lenders.
Ultra-low interest rates are holding back global growth and fueling financial instability, the Bank for International Settlements warned in its annual report, urging central banks to move more swiftly towards normalizing monetary policy. Rather than simply reflecting widespread economic weaknesses, ultra-low rates have contributed to the slow recovery in the global economy by entrenching the excessive reliance on debt and causing large-scale misallocation of capital.
Following the report’s release, NY Fed President William Dudley said a September interest rate hike is “very much in play” if U.S. economic data continues to improve as it has in recent weeks, however, “it wouldn’t shock me if the data were a little softer and it caused us to wait” until December. Dudley cited recent U.S. wage gains, income, and household spending as having improved his outlook for the economy.
The Shanghai Composite slid 3.3% today to levels more than 20% below its June 12 close of 5,180.51, meeting some investors’ definition of having entered a bear market. The plunge comes despite a PBOC benchmark lending and one-year deposit rate cut over the weekend. Chinese regulators are now considering suspending initial public offerings to stabilize the country’s tumbling equity markets.
South Korea’s Samsung Bioepis, a developer of generic versions of biotech drugs, is considering a Nasdaq IPO that could be worth around $1.3B. Ninety percent of Samsung Bioepis is held by Samsung Biologics, which is in turn owned by affiliate Samsung Electronics (SSNLF) as well as Cheil Industries and Samsung C&T. U.S. listings are rare for South Korean firms as they tend to trade at discounts to global peers. It would be the first on Nasdaq since 2006.
According to MSCI, China’s security regulators face a “massive job” to coordinate the changes needed for domestic shares to be listed in its key emerging markets benchmark. “It’s not a simple issue – they have to coordinate nine ministries…so don’t underestimate how difficult this task is,” MSCI’s Chris Ryan told an investor conference in Hong Kong. Earlier this month, MSCI told China it must further liberalize its capital markets before it would include A-shares in its Emerging Markets Index (EEM), tracked by $1.7T of global funds.
General Electric (GE) will seek to convince EU antitrust regulators of the merits of its €12.4B bid for Alstom’s (ALSMY) power unit at a closed-door hearing on July 2. The move comes after the European Commission warned the company earlier this month that the deal, a key element of its expansion into industrial products and away from finance, would harm competition.
Meanwhile, Canada’s Element Financial has agreed to acquire GE (GE) Capital’s fleet management operations in the U.S., Mexico, Australia and New Zealand for $7B in cash, while Paris-based Arval has entered into a memorandum of understanding to acquire GE Capital’s European fleet operations. On closing of the two deals, the Element-Arval Global Alliance will be capable of managing customer fleets in more than 40 countries, Element (ELEEF) said in a statement.
SpaceX suffered a major setback on Sunday when its Falcon 9 rocket bound for the International Space Station disintegrated shortly after liftoff from Cape Canaveral, FL. The incident spells bad news for Elon Musk, who received approval last month to start launching Air Force satellites and some U.S. spy satellites aboard the Falcon 9. The rockets are now expected to be suspended. Orbital-ATK (OA), the only other U.S. company able to resupply the orbiting laboratory, is also struggling to resume its flights to the ISS, following a rocket explosion last October.