Dow tumbled 138, decliners over advancers 3-1 & NAZ fell 63. The MLP index dropped another 2+ to below 391 (a new multi year low) & the REIT index rose 3+ to the 313s. Junk bond funds drifted lower & Treasuries rallied on financial turmoil around the globe. Oil is now in the 51s while gold fell to a 15 week low.
AMJ (Alerian MLP Index tracking fund)
Euro-area leaders & finance ministers are meeting to discuss how Greece can stay in the common currency, the first round of serious talks since Greek voters rejected the terms of a prior bailout offer that expired on Jun 30. Prime Minister Tsipras said his gov wants debt restructuring as part of its next aid package. In the short term, Tsipras & the new finance minister Tsakalotos will probably arrive in Brussels with many of the same proposals they had before the referendum. Their main goal will be to start talks on bridge financing, to help Greece get past its upcoming financing hurdles. Tsipras also asked for a 2-year loan from the European Stability Mechanism, the euro-area’s firewall fund, in a Jun 30 letter before the referendum. The next deadline is Jul 20, most likely, when Greece needs to pay €3.5B ($3.9B) in bond redemptions for securities held by the ECB. Greece needs short-term cash before then, or else an expanded lifeline from the ECB to its financial system. Greek banks have already been shut for more than a week because of their cash crunch. The ECB has mostly left intact its lifelines to Greek banks but on Mon it tightened conditions on emergency liquidity assistance & today warned that offering too much flexibility to struggling lenders could weaken the incentive for others to follow the rules. That could be a reason to withdraw or reduce the support to Greece. The worst case scenario, they could all fail, taking household, corporate & public sector deposits with them. But that scenario is a long way off. The ECB’s Governing Council has declared it will work closely with the Bank of Greece to maintain financial stability. Also, the ECB’s aid isn’t likely to be withdrawn abruptly. Finance ministers are meeting now are likely to rule out bridge financing, saying Tsipras must start from scratch on a third bailout because all previous offers have expired. They will, however, most likely start the procedures that allow the European Commission & other institutions to draw up bailout outlines. Long term solutions, starting this evening, are fuzzy at best.
The US trade deficit widened in May as exports declined by the most in 3 months, showing businesses were having trouble drumming up sales to overseas customers. The gap grew 2.9% to $41.9B from the prior month’s revised $40.7B, according to the Commerce Dept. The forecast called for a $42.7B shortfall. Exports dropped 0.8% on declining demand for commercial aircraft & industrial equipment. Domestic crude production further reduced America’s imported fuel bill, which dropped in May to the lowest level since 2002. While persistent US household spending led to record automobile imports, unsettled European & Chinese economies are limiting prospects for a pickup in exports. Exports declined to $188.6B from $190.1B in Apr. Shipments overseas were also depressed by less demand for telecommunications equipment, pharmaceuticals & semiconductors. The decrease in exports was limited by a pickup in US sales of oil products & chemicals. Excluding petroleum, the deficit widened 6.5%. Imports were little changed at $230.5B from $230.8B in the prior month as American companies bought less crude oil, chemicals & capital goods, including drilling equipment. Auto imports jumped $847M to a record & demand for most consumer goods also picked up, underscoring a rebound in household spending. After eliminating the influence of prices, which generates the numbers used to calculate GDP, the trade deficit widened to $58.4B compared with $56.9B a month earlier. The swelling gap between exports & imports depressed the economy in Q1. The deficit subtracted 1.9 percentage points from growth in the US economy, the most since 1985. A slower global economy & a strong dollar represent hurdles for US growth. The dollar’s advance since Jun 2014 has made US goods & services more expensive for overseas customers.
Puerto Rico lost its bid to revive a restructuring law that investors argue conflicts with US bankruptcy code, a blow to the commonwealth as it falls deeper into a fiscal crisis. Lawyers for Puerto Rico officials had asked a US Court of Appeals to reinstate the local law to help it deal with $72B in debt. The court resisted, agreeing instead with a San Juan judge who threw out the statute in Feb. The dispute centers on whether the island, which is excluded from federal bankruptcy code regarding municipal entities, can make its own rules for allowing public agencies to seek protection from creditors. The commonwealth may seek a rehearing before the 3-judge panel or a larger group of judges. It can also seek to be heard by the US Supreme Court. Puerto Rico can also turn to Congress & request permission to put its agencies in bankruptcy, the appeals court said. “In denying Puerto Rico the power to choose federal Chapter 9 relief, Congress has retained for itself the authority to decide which solution best navigates the gauntlet in Puerto Rico’s case,” the appeals court said yesterday. “We must respect Congress’s decision to retain this authority.” Barring help from federal lawmakers, the decision means the debt-burdened Puerto Rico agencies will have no other choice except to continue piecemeal negotiations with creditors, a process which could lead to chaos if discussions break down & investors end up suing the agencies & each other to reclaim some of what they’re owed. Puerto Rico securities have dropped in prices after the governor last month said he would move toward restructuring the island’s debt. Commonwealth general obligations maturing in 2035 traded at 70.6¢ on the dollar, after falling to 66.6¢ on Jun 30 (a record low).
The stock market is in one fine mess. Chaos is the main driver of global markets as the Greek debt mess is still stuck in neutral & Puerto Rico needs a bailout. Today is the latest deadline on the Iran talks which have the potential, among other things, of bringing more oil to the market that is already producing too much. Dow, down 300 YTD, is on defense as earnings season is ready to begin.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
| CLQ15.NYM | ...Crude Oil Aug 15 | ...52.47 |  ....0.06 | (0.1%) |
| GCN15.CMX | ...Gold Jul 15 | .......1,154.50 | ...18.40 | (1.6%) |
Euro-area leaders & finance ministers are meeting to discuss how Greece can stay in the common currency, the first round of serious talks since Greek voters rejected the terms of a prior bailout offer that expired on Jun 30. Prime Minister Tsipras said his gov wants debt restructuring as part of its next aid package. In the short term, Tsipras & the new finance minister Tsakalotos will probably arrive in Brussels with many of the same proposals they had before the referendum. Their main goal will be to start talks on bridge financing, to help Greece get past its upcoming financing hurdles. Tsipras also asked for a 2-year loan from the European Stability Mechanism, the euro-area’s firewall fund, in a Jun 30 letter before the referendum. The next deadline is Jul 20, most likely, when Greece needs to pay €3.5B ($3.9B) in bond redemptions for securities held by the ECB. Greece needs short-term cash before then, or else an expanded lifeline from the ECB to its financial system. Greek banks have already been shut for more than a week because of their cash crunch. The ECB has mostly left intact its lifelines to Greek banks but on Mon it tightened conditions on emergency liquidity assistance & today warned that offering too much flexibility to struggling lenders could weaken the incentive for others to follow the rules. That could be a reason to withdraw or reduce the support to Greece. The worst case scenario, they could all fail, taking household, corporate & public sector deposits with them. But that scenario is a long way off. The ECB’s Governing Council has declared it will work closely with the Bank of Greece to maintain financial stability. Also, the ECB’s aid isn’t likely to be withdrawn abruptly. Finance ministers are meeting now are likely to rule out bridge financing, saying Tsipras must start from scratch on a third bailout because all previous offers have expired. They will, however, most likely start the procedures that allow the European Commission & other institutions to draw up bailout outlines. Long term solutions, starting this evening, are fuzzy at best.
After the ‘No’ Vote: What Can The EU Do About Greece Now?
The US trade deficit widened in May as exports declined by the most in 3 months, showing businesses were having trouble drumming up sales to overseas customers. The gap grew 2.9% to $41.9B from the prior month’s revised $40.7B, according to the Commerce Dept. The forecast called for a $42.7B shortfall. Exports dropped 0.8% on declining demand for commercial aircraft & industrial equipment. Domestic crude production further reduced America’s imported fuel bill, which dropped in May to the lowest level since 2002. While persistent US household spending led to record automobile imports, unsettled European & Chinese economies are limiting prospects for a pickup in exports. Exports declined to $188.6B from $190.1B in Apr. Shipments overseas were also depressed by less demand for telecommunications equipment, pharmaceuticals & semiconductors. The decrease in exports was limited by a pickup in US sales of oil products & chemicals. Excluding petroleum, the deficit widened 6.5%. Imports were little changed at $230.5B from $230.8B in the prior month as American companies bought less crude oil, chemicals & capital goods, including drilling equipment. Auto imports jumped $847M to a record & demand for most consumer goods also picked up, underscoring a rebound in household spending. After eliminating the influence of prices, which generates the numbers used to calculate GDP, the trade deficit widened to $58.4B compared with $56.9B a month earlier. The swelling gap between exports & imports depressed the economy in Q1. The deficit subtracted 1.9 percentage points from growth in the US economy, the most since 1985. A slower global economy & a strong dollar represent hurdles for US growth. The dollar’s advance since Jun 2014 has made US goods & services more expensive for overseas customers.
U.S. Trade Gap Grows as Exports Fall Most in Three Months
Puerto Rico lost its bid to revive a restructuring law that investors argue conflicts with US bankruptcy code, a blow to the commonwealth as it falls deeper into a fiscal crisis. Lawyers for Puerto Rico officials had asked a US Court of Appeals to reinstate the local law to help it deal with $72B in debt. The court resisted, agreeing instead with a San Juan judge who threw out the statute in Feb. The dispute centers on whether the island, which is excluded from federal bankruptcy code regarding municipal entities, can make its own rules for allowing public agencies to seek protection from creditors. The commonwealth may seek a rehearing before the 3-judge panel or a larger group of judges. It can also seek to be heard by the US Supreme Court. Puerto Rico can also turn to Congress & request permission to put its agencies in bankruptcy, the appeals court said. “In denying Puerto Rico the power to choose federal Chapter 9 relief, Congress has retained for itself the authority to decide which solution best navigates the gauntlet in Puerto Rico’s case,” the appeals court said yesterday. “We must respect Congress’s decision to retain this authority.” Barring help from federal lawmakers, the decision means the debt-burdened Puerto Rico agencies will have no other choice except to continue piecemeal negotiations with creditors, a process which could lead to chaos if discussions break down & investors end up suing the agencies & each other to reclaim some of what they’re owed. Puerto Rico securities have dropped in prices after the governor last month said he would move toward restructuring the island’s debt. Commonwealth general obligations maturing in 2035 traded at 70.6¢ on the dollar, after falling to 66.6¢ on Jun 30 (a record low).
Puerto Rico Loses Bid for Restructuring Law
The stock market is in one fine mess. Chaos is the main driver of global markets as the Greek debt mess is still stuck in neutral & Puerto Rico needs a bailout. Today is the latest deadline on the Iran talks which have the potential, among other things, of bringing more oil to the market that is already producing too much. Dow, down 300 YTD, is on defense as earnings season is ready to begin.
Dow Jones Industrials
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