Wednesday, July 8, 2015

Markets slump on Greek debt chaos and Chinese market decline

Dow dropped 208, decliners over advancers almost 5-1 & NAZ retreated 68.  The MLP index fell 2+ to the 399s & the REIT index lost 1+ to the 313s.  Junk bond funds were lower & Treasuries also sold off.  Oil climbed higher as traders watch talks with Iran & gold rose.

AMJ (Alerian MLP Index tracking fund)

CLQ15.NYM...Crude Oil Aug 15...52.26 Down ...0.07  (0.1%)

GCN15.CMX...Gold Jul 15.......1,161.50 Up ...9.10 (0.8%)

European leaders talked openly about a Greek exit from the euro ahead of a weekend summit on the country’s economic future, breaking dramatically with years of denial about the possibility.  Europe has “a Grexit scenario prepared in detail,” European Commission President Jean-Claude Juncker said, hours before Austrian Chancellor Werner Faymann said Greece’s Plan B is “another currency.”  The EU set a Sun deadline to reach a deal with Greece on a rescue in exchange for austerity measures & economic reforms, while the country formally requested a new 3-year bailout & promised to pay back its debts.  The country is closer than ever to being forced to abandon the € after its people voted decisively to reject spending cuts & tax hikes.  Greece’s banks are almost out of cash & the economy is grinding to a halt after the Prime Minister imposed capital controls to stem withdrawals, & could collapse entirely without a new lifeline from the ECB.  “Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system,” said EU pres Donald Tusk.  Failing to find a deal “will mean the end of the negotiations with all the possible consequences, including the worst-case scenario where everyone will lose,” he said.  The Brussels meeting on Sun looms as the climax of a 5-year battle to contain Greece’s debts, potentially splintering a currency that was meant to last & throwing more than ½ a century of European economic & political integration into reverse.  German Chancellor Angela Merkel, whose country is Greece’s largest foreign creditor, said she is “not especially optimistic” about finding a solution.  Tsipras is in Strasbourg as part of his last-ditch campaign to keep Greece in the euro.  His gov extended capital controls & bank closures thru Fri as it sent a formal request for a new bailout to the European Stability Mechanism, the body that co-ordinates financial assistance to member states.  Greece asked for a 3-year loan facility, said tax & pension reforms would be implemented starting next week, & pledged to honor all its financial obligations “in a full and timely manner.”

Greece Faces Euro Exit Unless Demands Accepted by Sunday

China’s benchmark stock index tumbled to a 3-month low as another round of gov support measures failed to allay concern that margin trades will keep unwinding at a record pace.  The Shanghai Composite Index slid 5.9% to 3507 (versus over 5K on Jun 12).  With at least 1331 companies halted on mainland exchanges & another 747 falling by the 10% daily limit, sellers were locked out of 72% of the Chinese market.  They turned to everything from gov bonds to Hong Kong shares & commodity futures to raise cash.  Policy makers’ latest attempts to stop the selling, including measures to prop up small-cap stocks, were overshadowed by data showing an unprecedented liquidation of margin trades on yesterday.  Foreign investors extended a record 3-day exodus as some said gov meddling is making matters worse.  Traders unloaded 98B yuan ($15.8B) of shares purchased with borrowed money on the Shanghai exchange yesterday, the 12th straight day of declines.  A 5X surge in margin debt over the 12 months thru Jun 12 had helped propel the Shanghai index to a more than 150% gain.  Pres Xi Jinping’s gov is ramping up efforts to combat the rout as policy makers seek to maintain confidence in the nation’s leadership & prevent a crash from weighing on an the weakest economic expansion since 1990.  China now has more than 90M investors, a constituency that’s larger than the Communist Party.  The trading suspensions, which cast doubt on authorities’ pledge to give markets a greater role in the economy, mean that the Shanghai Composite’s drop was probably understated.  On the Shanghai exchange, 365 companies suspended trading, equivalent to 1/3 of all listings.  A further 992 were halted in Shenzhen, or 56% of the total.

Microsoft, a Dow stock, plans to cut almost 8K jobs “primarily  in the phone business,” as it also said it would record a $7.6B impairment charge related to assets from its Nokia Devices & Services acquisition, & a restructuring charge of $750-$850M.  The announcement comes on the heels of recent moves from the company to realign its business with CEO Satya Nadella’s priorities.  “We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem including our first-party device family,” the CEO said.  “In the near-term, we’ll run a more effective and focused phone portfolio while retaining capability for long-term reinvention in mobility.”  The stock was off pennies.  If you would like to learn more about MSFT, click on this link:

Microsoft to Cut 7800 Jobs, Take Charges

Microsoft (MSFT)

This is another ugly day as the Greek drama plays on.  Extending the bailout for Greece seems to be a lost cause.  Meanwhile the declining stock market in China is being felt around the world.  Dow is falling as I write & down 250 YTD  (near its lows for 2015).

Dow Jones Industrials

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