Weekly Market Commentary: October 5, 2015

Provided by geralt/Pixabay
Provided by geralt/Pixabay

Well, third quarter was a humdinger.

It began with the first International Monetary Fund (IMF) default by a developed country (Greece) and finished with Hurricane Joaquin possibly headed toward the east coast. In between, China’s stock market tumbled, the Federal Reserve tried to interpret conflicting signals, and trade growth slowed globally.

After such a stressful quarter, we may see an uptick in the quantity of alcoholic beverages consumed per person around the world. That number had declined (along with economic growth in China) between 2012 and 2014, according to The Economist.

No Grexit – for now

Despite defaulting on its IMF loan, rejecting a multi-billion-euro bailout plan, and closing its banks for more than two weeks, Greece was not forced out of the Eurozone. Instead, Europe cooked up a deal that left the IMF unhappy and analysts shaking their heads.

The Economist reported the new deal for Greece was an exercise in wishful thinking. The problem is the deal relies on “the same old recipe of austerity and implausible assumptions. The IMF is supposed to be financing part of the bailout. Even it thinks the deal makes no sense.” It’s a recipe we’re familiar with in the United States: When in doubt, defer the problem to the future.

A downturn in China

Despite reports from the Chinese government that it hit its economic growth target (7 percent) on the nose during the first two quarters of the year, The Economist was skeptical about the veracity of those claims. During the first quarter:

“Growth in industrial production was the weakest since the depths of the financial crisis; the property market, a pillar of the economy, crumbled. China reported real growth (i.e., after accounting for inflation) of 7 percent year-on-year in the first quarter, but nominal growth of just 5.8 percent.”

That statistical sleight of hand implies China experienced deflation early in the year. It did not.

On a related note, from mid-June through the end of the third quarter, the Shenzhen Stock Exchange Composite Index fell from 3,140 to about 1,716, according to BloombergBusiness. That’s about a 45 percent decline in value.

Red light, green light at the Federal Reserve

Green light: employment numbers. Red light: consumer prices, inflation expectations, wages, and global growth. Late in the quarter, the Federal Reserve decided not to begin tightening monetary policy. According to Reuters, voting members of the Federal Open Market Committee (FOMC) decided uncertainty in global markets had the potential to negatively affect domestic economic strength.

They may have been right. The Wall Street Journal reported, although unemployment remained at 5.1 percent, just 142,000 jobs were added in September. That was significantly below economists’ expectations that 200,000 jobs would be created. The Journal suggested the labor market has downshifted after 18 months of solid jobs creation.

Global trade in the doldrums

The global economy isn’t as robust as many expected it to be. According to the Business Standard, the World Trade Organization (WTO) lowered its forecast for global trade growth during 2015 from 3.3 percent to 2.8 percent. Falling demand for imports in developing nations and low commodity prices are translating into less global trade. Expectations are trade growth will be 3.9 percent in 2016, which could help support global economic growth.

Data as of 10/2/15 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.0% -5.2% 0.3% 10.5% 11.4% 4.8%
Dow Jones Global ex-U.S. 0.7 -8.6 -10.3 0.8 0.0 0.9
10-year Treasury Note (Yield Only) 2.0 NA 2.4 1.6 2.5 4.4
Gold (per ounce) -0.5 -4.9 -5.9 -13.7 -2.8 9.4
Bloomberg Commodity Index -0.7 -15.8 -25.7 -16.1 -8.7 -6.9
DJ Equity All REIT Total Return Index 1.5 -3.3 9.2 9.4 11.6 6.8

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Investment Directions: A Symphony of Uncertainties

Provided by Carlo Alberto Cazzuffi/Wikimedia
Provided by Carlo Alberto Cazzuffi/Wikimedia

The word symphony is derived from the Greek word symphonia, and before the word settled on its current melodic meaning in the 17th century, it was used to convey compatibility between opinions or actions. Today, tensions stemming from high debt loads and too little growth—not just in Greece but also China and Puerto Rico—are reaching a crescendo and seem to be some ways off from a resolution.

First Movement: The Greek Impasse

Clashes culminated in early July with the Tsipras administration’s unexpected calling of a referendum and Greek voters’ rejection of European creditor demands. Although a short-term deal was brokered to pull Greece back from the brink of financial collapse, Europe stood its ground on austerity. It is hard to tell how things will play out, but this much is clear: A prolonged period of uncertainty will probably accompany negotiations, as long as a Greek exit from the eurozone is in play.

Second Movement: The Chinese Volley

Greece is not the only country beset by uncertainty. Momentum in the high-flying China A-shares market has been broken, though a summer deluge of support measures from the People’s Bank of China (PBOC) ultimately had some stabilizing effects. After the latest selloffs, however, China H-shares, which are traded in Hong Kong, appear to offer some relative value.

Third Movement: The Volatility Effect

Financial markets at times responded nervously to the Greek and Chinese events, but we think most of the impact will be short-lived. The focus on Greece and China has obscured the facts that the Greek economy is very small, and China A-shares are mostly held by domestic investors. We believe that longer-term damage to the global economy or markets is unlikely.

Fourth Movement: The Search for Value

The widespread aversion to risk renewed some appetite for safe haven bonds, as did changing expectations of when the Federal Reserve (Fed) will act on interest rates. Despite that, we still believe stocks will fare better than bonds and are inclined to look internationally and to cyclical sectors for the most compelling equity opportunities.

For the full report, please click on the source link below.

Written by Russ Koesterich of BlackRock

(Source: BlackRock)

Europe Raises Heat on Greece to Make Further Concessions

© Daniel Roland/AFP/Getty Images
© Daniel Roland/AFP/Getty Images

European policy makers raised pressure on Greece to return to the negotiating table and make further concessions to unlock aid, as each side laid out its demands to rally support for its respective position.

Stocks and the euro fell on Monday as the extent of the policy divide that remains to be resolved was laid bare after weekend talks billed by European officials as a last attempt to end the standoff broke up early.

Europe needs a “strong and comprehensive agreement, and we need this very soon,” European Central Bank President Mario Draghi told lawmakers at the European Parliament in Brussels on Monday. “While all participants need to go the extra mile, the ball lies squarely in the camp of the Greek government.”

With signs that negotiating fatigue was stoking intransigence on all sides, some euro-area officials publicly raised the prospect of Greece’s exit from the currency region as the Greek government suggested it had reached the limits of its ability to make concessions. Finance Ministry officials from the 19-nation euro zone are due to hold a Greece call on Tuesday ahead of a meeting of ministers later this week.

“We’re reaching a potential period of turbulence if no accord is found,” French President Francois Hollande told reporters in Paris on Monday. “This is a message for Greece, because Greece mustn’t wait, it must renew talks with the institutions,” he said, referring to the International Monetary Fund, the ECB and the European Commission.

Awaiting Invitation

Greek Prime Minister Alexis Tsipras’s government said that it was awaiting an invitation from its creditors and is ready to respond anytime to continue the negotiations, according to an e- mail from the premier’s office.

The EU commission and IMF separately outlined their respective goals in the talks that broke up after just 45 minutes on Sunday. The focus now shifts to a June 18 meeting of euro-area finance ministers in Luxembourg. Officials have focused on that as a make-or-break session for Greece’s ability to avert default and stay in the currency union.

Tsipras, in a statement on Monday, portrayed Greece as the torchbearer of democracy, standing firm against creditors’ demand for pension cuts.

“One can only suspect political motives behind the fact that the institutions insist on further pension cuts, despite five years of pillaging,” Tsipras said. “We will wait patiently til the institutions adhere to realism.”

That prompted a rebuke from the European Commission.

“It is a gross misrepresentation of facts to say the institutions are calling or have called for cuts in individual pensions,” spokeswoman Annika Breidthardt told reporters in Brussels.

Written by Angeline Benoit and Nikos Chrysoloras of Bloomberg

(Source: MSN)

Stocks Close Up More than 1% Amid Greece Relief

© Katrina Tuliao, Flickr, Creative Commons
© Katrina Tuliao, Flickr, Creative Commons

U.S. stocks closed more than 1 percent higher in light volume trade Monday, following gains overseas on news of a bailout agreement between Greece and its creditors.

“I think it’s just a sigh of relief that it’s over, but let’s face it, they just kicked the can,” said Maris Ogg, president of Tower Bridge Advisors. “It seems like we kicked the can on a number of fronts. Earnings probably will be front and center int he next couple of weeks.”

About 11 stocks advanced for every 4 decliners on the New York Stock Exchange, with an exchange volume of 571 million and a composite volume of 2.8 billion as of 3:59 p.m. Average volume for the entire day is 3.4 billion.

“You’ve got a relief going on, short covering going on,” said Quincy Krosby, market strategist at Prudential Financial. “What you want for confidence buying is to see a market close with buying orders on the close.”

The Dow Jones industrial average traded about 220 points higher, with Microsoft and DuPont leading most blue chips higher. The index recovered recent losses to trade about 0.80 percent higher for the year.

The Nasdaq Composite jumped 1.5 percent as Apple and the iShares Nasdaq Biotechnology ETF (IBB) rose more than 1.5 percent.

The S&P 500 held near 2,100, led by a rise in information technology stocks and consumer discretionary’s 1.3 percent gain to an all-time high.

The Dow transports also briefly advanced more than 1 percent, with airlines leading gains.

“I think the market’s technically very oversold,” said Bruce Bittles, chief investment strategist at RW Baird. “The market’s poised to go up but to break this trading range (we’ve been in) since January you need to see volume pick up… number of stocks hitting 52-week highs expand.”

He said the S&P 500 breaking past 2,100 would be an encouraging sign.

European Council President Donald Tusk said early on Monday that euro zone leaders reached an unanimous agreement with Greece after all-night talks in Brussels to move forward with a bailout loan for the cash-strapped nation, provided Athens implement tough reforms.

“The jury’s still out on whether or not this is going to be accomplished,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

To receive this third bailout, Greece’s parliament must pass the new rules in areas such as privatization, labor laws and pension reforms by Wednesday. The 86 billion euro ($95.2 billion) in funds would come over three years.

In the meantime, euro zone finance ministers were expected to discuss Monday how to keep Greece financed before the bailout deal is reached. Athens faces a 7 billion euro repayment deadline on July 20 to the European Central Bank.

The ECB announced it maintains the emergency assistance cap for Greek banks, which will remain closed for at least two more days.

The Dow Jones industrial average futures were about 140 points higher before the open.

European stocks jumped on news of the conditional Greece deal, with the German DAX up about 1.5 percent and the STOXX Europe 600 up nearly 2 percent

In Asia, stocks surged with the Nikkei up 1.57 percent and the Shanghai Composite leaping 2.4 percent as it extended a recovery from a recent plunge.

Art Hogan, chief market strategist at Wunderlich Securities, said the domestic response will likely be less exuberant since the major averages ended last week little changed. Only the Dow eked out a gain, of a mere 0.17 percent.

Stocks rose slightly past their opening levels, while bond yields held steady. The U.S. 10-year note yield was 2.44percent and the 2-year held near 0.67 percent. The German 10-year bund yield fell to 0.85 percent.

The U.S. dollar extended gains with the euro dipping below $1.10.

Also in focus is the Iranian nuclear deal, which would allow more oil exports. Talks on a deal were extended past a June 30 deadline and are expected to reach a conclusion Monday.

Crude oil futures settled down 54 cents, or 1.02 percent, at $52.20 a barrel on the New York Mercantile Exchange. Gold futures fell $1.70 to $1,156.20 an ounce in afternoon trade.

No economic data or earnings of note were expected Monday.

Second-quarter earnings season gets underway with a slew of major reports on Tuesday that include JPMorgan Chase and Wells Fargo. On the economic front, retail sales are due Tuesday morning.

“Each data point in and of itself may not be important, but collectively they’re important, especially since there’s a premium on the data,” Krosby said.

Federal Reserve Chair Janet Yellen delivers her semi-annual testimony on the economy to Congress on Wednesday and Thursday.

“If she focuses on (international news and the dollar) that will give the market a huge boost because she’s more concerned about it than she suggested in her speech Friday,” Krosby said.

In other news, the United States posted a budget surplus of $51.8 billion in June, down 27 percent from the same period last year, the U.S. Treasury Department said on Monday.

The Dow Jones Industrial Average traded up 211, or 1.19 percent, at 17,972, with Microsoft and Caterpillar leading gains and Merck and UnitedHealth the only decliners.

The S&P 500 traded up 21 points, or 1.05 percent, at 2,098, with information technology leading nine sectors higher and utilities the only decliner.

The Nasdaq traded up 72 points, or 1.45 percent, at 5,070.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14.

Written by Evelyn Cheng of CNBC

(Source: MSN)

Eurozone Reaches Deal on Greece

© European Pressphoto Agency
© European Pressphoto Agency

BRUSSELS—Eurozone leaders said Monday morning that they would give Greece up to €86 billion ($96 billion) in fresh bailout loans as long as the government of Prime Minister Alexis Tsipras manages to implement a round of punishing austerity measures in the coming days.

The rescue deal—hammered out after 22 hours of, at times acrimonious, negotiations between the currency union’s leaders and finance ministers—requires the Greek left-wing government’s near-total surrender to its creditors’ demands.

But it gives the country at least a fighting chance to hold on to the euro as its currency.

“The deal is hard,” Mr. Tsipras said after the summit, warning that the measures required by creditors will send the country’s economy further into recession.

European stocks rallied early Monday on the news. By mid-morning, the Stoxx Europe 600 was up 1.5%, building on Friday’s hefty gains. Germany’s DAX rose 1.4%, France’s CAC-40 added 1.9% and London’s FTSE 100 rose 0.6%. In southern Europe, Italy’s FTSE MIB climbed 1.2% and Spain’s IBEX gained 1.5%.

By Wednesday, Athens’s Parliament has to pass pension overhauls and sales tax increases that voters overwhelmingly rejected in a referendum just one week ago. Greece now has to implement European Union rules that make it easier to wind down broken banks, including by sharing the cost with investors and creditors.

“Trust needs to be restored,” German Chancellor Angela Merkel said at a news conference.

“The agreement was laborious. It took time but it was done,” said Jean-Claude Juncker, the president of the European Commission.

“There won’t be a Grexit,” Mr. Juncker added, referring to a Greek exit from the eurozone.

In a concession to Greece, eurozone governments will consider measures to make the country’s debt more manageable, for instance by giving it more time to repay rescue loans.

A detailed rescue program that will have to be negotiated after the first overhauls and cuts have been implemented will contain measures that go far beyond the kind of oversight and external control other governments under eurozone bailouts have endured.

The most divisive step demanded by Greece’s creditors is the creation of a fund that would hold some €50 billion in state-owned assets slated to be privatized or wound down in the coming years. The fund will be under European supervision, Ms. Merkel said.

Most of the money raised will go to pay off Greece’s debt and help recapitalize its broken banks, while €12.5 billion can be used for investment, said Ms. Merkel.

“The advantages outweigh the disadvantages,” she said about the deal, while warning that Greece’s path back to growth will be long and arduous.

Despite these big concessions by Mr. Tsipras, Greece’s future in Europe’s currency union still hangs in the balance.

Passing the tough new bailout measures through Greece’s Parliament could split Syriza and its right-wing coalition partner, the Independent Greeks, which in turn could trigger fresh elections. And there wasn’t an answer on when the country’s banks—closed for most business for the past two weeks—will reopen or how Greece will make a €4.2 billion payment to the European Central Bank on July 20.

The eurozone’s finance ministers will discuss how to come up with a mechanism to meet Greece’s short-term financial needs “as a matter of urgency,” Donald Tusk, the president of the European Council who led the talks, said after the summit.

A statement issued after the summit says Greece will need between €82 billion and €86 billion in fresh funding over the next three years. Between €10 billion and €25 billion will be required to recapitalize Greek banks, damaged by months of deposit outflows and two weeks of capital controls.

French President François Hollande, whose government lobbied hard for Greece in recent weeks, said he expects the ECB to step in with additional liquidity for Greek lenders, as long as Athens follows through on a deal. That could allow banks to gradually reopen.

“That was the indispensable condition, but it will take a few days,” Mr. Hollande said.

In a concession to Greece, eurozone governments will discuss ways to make the country’s debt load more manageable later this year.

“There will be a reprofiling of the debt by extending maturities and doubtless a negotiation on the interest rates,” said Mr. Hollande. “That is part of the agreement.” Ms. Merkel stressed that there won’t be a cut to the nominal value of rescue loans.

European officials said negotiations came close to collapse at some points during the night, when Mr. Tsipras argued that some of the creditors’ demands would be impossible to meet. Germany in particular has been driving a hard line, which for much of the evening included the possibility of a “time-out” for Greece from the currency union.

“In Germany there was strong opinion for Grexit,” Mr. Hollande said, “and not just in Germany.”

“I refused this solution,” he added.

As part of the deal, Greece’s administration will be modernized and depoliticized, Ms. Merkel said, adding that the Athens government will be expected to make first proposals by July 20.

The measures laid out in Monday’s statement reach deep into the workings of Greece’s economy. They include changes to labor laws that would make it easier to fire workers, as well as the further liberalization of markets for products such as pharmaceuticals, milk and baked goods, the statement said. Greece also would have to privatize state assets, including the electricity network operator.

Contrary to Greece’s wishes, the International Monetary Fund will remain involved in bailing it out even after the fund’s existing rescue program expires in March. Athens defaulted on a €1.56 payment to the IMF on June 30 and is unlikely to make a €456 million payment due Monday. The summit statement said it was important for the government to cover the failed payments.

“It has been a laborious night, but I think it is a good step to rebuild confidence,” said IMF Managing Director Christine Lagarde.

Written by Gabriele Steinhauser, Viktoria Dendrinou, Matthew Dalton of The Wall Street Journal

(Source: MSN)

Dow Closes Higher for the Week as Overseas Worries Fade

© Provided by CNBC
© Provided by CNBC

Stocks closed more than 1 percent higher Friday, recovering from a sharp selloff earlier in the week, as hopes for resolution in Greece and stabilization in China boosted sentiment.

The Dow Jones industrial average closed about 220 points higher. The index surged more than 200 points in the open as the major averages leaped nearly 1 percent or more. The Nasdaq Composite briefly gained more than 1.5 percent. The Dow transports also gained more than 1.5 percent led by airlines.

Apple traded nearly 3 percent higher, reversing a 2 percent plunge Thursday that took the stock close to its 200-day moving average.

“This has been a week where everyone worried about China and Greece and as we go into the weekend those big financial headwinds are less scary,” said David Kelly, chief global strategist at JPMorgan Funds. “There’s clearly more optimism that a a Greece deal (is reached).”

Greece’s banks will need an estimated 10 to 14 billion euros of fresh capital to keep them afloat and more time before they reopen even if a deal is reached with European creditors on Sunday, a senior Greek banker told Reuters on Friday.

Greece submitted new reform proposals late Thursday that creditors could evaluate as early as Friday. The parliament in Athens is also scheduled to vote on the proposals later in the day ahead of Sunday meetings of euro zone leaders.

Chinese stocks extended gains on Friday, jumping for a second day following government intervention amid hopes of a Greece deal. European stocks also advanced, with the DAX closing nearly 3 percent higher.

In domestic news, Fed Chair Janet Yellen said in prepared remarks the U.S. is still on pace for a rate hike this year and that fundamentals are solid and sees pickup in growth in the coming years.

“It confirms our belief that it will be a small hike and later this year,” said Mariann Montagne, senior investment analyst at Gradient Investments. She expects a hike in November or December.

Yields extended morning gains with the U.S. 10-year note yield at 2.41 percent and the 2-year yield at 0.65 percent. German 10-year bund yields leaped to 0.89 percent.

Earlier, Boston Fed President Eric Rosengren said in a Reuters report that the central bank might hike rates later this year as long as inflation firms and Greece and other international wildcards do not get in the way. He added that negotiations over Greek debt and a slowing Chinese economy were among the possible disruptions that could delay the beginning of tighter U.S. monetary policy, though they hadn’t altered expectations yet.

The U.S. dollar fell about half a percent, with the euro above $1.11.

“The likelihood of a Grexit has dramatically diminished,” said Doug Cote, chief market strategist at Voya Investment Management. “Despite the volatility, despite the noise from Greece we’re having good fundamental data coming out in (U.S.) housing. … The fundamentals continue to drive this market forward.”

In economic reports, U.S. wholesale trade inventories for May jumped 0.8 percent, soundly topping estimates for the fastest pace of growth in six months. April’s figure was unchanged, showing a 0.4 percent gain.

There are no major earnings due on Friday.

Stocks rallied sharply in the open Thursday but gave back the majority of their gains to close mildly higher as lack of resolution on Greece kept investors on edge.

“We were very oversold so it’s very important that we rally next week,” said Lance Roberts, general partner of STA Wealth Management. He’s watching to see if the S&P 500 can hold 2,078.

He expects a rate hike in September unless the situation in China worsens.

“The one thing that trips up markets is the story no one is talking about,” he said.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell below 17.

“There are a lot of things that can go wrong and I think the level of the VIX, even though it’s come down, indicates we still have a lot of uncertainty,” said Randy Frederick, managing director trading and derivatives at Charles Schwab.

About four stocks advanced for every decliner on the New York Stock Exchange, with an exchange volume of 414 million and a composite volume of nearly 2 billion as of 2:30 p.m.

High-frequency trading accounted for 49 percent of July-to-date’s daily trading volume of about 7.0 billion shares, according to TABB Group. During the peak levels of high-frequency trading in 2009, about 61 percent of 9.8 billion of average daily shares traded were executed by high-frequency traders.

Crude oil futures for August delivery settled down 4 cents at $52.74 a barrel on the New York Mercantile Exchange. Gold futures ended down $1.30 at $1,157.90 an ounce.

Gap reported a 1 percent drop in June same-store sales, more than the Thomson Reuters estimate for a 0.5 percent decline.

Barracuda Networks beat estimates by 1 cent with adjusted quarterly profit of 9 cents per share, with revenue also above estimates. However, gross billings—a sign of future demand—were well below Street forecasts.

Written by Evelyn Cheng of CNBC

(Source: MSN)

Exclusive: Greek Banks Face Closures, Bailout or Not – Sources

© REUTERS/Cathal McNaughton
© REUTERS/Cathal McNaughton

Some large Greek banks may have to be shut and taken over by stronger rivals as part of a restructuring of the sector that would follow any bailout of the country, European officials have told Reuters.

European leaders will gather on Sunday in a last-ditch attempt to salvage agreement with Greece after months of acrimonious negotiations that have taken the country to the brink of leaving the euro.

But regardless of whether or not fresh funds are now unlocked for the government, some Greek banks, damaged by political and economic havoc, may have to be closed and merged with stronger rivals, officials, who asked not to be named, told Reuters.

One official said that Greece’s four big banks – National Bank of Greece (NBGr.AT), Eurobank (EURBr.AT), Piraeus (BOPr.AT) and Alpha Bank (ACBr.AT) – could be reduced to just two, a measure that would doubtless encounter fierce resistance in Athens.

A second person said that although mergers of banks were necessary, this could happen over the longer term.

“The Greek economy is in ruins. That means the banks need a restart,” said the first person, adding that prompt action was necessary following any bailout between Athens and the euro zone. “Cyprus could be a role model.”

“You have a tiny bit of time … you would do restructuring straight away.”

Greece’s financial system has been at the heart of the current crisis, hemorrhaging deposits as relations between the radical left-wing government of Prime Minister Alexis Tsipras and creditors worsened.

After Athens defaulted on debt owed to the International Monetary Fund last month, the ECB froze emergency funding for the banks, precipitating their temporary closure and a 60-euro daily limit on withdrawals from cash machines.

A decision by Greek voters last week to reject bailout terms offered by the country’s international creditors prompted the ECB to maintain its cap, meaning that the banks will run out of cash soon.

LIQUIDITY AND SOLVENCY

A year ago, Greece’s bankers thought they were on the cusp of a new era. They had restructured as part of the country’s bailout deal, had raised fresh equity from international investors and had regained access to debt markets to fund lending.

But the economic and political turmoil that has ensued since Tsipras came to power in January means that they are dangerously short of cash.

Even after the immediate liquidity problems are worked out, any restructuring of the sector would first require a prompt recapitalization of Greece’s strongest lenders because rising bad debts and exposure to Greek government bonds mean they are in danger of becoming insolvent.

A timeline and exact plan for the sector’s revamp could be finalised after a recapitalization.

Such action would face stiff political resistance in Athens, where Tsipras has pledged to ‘restore our banking system’s functioning’. Bank mergers save money but cost jobs, making them unpopular.

Reflecting such obstacles, a second person said: “There would be an interest in having less banks … but I’m wondering whether this would make sense in the short term.”

Any closures, which would be managed primarily by Greek authorities under the watch of the European Central Bank’s supervisors, would not typically affect customers as their deposits and accounts would migrate to the bank’s new owner.

Greece’s finance ministry was not immediately available for comment, while a spokeswoman for the ECB said: “The ECB Banking Supervision is closely monitoring the situation of Greek banks and is in constant contact with the Bank of Greece.”

CYPRUS MODEL

Any such revamp would be a stark reminder of the withered state of the country’s financial system, where deposits had shriveled to their lowest level in more than a decade before savers were forced to ration cash withdrawals.

Of Greece’s four big banks, National Bank of Greece, Eurobank and Piraeus fell short in an ECB health check last year, when their restructuring plans were not taken into account.

Only Alpha Bank was given an entirely clean bill of health.

A restructuring could follow a similar pattern to Cyprus, where one of the island’s two main banks was closed as part of its stringent bailout, and Ireland, where three lenders were either shut or merged with rivals.

But a senior Greek banker, while acknowledging that the ECB could embark on fresh stress tests and “set the recapitalization, restructuring process going again”, said any mergers would reduce competition.

“If the argument is cost efficiency and whether Greece is overbanked, with four players there is a semblance of competition,” he said. “With fewer players, competition will be reduced even more.”

Written by John O’Donnell of Reuters

(Source: MSN)

Greece Submits a Last-Ditch Bailout Proposal

© Provided by IBT US
© Provided by IBT US

In an eleventh-hour attempt at making fast-approaching debt repayments and avoiding a disastrous exit from the eurozone, the Greek government has formally filed a request for support from Europe’s bailout fund. The one-page letter outlining the request, leaked to the media Wednesday, gives a broad overview of the bailout’s proposed terms and the economic reforms Greece promises to make.

Without going into specifics, the letter states Greece would immediately overhaul parts of its tax and pension systems, with changes coming down “as early as the beginning of next week.” Greece’s creditors at the European Central Bank have made tax and pension reforms paramount to extending its support program to Greece, which recently missed a scheduled 1.5 billion euro ($1.7 billion) payment to the International Monetary Fund.

According to the request, the Greek government would seek a three-year lending facility, an increase from last month’s two-year request. The Greek government owes 3.5 billion euros ($3.8 billion) to the ECB on July 20, a payment that the government currently cannot make. Numerous European officials have made the unprecedented assertion that failure to secure an agreement in the coming week will likely mean a Greek exit, or Grexit, from the eurozone.

Although this request formally opens talks with the European Stability Mechanism, the eurozone’s 500 billion euro bailout fund, Greece’s full proposal will be outlined in coming weeks.

Greece’s left-wing Syriza government has steadfastly demanded its creditors offer debt relief, a measure supported by the IMF. Despite initial proclamations its negotiators wouldn’t budge in resisting further austerity measures, however, the Greek government has offered concessions to some of its creditors’ budget and spending demands.

The letter hints at Greece’s continued insistence on debt relief: “Greece welcomes an opportunity to explore potential measures to be taken so that its official sector related debt becomes both sustainable and viable over the long term.”

Eurozone finance ministers are expected to discuss the request Wednesday via teleconference.

Written by Owen Davis of International Business Times

(Source: MSN)

NYSE Trading Halted; Stocks Down 1% as China, Greece Weigh

© Provided by CNBC
© Provided by CNBC

Trading on the New York Stock Exchange in late-morning trade on Wednesday with U.S. stocks extending their losses as continued concerns about Greece and the extended selloff in the Chinese market pressured investor sentiment.

“We’ve had some technical malfunctions. Some may be related to connectivity with other exchanges. I believe we’re going to have a temporary pause certainly in a variety of stocks perhaps floor wide,” Art Cashin, director of floor operations at the NYSE, told CNBC, adding that the halt will not cause a move in a particular direction.

Other exchanges, however, continued trading normally. The NYSE later said that all open orders amid the halt will be cancelled.

“What happens with these situations is often you get a sort of residual result. You’re all clear or you get caught up to date and there’s a little bit of a backlog that pops up somewhere, and it tends to jam things up. So I don’t think any of us has quite enough information yet,” Cashin added.

The Dow Jones industrial average traded about 175 points lower when trading was halted as the major averages declined, with the Nasdaq Composite briefly off more than 1 percent as biotechs and Apple (AAPL) plunged more than 1 percent. The iPhone maker was also the worst performing stock in the Dow.

The S&P 500 struggled to hold gains for the year. The index dipped into negative territory Tuesday but recovered in afternoon trade to hold slightly higher for 2015.

“I think we’re just realigning the U.S. market with the declines elsewhere,” said Peter Boockvar, chief market analyst at The Lindsey Group.

In China, the Shanghai Composite closed nearly 6 percent lower despite supportive government measures. The index has fallen more than 30 percent from its mid-June peak amid frequent bouts of extreme volatility. Analysts say the turbulence is starting to unnerve regional investors.

“There was no real trigger until Chinese stocks became too pricey,” said Nick Raich, CEO of The Earnings Scout. “The trigger that sent this all off has been the Greece debt crisis.”

European stocks traded higher on Thursday amid hopes of a Greece deal. However, the indices are more than 2 percent lower for the week so far.

The Greek government has until Friday morning to present detailed reform proposals to allow a bailout deal by a Sunday summit.

Greek Prime Minister Alexis Tsipras addressed the European Parliament on Wednesday, lambasting Europe’s advocacy of austerity and the efficacy of Greece’s bailout programs since 2010, but promised a detailed, “concrete” deal would be presented in the next two to three days.

“Unfortunately the U.S. will remain headline-driven until earnings season which (starts) with Alcoa tonight,” Boockvar said. “Today will clearly be bullied around by headlines out of Greece.”

The Federal Open Market Committee (FOMC) minutes at 2 p.m. ET will also be in focus, with traders scanning the Federal Reserve’s June meeting report for hints on interest rate rise timing.

“I think the Fed minutes are something to watch closely,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. But “usually the market doesn’t do much around the minutes until they’re released.”

The Dow Jones Industrial Average (.DJI) traded down 194 points, or 0.99 percent, at 17,583, with Intel leading decliners and Microsoft (MSFT) the only advancer.

The S&P 500 (.SPX) traded down 23 points, or 1.14 percent, at 2,057, with telecommunications leading all 10 sectors lower.

The Nasdaq (.IXIC) traded down 64 points, or 1.31 percent, at 4,931.

The CBOE Volatility Index (VIX) (.VIX), widely considered the best gauge of fear in the market, traded near 18.

About five stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 194 million and a composite volume of 1.22 billion as of 11:30 a.m.

Crude oil futures for August delivery lost 81 cents to $51.52 a barrel on the New York Mercantile Exchange. Gold futures rose $7.50 to $1,160.20 an ounce in morning trade.

Bond yields held lower, with the 10-year yield at 2.23 percent and the 2-year at 0.57 percent. The Treasury auctions $21 billion in 10-year notes this afternoon.

The U.S. dollar fell about half a percent against major world currencies as the euro gained to above $1.10.

Earnings season unofficially begins with aluminium producer Alcoa (AA) reporting after the market close.

Written by Evelyn Cheng of CNBC

(Source: MSN)

S&P Negative for Year, Dow Briefly Falls 200 Points Amid Greece

© Provided by CNBC
© Provided by CNBC

U.S. stocks fell nearly 1 percent or more on Tuesday, with the S&P 500 falling below its 200-day moving average, as investors awaited developments in the Greece debt crisis.

The S&P 500 fell below that key level for its first time since October 20, joining the Dow Jones industrial average in negative territory for the year. The blue chip index is about 1.5 percent lower for the year and traded about 140 points lower on Tuesday after falling more than 200 points.

“Investors want to get out, not just because of Greece but because there’s a lack of bullish impetus here,” said Adam Sarhan, CEO of Sarhan Capital.

The major averages opened higher but quickly turned lower, with the Nasdaq Composite underperforming and falling more than 1 percent.

“I think right now you’re in a situation where you’re waiting for new news,” said Ben Pace, chief investment officer at HPM Partners. “You can’t ignore what’s happening to (Greece).”

Euro zone leaders held an emergency summit in Brussels to discuss Greece.

Greece will submit a new aid proposal to European creditors “maybe” on Wednesday, euro zone officials said, with Athens’ European partners convening in Brussels for emergency talks.

However, the government’s latest proposals differ only slightly from previous versions, German media reported.

“Optimism over getting a deal done faded away here because the IMF is looking at Greece exactly the same as before,” said Art Hogan, chief market strategist at Wunderlich Securities. “We’re still very much held hostage to what’s next. The market will be hard-pressed to gather any enthusiasm.”

“The good news is, as we look at the selloff thus far, it could have been a lot worse,” he said.

Stocks closed mildly lower on Monday despite the Greek’s rejection of its creditors proposals in a Sunday referendum. However, the Dow Jones industrial average closed below its 200-day moving average.

“The major indices are retesting short-term support on weakness in the energy and materials sectors,” BTIG Chief Technical Strategist Katie Stockton said in a note. “An intraday trading range has formed and it is characterized by positive divergences that bode well for a breakout in the days ahead. We would add exposure once the S&P futures clear 2082 because it would affirm the short-term oversold “buy” signal that is in place per the daily stochastics.”

In U.S. economic data, May international trade numbers showed that the U.S. trade deficit widened, fueled by a drop in exports.

Bond yields continued to fall, with the U.S. 10-year yield (US10Y) below 2.20 percent and the 2-year yield at 0.56 percent. The German 10-year bund yield was 0.64 percent.

The dollar gained nearly 1 percent, while the euro hit a low of $1.0915, its lowest since June 2.

JOLTS job openings data came in slightly higher for May than the previous month. Consumer credit figures are due at 3 p.m. The U.S. Treasury is scheduled to hold a three-year note auction later in the day.

The Federal Reserve releases its meeting minutes Wednesday afternoon.

European shares also reversed to trade trade lower, while in Asia, Japan’s blue-chip Nikkei closed 1.3 percent higher and volatility continued to mark trade in Chinese stocks.

The benchmark Shanghai Composite fell more than 1 percent amid doubts that steps taken by Beijing in the past week would shore up battered stock markets.

Oil continued to decline, with U.S. crude futures near $50 a barrel on Tuesday—off more than 3 percent.

Companies reporting earnings this session include The Container Store (TCS).

Carnival (CCL) announced Tuesday that it gained approval from the U.S. government for limited cruises to Cuba as early as next year.

The Dow Jones Industrial Average (.DJI) traded down 180 points, or 1 percent, at 17,505, with UnitedHealth (UNH) and JPMorgan Chase (JPM) the greatest decliners and Procter & Gamble (PG) leading advancers.

The S&P 500 (.SPX) traded down 20 points, or 0.97 percent, at 2,048, with materials leading eight sectors lower and utilities and consumer staples leading advancers.

The Nasdaq (.IXIC) traded down 78 points, or 1.5 percent, at 4,915.

About three stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 294 million and a composite volume of 1.3 billion.

Crude oil futures fell $1.71 to $50.82 a barrel on the New York Mercantile Exchange. Gold futures fell $20.00 to $1,153.30 an ounce in late morning trade.

Written by Evelyn Cheng of CNBC

(Source: MSN)