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06Jul2015 Market Close: Markets End Lower, Oil Ends Lower And Copper Falls To Five Month Low

Written by Gary

U.S. stocks ended elevator Monday's choppy session fractionally lower as equities came under investor selling following Greece's overwhelming rejection of bailout terms and moved closer to a potential Grexit from the eurozone. Closing numbers were in the red, but with only modest losses with continuing worries about increase in Fed lending rates. It is the final step in ending the extremely long period of "accommodative policy" measures that has been a primary support of asset prices.

Todays S&P 500 Chart

Copper prices finished at five-month lows, -3.5% to $2.538/lb., on growing concerns that China's demand for the industrial metal may continue to falter after a series of stimulus measures taken in the last several months has failed to make a dent in the country's slowdown.

WTI also dropped 10% over three straight sessions and Brent more than 7% lower in two consecutive days, breaking out of the narrow trading band of the past three months and risking a deeper slide ahead.

WTI crude oil settled at a three-month low $52.53/bbl, -7.7%, on a confluence of worries about the Greece debt drama, China's stock markets and a possible new flood of Iranian oil; Brent crude fell to $56.50, -6.3%, to snap its 100-day MA.

The Market in Perspective

Here are the headlines moving the markets.

"Greece Is Contained" Except In Crude, Copper, FX, US & EU Stocks, & Peripheral Bonds

Seemed appropos...

"Greece is contained" was the clear message desperately trying to be provided to the masses today as PPTs from all around the world lifted FX (and equities directly in some regions) in an effort to keep the dream alive... It didn't work!

It started in China... and failed...

Then Europe... and failed... (in stocks)

and bonds...

Then US... and failed...

FX markets turmoiled but it appears The ECB and BoJ had an 'understanding'...

Aetna CEO addresses antitrust concerns over Humana deal

(Reuters) - Aetna Inc's chief executive said Monday he was confident an antitrust review of the health insurer's proposed purchase of smaller rival Humana Inc would allow the deal to close in the second half of 2016, seeking to allay investor concerns.

Germany, France press Greece to make credible proposals

PARIS/ATHENS (Reuters) - France and Germany told Greece to come up with serious proposals in order to restart financial aid talks, raising pressure on Prime Minister Alexis Tsipras to compromise a day after his country voted overwhelmingly against more austerity.

This Is What Greece's "Triumphant Return" Looks Like Now

April 10th 2014 will live on as a day of infamy as hopes of Greece's 'recovery' were proven 'correct' as it issued a 5Y bond in the public markets in what some commentators called a "triumphant return."

As recently as last Friday that bond still traded at aroun 70c on the dollar (a 300% collapse from the issue price) but for all those who stuck to their guns and denied-denied-denied reality, today's collapse shows that a 'No' vote was anything but priced in.

Charts: Bloomberg

Oil Prices Tumble Nearly 8%

Oil prices skidded to their biggest single-day declines in more than three months, as gyrations in Chinese stocks and the prospect of more crude from the U.S. and Iran revived worries about the global supply glut.

Chinese Share Sell-Off Spills Over to Hong Kong

As Beijing tried to prop up its markets, shares of large companies rose, but small-capitalization stocks continued a retreat and Hong Kong indexes fell.

Global Markets: How to Make Sense of China's Plummeting Stock Market

Four charts show why the sharp drop in Chinese markets was more predictable than you might expect.

The Fed's Window For Hiking Rates Continues To Close

Submitted by Lance Roberts via STA Wealth Management,

During the last year, the Federal Reserve has hinted that the period of "ultra accommodative monetary policy" was coming to an end. The Fed started that process last October by terminating the latest "Quantitative Easing" program which induced massive amounts of liquidity into the financial markets. Subsequently, the Fed has turned its focus towards the near ZERO level of the "Fed Funds" rate.

Over the last several FOMC meetings, Chairwoman Janet Yellen has hinted on numerous occasions that the Fed will begin increasing the overnight lending rate sometime in 2015. She has been adamant that the Federal Reserve has been "watching the data" closely to determine the appropriate timing of those increases. Not surprisingly, Wall Street has also been singularly focused on this issue. The increase in lending rates is the final step in ending the extremely long period of "accommodative policy" measures that has been a primary support of asset prices.

The problem for the Fed, as I discussed recently, is that they may have already missed their best opportunity to begin increasing interest rates. To wit:

"While the Federal Reserve hopes that they can effectively raise interest rates without cratering economic growth, the problem is that the bond market may have already beaten them to the punch.

While I do not expect Treasury

U.S. Stocks Fall Amid Greece Debt Worries

U.S. stocks drifted lower Monday after Greeks resoundingly rejected creditors' conditions for further financial aid.

Angela Merkel Faces Monumental Test of Leadership After Greek Vote

The German chancellor must find a way to maintain European unity and the euro as a currency while also devising an acceptable resolution to Greece's financial crisis.

Seritage Shares Rise After Spinoff From Sears

Seritage Growth Properties' shares gained as much as 4% in their market debut on Monday after the real estate spinoff of Sears Holdings Corp. estimated that it brought in about $1.6 billion through its rights offering.

Citi Identifies Contagion "Trigger Point" For More ECB QE

Greece's historic referendum is in the books and confusion now reigns in Europe and in stock and bond markets across the globe. Put simply, no one 'not the politicians, not the analysts, not the traders' has any idea what happens next because there simply is no precedent for a voter-supported exit from the EMU.

While markets, as a rule, hate uncertainty, the environment on Monday is more than uncertain. This is a case of outright confusion and until there's at least some degree of clarity on whether i) debt restructuring will form the backbone of a renegotiated deal between Athens and Brussels, and ii) whether the ECB intends to allow Greek banks to reopen this week, the "market" (so that's the algos and whatever carbon-based lifeforms are still crawling around out there) can't even begin to decide which uncertain future it should fear. Is near-term contagion risk triggered by a Greek banking sector meltdown the problem or is the real issue that a negotiated restructuring of Greece's debt will alleviate the short-term crisis but make it more likely that the entire drama will repeat itself with Spain and Portugal? No one knows and so at least for the next 48 hours, the only thing to fear, so to speak, is fear itself.

Once the market has a better idea about whether it should fear a near-term, Lehman-style meltdown or a longer-term reimagining of the entire European project, periphery spreads (not to mention EU equities) will begin to price in the uncertainty and at that point the ECB's contagion fighting "tools" (outlined here earlier today) will be put to the test. Citi has more on the above and on the "trigger" point for ECB intervention.

* * *

Big picture thoughts

The myopic focus ...

China, Greece, Iran Upend Oil's World

Greece doesn't help, but China and Iran look like bigger factors explaining oil's selloff.

Germany Maintains a Hard Line on Greece Debt After Vote

As Prime Minister Alexis Tsipras took conciliatory steps, replacing his finance minister, Berlin said it saw no basis for new negotiations as yet.

Services sector activity growth slows in June: Markit

NEW YORK (Reuters) - U.S. services sector expansion eased for a third straight month in June, pressured by a slowdown in employment and output growth, an industry report showed on Monday.

The Next Derivatives Implosion Just Started in Europe

For over 30 years, sovereign nations, particularly in the West have been buying votes by offering social payments in the form of welfare, Medicare, social security, and the like.

When actual bills came due to fund this stuff, Governments quickly discovered that current tax revenues couldn't cover it (see the image below)... so they issued sovereign debt to make up the difference.

And so the global bond bubble was created.

As far back as 2009, most Western nations were completely bankrupt when you consider unfunded liabilities from their social policies. But Central Banks did everything they could to paper of this fact by soaking up as much bond issuance as possible while simultaneously maintaining zero interest rates.

Throughout history, Central Banks have tried to inflate away debts for as long as possible. They do this right up until:

1) The debt loads are impossible to manage, or...

2) It becomes politically unsavory to print more money... or

3) The System implodes.

Greece has passed #2 and is on its way #3.

As the above chart shows, Greece has always been the worst offender as far as excessive social programs spending relative to tax revenue. And so it was not surprising that Greece was the first nation to enter a sovereign debt crisis back in 2009/2010.

Since that time Greece has experienced multiple bailouts/ interventions from the ECB and IMF. The only reason it did this rather than default or engaging in a formal debt restructuring was because Greece's political elites were able to cobble together enough political ...

Wall St. off session lows as Greece aid deal optimism grows

(Reuters) - U.S. stocks were lower in early afternoon trading, but were well off their lows earlier on Monday as investors remained optimistic that a deal could be reached to prevent Greece's exit from the euro zone.

As A Reminder, This Is What Capital Controls In Cyprus Looked Like

A week of capital controls apparently wasn't painful enough to compel the majority of Greeks to concede to more austerity. In the run up to the referendum, preliminary polls had the "no" votes losing ground to the "yes" camp, a situation which quite a few commentators suggested was the direct result of Greeks' willingness to fold if it meant regaining access to their cash and taking the prospect of a depositor bail-in off the table.

As it turns out, polling companies, to use Soc Gen's dry humor, "are of little use" and should probably be sold "if listed anywhere", because when the actual votes were cast, it was no contest â€" "Oxi" was the resounding battle cry heard loud and clear in the streets of Athens on Sunday evening.

It seems likely that most Greeks who cast a "no" ballot realized that "yes" offered the quickest path out of capital controls. As such, it appears that some two-thirds of the Greek populace is prepared to stick it out, although (former) FinMin Yanis Varoufakis' contention that the banks would open on Tuesday (that's already been postponed) may have led some voters to underestimate how difficult it is to lift restrictions once they're imposed.

Confidence and trust in the government's negotiating stance is one thing, but suffering through a depositor haircut is quite another and with a bail-in looking increasingly likely by the day, we thought it an opportune time to recap the Cyprus experience which visually, looks like this:

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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