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05Jul2016 Pre-Market Commentary: US Futures Down Fractionally, DOW Off 100 Points, WTI Crude Slipping, Short-Term Indicators Shifting To A Bearish Outlook

Written by Gary

US stock future indexes are fractionally down (SPY -0.6%), indicating a lower open after being closed yesterday for July 4, crude is slipping to the mid 47's and the USD is melting higher towards the 96 level. Apparently, investors are still edgy from the Brexit and uncertainty in the U.K., the future of the European Union and soft data from China.

Here is the current market situation from CNN Money

European markets are mixed. The FTSE 100 is higher by 0.03%, while the CAC 40 is leading the DAX lower. They are down 1.83% and 1.77% respectively.

What Is Moving the Markets

Here are the headlines moving the markets.

Stock futures lower amid global growth worries

(Reuters) - U.S. stock index futures were lower on Tuesday, tracking a decline in oil prices, as investors shifted their attention to global growth worries post Brexit.

Worries over China, Brexit push Treasury yields to record low

LONDON (Reuters) - Investors pushed U.S. government bond yields to an all-time low and the yen sharply higher on Tuesday, as soft data from China added to worries about the impact of Britain's vote to leave the European Union.

Exclusive: Infidelity website Ashley Madison facing FTC probe, CEO apologizes

TORONTO (Reuters) - The parent company of infidelity dating site Ashley Madison, hit by a devastating hack last year, is now the target of a U.S. Federal Trade Commission investigation, the new executives seeking to revive its credibility told Reuters.

Twinkies maker Hostess to go public

(Reuters) - Hostess Brands LLC, the maker of Twinkies and Ho Hos, said an affiliate of private equity firm Gores Group will buy a majority stake in the company for about $725 million and take it public.

China calls for fair treatment of its companies in takeover deals

BEIJING (Reuters) - China called on other countries to treat its companies "objectively and fairly" in overseas acquisitions bids on Tuesday as Chinese home appliances maker Midea looked set to secure a controlling stake in German robotics giant Kuka .

'Sweetest' town clings to Hershey, adding to takeover hurdles

HERSHEY, Pennsylvania (Reuters) - The town of Hershey, Pennsylvania, calls itself the "sweetest place on earth."

McDonald's wins EU 'MacCoffee' trademark dispute

STRASBOURG - McDonald's won a trademark dispute with a Singapore rival on Tuesday as Europe's second highest court backed its claim to have exclusive rights to the use of 'Mc' or 'Mac' in trademark names for foodstuffs and beverages.

Exclusive: Russia to exhaust Reserve Fund in 2017 - Finance Ministry proposal

MOSCOW (Reuters) - Russia will exhaust one of its sovereign funds next year to cover the budget deficit, according to a finance ministry proposal submitted to the government.

Bank of England eases rules for banks to meet Brexit challenge

LONDON (Reuters) - The Bank of England took steps to ensure British banks can keep lending and insurers do not dump corporate bonds in the "challenging" period that is likely to follow the country's shock vote to leave the European Union.

A Look Inside Europe's Next Crisis: Why Everyone Is Finally Panicking About Italian Banks

Back in May 2013, we wrote an article titled "Europe's EUR 500 Billion Ticking NPL Time Bomb" in which we laid out very simply what the biggest danger facing European banks was: non-performing, or bad, loans.

We further said, that "Europe's non-performing loan problem is such an issue that there is increasing bluster that the ECB may take this garbage on to its balance sheet since policymakers realize that bad debts and non-performing loans (NPLs) reduce the capacity of banks to lend, hindering the monetary policy transmission mechanism. Bad debts consume capital and make banks more risk averse, especially with respect to lending to higher risk borrowers such as SMEs. With Italy (NPLs 13.4%) now following the same dismal trajectory of Spain's bad debts, the situation is rapidly escalating (at an average of around 2.5% increase per year).

The conclusion was likewise simple:

"The bottom line is that at its core, it is all simply a bad-debt problem, and the more the bad debt, the greater the ultimate liability impairments become, including deposits. As we answered at the time - the real question in Europe is: how much impairment capacity is there in the various European nations before deposits have to be haircut? With Periphery non-performing loans totaling EUR 720bn across the whole of the Euro area in 2012 and EUR 500bn of which were with Peripheral banks."

Now, three years later, the bomb appears to be on the verge of going off (or may have already quietly exploded), and nowhere is it more clear than in an exhaustive article written by the WSJ in wh ...

Frontrunning: July 5

Pound Tumbles to 31-Year Low as Its Post-Brexit Selloff Resumes (BBG)

Bad Debt Piled in Italian Banks Looms as Next Crisis (WSJ)

Stock Market to Bond Market: 'La-La-La I Can't Hear You' (WSJ)

A Prime Minister, a Referendum and Italy's Turn to Get Worried (BBG)

Brexit Vote Paralyzes Companies Across Europe (WSJ)

Brexit-Like Populist Pressure May Spawn '70s-Style Stagflation (BBG)

Boris Johnson backs Andrea Leadsom for Prime Minister as Tory MPs vote (Telegraph)

Brexit: Theresa May demands early talks on Britain leaving the EU (Evening Standard)

Saudi crown prince seeks to assure Saudis after triple bombings (Reuters)

Russia to exhaust Reserve Fund in 2017 - Finance Ministry proposal (Reuters)

Slowdown in Shadow Lending Tightens Credit on Main Street (< ...

Bank Of England Unveils First Easing Measures After Brexit

The Bank of England lowered capital requirements for UK banks Tuesday in an effort to shore up the UK economy, saying that it "strongly expects" banks to support the economy with fresh loans in the wake of Brexit.

In its first official easing act, the Financial Policy Committee lowered the countercyclical-capital buffer rate for UK exposures to zero from .5% of risk-weighted assets in a move that it said would release £5.7bn from the buffer, in which it requires banks to accumulate capital in good times to draw down in bad, and raise the capacity for bank lending to households and businesses by as much as £150 billion.

"This action reinforces the FPC's view that all elements of the substantial capital and liquidity buffers that have been built up by banks are to be drawn on, as necessary" the committee said in a statement.

As the FT adds, the BOE also reminded banks that capital and liquidity buffers put in place during the financial crisis are there to be run down in stressed conditions. In exchange, banks are on notice from the BoE's Prudential Regulation Authority that they are not to increase dividends and other distributions. The moves came as the pound hit a new post-referendum low amid rising concerns over the UK property market following a decision by Standard Life to halt redemptions on one of its flagship sector funds. Sterling fell 1.8 per cent to $1.3113, passing the $1.3118 nadir it reached on June 27.

Futures Slide As Italian Banks Drag Risk Lower; Sterling Tumbles; Bond Yields Drop To New Record Lows

The festering wound involving Italian banks in general and Italy's third largest bank Monte Paschi, just got worse yet again, as the bank which suddenly everyone is focused on extends yesterday's 14% drop, and is halted in Milan trading after falling 7%, once again dragging down European bank stocks with it, and this time US equity futures are starting to notice.

As a reminder, Matteo Renzi's helplessness at Italy's financial situation, appears to have started to boil over, when as we reported overnight, some testy words were exchanged, in which the Italian PM accused the ECB's head and former Bank of Italy governor, Mario Draghi, of not doing everything in his power to "help Italian banks." Instead it was up to the Italian government to flaunt bail-in rules once again, after La Stampa reported that the government is once again studying a capital plan for Monte Paschi that includes new convertible bonds and support from Atlante fund, the latter worth at least 3 billion even as Brussels says intervention would need to respect principle of "burden sharing" by shareholders and bondholders. As La Stampa also adds, the results of 2016 stress test, due to be published on July 29, could trigger the start of the process to inject new capital in the bank

In short, Italy is desperate to bail out a bank whose failure (or even bail in) may spark a bank run, yet neither the ECB is rushing to help it, nor Europe has given any indication it will budge.

It wasn't just Italian banks, which have become a near-daily fixture of Europe's failing system, that dragged risk lower, but also the latest surge in the Yen and another fresh all time low in DM bond yields. Indeed, the Yen headed for biggest advance in more than a week, with the USDJPY tumbling overnight, down -0.8% to 101.65, a move which started earlier ...

Virtual-Reality Check for HTC

HTC Vive will not save HTC, which is still dragged down by its struggling mobile phone business.

Brexit: A New Phase in the Global Central Bank Experiment

Brexit has turned the central-bank debate on its head. Lower bond yields signal further tests for monetary policy

Tech's Brexit Shock May Still Be Coming

Technology stocks rebooted quickly from the Brexit surprise. But the approaching earnings season could force investors to hit the reset button again.

Metals Stocks: Silver extends rally, gold tags along as stocks sink

Silver traded at two-year highs Tuesday, maintaining its status as the standout among metals as lingering post-Brexit economic uncertainty underpinned the relative safety of haven investments, including silver and gold.

The Wall Street Journal: Hostess to go public after purchase by acquisition company

Hostess reaches an agreement to be taken public in a deal that would value the maker of Twinkies and Ding Dongs at about $2.3 billion.

Market Snapshot: Dow futures slump 100 points as Brexit reality 'sets in'

U.S. stock futures slide as investors return from the holiday weekend to more uncertainty following the U.K.'s Brexit vote and opt for caution before the key U.S. jobs report on Friday.

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