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Never Mind ‘Grexit’ Risk for Now, Exodus is in Chinese Stocks

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July 8, 2015

U.S. stocks could join the global retreat, part of a ripple launched in China. Chinese shares plunged pre-halts as investors there largely shrugged off a series of regulatory support measures, including a Peoples Bank of China statement affirming added liquidity to help with market stability. Mainland market ripples traveled to Hong Kong and Japan and send U.S. stock index futures down over 1% in overnight trading.

This is a big deal. More than 70% of mainland China exchanges are closed to investors via trading halts and other measures. That’s 1,331 companies, or 2.6 trillion shares, representing some 40% of China’s total stock market, according to Bloomberg.

SPX-Support-Holds

FIGURE 1: SPX 2050 HOLDS.

The S&P 500 (SPX) was on rocky footing at one point Tuesday but staged a late-day rebound that kept the 2050 line intact. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Sunday Deadline: Greece Efforts Advance (Sort of). As if the news out of China isn’t enough to roil markets, the Greece situation remains unresolved. Effort does continue, however. Greek Prime Minister Alexis Tsipras told the European Parliament on Wednesday that the government will present a detailed reform list in coming days. Greece has formally submitted a request for a eurozone loan through the currency union's bailout fund called the European Stability Mechanism (ESM), according to news reports. The bailout mechanism has so far only provided loans to Spain and Cyprus. The European Central Bank has temporarily provided enough liquidity to keep Greek banks afloat. All 28 members of the EU will meet on Sunday to decide whether to accept a revised deal. According to news reports, industry economists are now speculating what currency Athens might adopt if a “Grexit” becomes reality: revive the drachma; develop a parallel currency; perhaps a euro pegged currency, or keep the euro only as a monetary agreement. The speculation shows just how much uncertainty swirls around Greece.

Afternoon Fed Release. Minutes from the Federal Reserve’s June policy-making meeting— at one time expected to be the gathering that produced the bank’s first interest rate hike since 2006—will be released at 2 p.m. Eastern. That news hits amid a renewed call from the International Monetary Fund for the Fed to refrain from rate increases absent "clear signs of wage and price inflation." Of course, Fed Chair Janet Yellen has said "clear signs" are not a prerequisite for higher rates. Let’s see if the minutes shed any more light on Fed thinking. Yellen is scheduled to speak about the economy in Cleveland on Friday.

Alcoa, Microsoft Lead Company News. Aluminum-maker Alcoa (AA) christens the next earnings round and could shed some light on global economic demand with its post-closing bell report. The 16 analysts surveyed by Thomson Reuters forecast AA’s Q2 earnings at a consensus $0.23 per share. That’s down 18.6% from the previous quarter. But it is up from the $0.18 per share reported in Q2 a year earlier. Industry analysts are looking for $5.81 billion in Q2 revenue, down slightly from the $5.82 billion Alcoa reported in this year’s Q1 and the $5.84 billion it reported a year ago. See the TD Ameritrade earnings page for Alcoa’s preview and more. Microsoft (MSFT) is an early decliner after a New York Times report says the software giant could announce a major wave of layoffs as soon as today.

Good trading,
JJ
@TDAJJKinahan

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