The implosion in the Chinese equity market has continued, with the Shanghai Stock Exchange Composite index declining by more than 4.5 percent after opening down by nearly 8 percent in another highly volatile session. Local media sources have reported that more than half of the publicly listed companies on the Shanghai and Shenzen exchanges have voluntarily suspended trading in their companies’ shares. In reaction to what has turned into a route for mainland equities, the China Securities Regulatory Commission today announced an expansion of its purchase facility via the China Securities Finance Corporation Limited (CSR) to acquire shares of smaller capitalization companies as well as blue chips. The regulator also said that it will provide liquidity to brokerages to ensure none fail. In a statement on its website, the People’s Bank of China announced, without providing details, that it will assist CSR.
Final deadline set for Greece. Euro zone leaders have given the Greek government until Sunday either to accept the terms of a bailout that have already been outlined or to begin the process of departing from the common currency. Leaders of all 28 members of the European Union will be present for Sunday’s emergency conference. In addition to bank closures and a scarcity of cash, there are growing concerns that the Greek medical system is starting to experience shortages of staple pharmaceuticals. Greek Prime Minister Alexis Tsipras today pledged to make an attempt to try to meet creditors halfway, with new proposals to cut government spending.
Jenkins to leave Barclays. Barclays today announced that Chief Executive Antony Jenkins is stepping down after the bank’s board decided to initiate a change in management. Chair John McFarlane will act as an interim CEO until a replacement is announced.
Fed notes to be released. Notes from the June 16–17 Federal Open Market Committee meeting will be released at 2 pm U.S. Eastern time. Some strategists anticipate further shifts in language that pave the way for tightening in September and the possibility of a further hike at year-end as the economy continues to improve. Yesterday the International Monetary Fund reiterated its recommendation that the Fed abstain from raising rates until 2016 to help offset global uncertainty.
Bank of Japan taper unlikely ahead of tax increase. Etsuro Honda, a senior adviser to Japanese Prime Minister Shinzo Abe, stated yesterday that it is unlikely that the Bank of Japan will be able to taper its massive quantitative easing program ahead of a consumption tax hike scheduled for 2017. The first stage in the sales tax increase initiated last year lead to a brief recession, as household spending dropped off. The tax rate on individual spending is to increase from the present 8 percent to 10 percent in 2017.
U.K. to unveil cost cutting package. Chancellor of the Exchequer George Osborne today is delivering the first budget of a Conservative Party-led government in nearly 20 years. In comments before parliament, he called the measures a “One Nation Budget.” Observers expect that the measures will include cuts to social spending and in taxes for the middle class.
Corzine settles with MF Global clients. Jon Corzine and other former executives of futures broker-dealer MF Global have agreed to a $64.5 million settlement to conclude a lawsuit with investors who were impacted by the firm’s failure. The former New Jersey senator, governor and Goldman Sachs chair and CEO will meet the obligation through the liquidation of insurance policies for directors and officers of the firm. This marks the third settlement in favor of global shareholder led by the Virginia Retirement System and the Queen of Alberta after earlier agreements reached with underwriters who handles the sale of MF Global shares and debt.
Portfolio Perspective: A Grexit Will Have Limited Impact on North American Markets — Martin Murenbeeld, Dundee Capital Markets
A key issue in any further negotiations between Brussels and Athens is whether to introduce debt forgiveness immediately or only after Greece has signed off on the conditions attached to the second bailout package. Yet a more pressing issue is the stance of the European Central Bank.
Without more liquidity from the ECB — by way of the Bank of Greece — Greek banks cannot open their doors. The ECB could increase the cap and extend more liquidity to Greek banks, though this will likely require direction from Brussels and the EU leadership. At this time it does not appear that German Chancellor Angela Merkel is in any hurry to give the ECB a go-ahead.
The North American fallout of a Grexit is likely to be modest. Neither Canada nor the U.S. has much exposure to Greece. Bond market volatility in Europe will, however, affect North American markets for fixed income. Any subsequent flight to safety into U.S. and Canadian government bonds will affect North American equity markets. So some volatility in local financial markets cannot be ruled out. But any impact is likely to be of short duration.
Martin Murenbeeld is the chief economist for Dundee Capital Markets in Vancouver.
