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The day Chinese stocks stood still

Chinese stocks have continued to fall this week despite government measures and financial companies’ initiatives to calm jitters. 

Hong Kong
Source: Bloomberg

We have more on the People’s Bank of China (PBOC) easing, a cut in trading fees, easing of restrictions on margin lending, among others.

Now, companies are taking matters into their own hands by requesting for trading halts on their shares. More than 51% of the 2,776 A shares has suspended trading today, according to the National Business Daily. 

This does not bode well for China’s hopes to be included in the MSCI indices and it highlights that the Asian giant may not be ready to be an international finance behemoth.

There is clearly a lot of work to be done and the latest developments only seek to dent investor confidence.

I feel that trading halts are a stop-gap measures and the authorities will need to come up with stronger initiatives to restore confidence. It is probably going to take a lot more monetary muscle than the CNY 120 billion that brokers put up. For now, it may be best to stay out of the Chinese markets, at least until a clearer outlook emerges.

Greece heading for the door

There was high hopes for Greece to present a new proposal to secure a deal package at yesterday’s summit of European leaders, with all eyes on the new Finance Minister Euclid Tsakalotos. The Greeks did not bring a new plan, despite the fact that Mr Tsakalotos has been involved in the negotiations for a while now.

European leaders were not impressed and has now set an ultimatum on the coming Sunday 12 July. Greece has to submit new proposals by this Friday at 8.30am, failure to do so will likely point towards an endgame. Markets were similarly not impressed with the latest development.

European equities continued to decline for the fourth straight session. EUR/USD quickly dropped below $1.10 to as low as $1.0916 before the resilience factor kicks in. The pair is back around $1.10 in early Asia. The tone in the Euro-area is decidedly pessimistic, with EU Commission President Juncker saying that the commission has Grexit scenario prepared.

Meanwhile, US equities were boosted by positive domestic data, reversing earlier losses to close in gains. Trade deficit were smaller than expected, while JOLTS jobs opening data beat consensus. Moreover, the earnings season is off to a soft start today, with Alcoa Inc due to announce its Q2 profits, before starting in earnest next Tuesday 14 July.

Commodities under pressure

The global picture for commodities does not bode well. With the Greece situation getting from bad to worse, stock slump in China stoking fears, and commodities receiving a beating. Mainland commodity stocks were dragged lower, with several limit downs seen overnight. USD strength certainly has a hand in the decline as well.

Gold has not been popular lately as a haven asset, and prices fell to a near four-month low, with silver slumping to the lowest in seven months. Crude oil also remained at recent lows, with Brent trading at sub-$60 levels.

Oil production appears to have picked up, from US crude to OPEC output. Coupled with the fact that Iran may reach an agreement as soon as this Friday, the supply glut may expand amid possible fall in demand, arising from the Greek crisis and China stock rout. Market will focus on the release of a series of oil market reports, starting with EIA weekly report in US today, followed by IEA monthly report this Friday, and the OPEC report next week.

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