Trader Talk: An Analysis of the Markets this Morning

Good morning,

Markets are called to open higher this morning. This is what's happening today:

• Portugal’s Coelho meets president to try to avoid early vote

• Greek FM Yannis Stournaras said govt probably will reach a deal with international creditors before today’s Eurogroup meeting to keep bailout funds flowing to the country

• Italy’s Fondazione Monte Paschi to sue Nomura, Deutsche Bank

• ThyssenKrupp seeks unit sale before considering capital raising

• RBS put on review for downgrade by Moody’s on break-up talks

• Former Standard Chartered Chairman Mervyn Davies is working to assemble an investor group to bid for part of U.K. govt’s stake in Lloyds Banking Group: person with knowledge of the talks

• Temasek is said to have made preliminary approach to buy ~10% of Lloyds Banking from U.K. govt for $6.7b, reports Sunday Times

• Ex-Thai PM Thaksin is said to be in talks to buy Bakrie family’s 23.8% stake in London-listed Bumi Plc: Sunday Times

• An Asiana airliner crash landed in San Francisco, killing 2 people; it’s Asiana’s second crash in as many years

EARNINGS All times CET, estimates where available:

• Peugeot (UG FP) aftermkt, 1H unit sales

• Bovis Homes (BVS LN) 8am, 2Q sales

Asian stocks fell, erasing last week’s gains in the benchmark index, bond yields climbed and emerging market currencies weakened against the dollar after a U.S. jobs report added to the case for the Federal Reserve to reduce economic stimulus. European stock-index futures rose.

The MSCI Asia Pacific Index slid 1.6 percent by 7:06 a.m. in London. Euro Stoxx 50 Index contracts gained 0.5 percent while Standard & Poor’s 500 Index futures were little changed. Australia’s 10-year bond yield climbed nine basis points to 3.91 percent, and the rate on similar maturity Japanese bonds increased after U.S. Treasuries slumped on July 5. South Korea’s won lost 0.9 percent and India’s rupee sank to a record as the Dollar Index touched a three-year high. Silver and copper fell.

U.S. employers added more workers than economists expected in June, July 5 data showed, stoking expectations the Fed will be able to taper asset purchases that prompted capital flows into emerging markets. The dollar is extending gains that have made it the best performing major currency this year as the combination of improving U.S. economic indicators and looser monetary policy from Europe to Japan burnish its allure.

“The general proposition in Asia is there’s been a huge capital outflow,” Warren Hogan, the chief economist at Australia & New Zealand Banking Group Ltd., said on Bloomberg Television. “The trend to diversify away from core markets has suddenly gone into reverse this year and it’s continuing.” More than four stocks fell for every one that rose on MSCI’s Asian gauge, which added 0.6 percent last week. Hong Kong’s Hang Seng Index and the Shanghai Composite Index dropped at least 2 percent. China’s money-market cash squeeze is likely to reduce credit growth this year by 750 billion yuan ($122 billion), an amount equivalent to the size of Vietnam’s economy, according to a Bloomberg News survey of analysts.

Good day and happy trading!

Kristian Camenzuli