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Thursday, 9 July 2015

Pentagon Reconsidering Total F-35 Buy

Gen. Joseph Dunford, the nominee for chairman of the Joint Chiefs of Staff, said he’s willing to rethink the acquisition plan for the most expensive weapons program ever.

Much has changed about the Pentagon’s Joint Strike Fighter program in the past 13 years, but one thing has remained steady: the number of F-35s to be bought for the Air Force, Navy and Marines.

All three variants have seen design tweaks, program managers have come and gone, and the projected price tag has climbed and climbed. Meanwhile, the world changed as well, while wars in Afghanistan and Iraq sucked money from long-term weapons projects. Through it all, Pentagon officials maintained they would need exactly 2,443 combat F-35s, plus 14 development aircraft, to deter and fight potential adversaries such as China.

But now radical extremists are wreaking havoc across much of the Middle East and northern Africa, and Russia has re-emerged as a major foe. On Thursday morning, Gen. Joseph Dunford, the Marine Corps commandant nominated to become the next chairman of the Joint Chiefs of Staff, told the Senate Armed Services Committee that the F-35 buying plan is under review.

“Given the evolving defense strategy and the latest Defense Planning Guidance, we are presently taking the newest strategic foundation and analyzing whether 2,443 aircraft is the correct number,” Dunford wrote in response to questions asked by the committee in advance of his hearing Thursday. “Until the analysis is complete, we need to pursue the current scheduled quantity buy to preclude creating an overall near-term tactical fighter shortfall.”

Dunford’s comments come one week after Army Gen. Martin Dempsey, the outgoing JCS chairman, warned in a new National Military Strategy that the military might need to rethink and reorganize for the hybrid wars of the future.


That doesn’t mean the F-35 — the largest weapons program ever, by many billions of dollars — is going away. “With projected adversarial threats challenging our current capabilities in coming years, the Joint Strike Fighter is a vital component of our effort to ensure the Joint Force maintains dominance in the air,” Dunford wrote.

The entire program, both developing and buying the actual jets, is projected to cost $400 billion, while operating and maintaining those planes is projected to cost between $859 billion and $1 trillion. In addition to the 2,457 U.S. aircraft, allies are projected to purchase hundreds of F-35s.

Survey: 68% of Doctors Think GMOs Should be Labeled

Of all the doctors asked if GM foods should be labeled, a whopping 68 percent thought people should be given the right to know what is in their food – for obvious health concerns associated with genetically modified food. And of course the basic right to know what we’re really consuming.

SERMO is essentially like Facebook for doctors, where they can, according to the SERMO website, ‘talk openly and anonymously.’


That means no biotech industry infiltration, except for the likely-visiting shills and trolls which infiltrate most social media. Reportedly, an honest discussion among medical professionals can be had at this network. If that’s truly the case, the 68 percent who agree with labeling GMOs is even more significant, because it is a number which is likely more accurate than even the polls which found that 66+ percent of Americans wanted GM labeling, as reported by mainstream media.

Surveys repeatedly show that 80 percent to 95 percent of people want foods that contain genetically modified organisms to be labeled, in the least. Here is a simple breakdown of some reported polls on consumer demand for GMO labeling:

  • ABC News: 93% want federal GM labeling mandate

What’s more, in a recently published Nielsen study of 30,000 consumers, 80 percent of respondents said they would pay more for foods that indicate a degree of healthfulness, such as those labeled ‘Non-GMO.’ Do we really need more proof that people are turning their backs on biotech-altered poison crops?

Even doctors desire GMO labeling – but you can bet the biotech industry will have a way to skew those facts as well.

Why China Has No Choice But To Arrest The Sellers

After dozens of separate interventions, manipulations, and central-planning machinations over the past three weeks, China resorted to threats overnight when it called for the arrest of "hostile short sellers." The reason they went full Orwell, this is the great loss of 'wealth' in China's history...


China's $2 trillion loss in 17 days is the equivalent of 1 India, or...

In other words, China has to stop the bleeding before it loses another India... or the socially-unrest citizenry will demand gambling returns elsewhere or, absent hope, demand change...

Emails Show Secretary Clinton Disobeyed Obama Policy And Continued Funding For Honduras Coup Regime

Clinton Asked Lanny Davis, Longtime Clinton Operative and Lobbyist for Pro-Coup Honduran Businesses, to Arrange Phone Meeting with Coup Dictator

Buried in the latest trove of Hillary Clinton emails made public last week are some missives that shed new light on the former Secretary of State’s role in seemingly undermining President Barack Obama’s policy in dealing with the 2009 coup d’état in Honduras.

The official emails recently made public by the State Department —more than 3,000 pages worth — were sent or received primarily in 2009 through Clinton’s private email account — via an email server set up outside the government’s system and used to conduct official business.

One email exchange discovered in the recently released batch of State Department communications reveals that Clinton personally signed off on continuing the flow of US funds to the putsch regime in Honduras in the fall of 2009 — even as the White House was telling the world that such aid had been suspended.

Another email exchange involving Clinton shows that she turned to a lobbyist employed by Honduran business interests suspected of orchestrating the coup to get access to the Roberto Micheletti, the “de facto” president of the putsch regime. Micheletti assumed power after the democratically elected president of Honduras, Manuel Zelaya, was removed from office at gunpoint on June 28, 2009.

The lobbyist Clinton favored in her dealings with Micheletti was Lanny Davis — a long-time friend whom she had met while at Yale Law School and a former White House Counsel to Bill Clinton [as well as a consummate shill for the Clinton agenda].

Davis also is a lawyer and lobbyist and in the latter capacity was retained in July 2009 by the Business Council of Latin America (CEAL) to hawk for the Honduran coup regime, including Micheletti’s illegal administration.  

In an Oct. 22, 2009, email sent by one of her top aides, with the subject line, “Re: Lanny Davis,” Clinton asks: “Can he [Lanny Davis] help me talk w Micheletti?

Although there is not enough context in the email trail to determine precisely why Clinton wanted to speak with Micheletti, or why she felt a need to go through Davis to do so, the date on the email offers a clue as to what might have been going on at the time.

Late October of 2009 is around the time that the US, in particular the State Department, was pressing the coup government in Honduras to accept the Tegucigalpa-San José Accord, which, among other things, called for a unity government, a truth commission and the return of Zelaya to the president’s office to finish the final few months of his term. It was essentially a deal designed to end the political crisis sparked by the coup d’état and to also create an air of legitimacy for the fall 2009 elections in Honduras.

The accord ultimately fell apart, with Davis penning an op/ed for the Wall Street Journal in which he blamed its demise on Zelaya. The November 2009 elections went forward under the terror imposed by the coup government, with less than 50 percent voter turnout, and Clinton’s State Department was quick to claim a victory for democracy in Honduras in the wake of the ballot.

The man ultimately elected to replace Micheletti as president, Porfirio “Pepe” Lobo Sosa of the conservative National Party, was himself one of the backers of the coup and ultimately granted amnesty to all those involved in planning the putsch. His administration then proceeded to hire Davis’ firm, Lanny J. Davis & Associates, to help with the task of putting a PR shine on the new Lobo government.

But as Davis attempted to orchestrate his magic spin over the last half of 2009, he and his Honduran employers had to confront the harsh reality of an Obama White House that had declared that the coup regime was not legitimate. Consequently, the White House had taken the draconian step of suspending all US aid to Honduras that legally had to be terminated in the event of a military coup d’état — as mandated under Section 7008 of the U.S. Foreign Operations

Appropriations Law.

That White House-invoked aid suspension, which was supposed to apply to all programs implicated under Section 7008, should also have included any funds being provided to Honduras through a US-backed aid agency known as the Millennium Challenge Corporation. MCC is funded by taxpayers and overseen by a board that is chaired by the Secretary of State. But despite the White House policy on aid suspension to Honduras, the MCC continued to send millions of dollars monthly to the putsch regime in Honduras.

In fact, a Narco News investigation at the time showed the MCC delivered $10.7 million to Honduras in the two months following the June 28 coup and had another $100 million or so in contractually committed funds in the pipeline to be delivered in 2010. As chair of the MCC, Clinton should have been well aware of this flow of dollars to a regime deemed illegitimate by her boss, President Obama, but proof of that direct knowledge could not be verified previously.

The State Department email trail recently made public, however, shows for the first time that Clinton did know that MCC funding was continuing to pour into Honduras — even as publicly the White House, as well as the State Department, were telling the nation that such US aid had been suspended.

In an Aug. 29, 2009, email exchange involving Clinton and one of her top aides, Clinton is made aware of a looming deadline related to a report the MCC was required to make to Congress. The communication made clear that Clinton had to let Congress know by Sept. 10, 2009 — during the heat of the Honduran-putsch crisis — whether the MCC board planned to prohibit Honduras from receiving further funds because its legitimate head of government had been deposed by a military coup.

Further, Clinton herself was being asked to weigh in on that funding decision, according to the email exchange — which included the following analysis from a State Department legal advisor:

The Millennium Challenge Act of 2003 requires the submission of a report to Congress and publication in the Federal Register of a list of countries that are candidate countries for MCC assistance, and countries that would be candidate countries but for "specified legal prohibitions on assistance."

Honduras is a candidate country. If Honduras is subject to the restrictions in section 7008 [of the Foreign Operations Appropriations Law], it would be listed in that section of the report that identifies countries that would be candidate countries but for legal prohibitions that prohibit assistance. The report would also provide an explanation of the legal prohibition (in fact, other coup restricted countries, such as Cote d'Ivoire, Madagascar, Mauritania, and Sudan, are on the prohibited list and section 7008 is explicitly mentioned).

The list must be approved by the Board of the MCC, of which the Secretary [Hillary Clinton] is the chair, and is due on 9/10. It is our understanding that an action memo will be presented to the Secretary, perhaps as early as next week, so that she can approve submission of the report. The action memo will require the Secretary to decide whether Honduras is a country without a "specified legal prohibition" or whether such a prohibition has in fact attached. [Emphasis added.]

It’s worth noting again, that in July and August of 2009 alone, seemingly in direct opposition to the Obama administration’s wishes, the MCC funneled nearly $11 million to the coup regime in Honduras. Among the Honduran companies benefitingfrom the MCC aid in 2009, in the form of a  $7.5 million road-improvement contract, was Santos y Compañia, whose CEO, Elvin Santos, was a former vice president of Honduras, a 2009 presidential candidate and a key supporter of the putsch that drove Zelaya from power.

Now, with a report due to Congress, MCC and Clinton could no longer continue propping up the putsch government’s finances in the shadows. Congress wanted an official report.

If Clinton listed Honduras as a prohibited country in terms of Section 7008, the balance of the $100 million in MCC funds slated for the Honduran regime would be suspended. If not, the aid would continue to flow.

As important, the wording of the email from the State Department legal advisor makes clear that the MCC funding did fall into the category of US aid that would be suspended under a Section 7008 trigger event, such as a “military coup.” And the Obama administration’s position at the time was to suspend immediately all aid to Honduras that is subject to Section 7008, whether it was officially triggered or not.

Regardless, Clinton did not act to prohibit Honduras from receiving the MCC funding. A copy of the Sept. 16, 2009,Federal Register shows the report the MCC board sent to Congress includes Honduras as a nation still eligible to receive assistance.

And so, over the balance of 2009 and through most of 2010, MCC funds continued to flow into the coffers of the Honduran coup regime and its successor government, which was empowered by the suspect November 2009 elections and embracedby pro-putsch lobbyist Lanny Davis and then-Secretary of State Hillary Clinton.

In early September 2010, the five-year MCC funding program in Honduras, known as a compact, came to an end marked by these words from Secretary Clinton:

“The Millennium Challenge Corporation compact is a crucial part of our commitment to work as partners with the people and Government of Honduras to reduce poverty and promote effective, sustainable development throughout the country and across Central America. … The MCC compact has helped lay the foundation for a brighter future for all Hondurans.”

But not everyone agrees that “brighter future” has materialized in the wake of the Honduran coup regime, which the MCC funding arguably helped to empower.

Dana Frank, professor of history at the University of California, Santa Cruz, and an expert on human rights and U.S. policy in Honduras, told Narco News previously that the “2009 military coup that deposed democratically-elected President Manuel Zelaya … opened the door to a free-for-all of criminality in Honduras.”

“Since then,” she added, “organized crime, drug traffickers and gangs have flourished, worming their way ever-higher within the Honduran government, courts, attorney general's office and congress.”

Likewise Joy Olson, executive director of the Washington Office on Latin America, a nongovernmental organization focused on human rights, democracy and social justice, said the coup did have a major destabilizing influence on the institutions in Honduras that were already very weak, “and criminal elements took advantage of that space.”

Honduras as of 2014 had the highest murder rate in the world, United Nations data shows. And both the police and military have been implicated in extrajudicial murders in Honduras, according to a 2013 State Department human rights report. 

China Soars Most Since 2009 After Government Threatens Short Sellers With Arrest, Global Stocks Surge

Here is a brief sample of some of the measures the Chinese government and the PBOC have unleashed in just the past ten days to prop up the crashing market include:

  • a ban on major shareholders, corporate executives, directors from selling stock for 6 months
  • freezing more than half (1400 at last count per Bloomberg) of the listed companies from trading,
  • blocking fund redemptions, forcing companies to invest in the market,
  • halting IPOs,
  • reducing equity transaction fees,
  • providing daily bailouts to the margin lending authority,
  • reducing margin requirements,
  • boosting buybacks
  • endless propaganda by Beijing Bob.

The measures are summarized below.

But it wasn't until last night's first official threat to "malicious" (short) sellers that they face charges (i.e., arrest), as Xinhua reported yesterday:

[Ministry of Public Security in conjunction with the recent Commission investigation of malicious short stock and stock index clues ] correspondent was informed on the 9th morning , Vice Minister of Public Security Meng Qingfeng led to the Commission , in conjunction with the recent Commission investigation of malicious short stock and stock index clues show regulatory authorities to the operation of heavy combat illegal activities.

... that the wall of Chinese intervention finally worked. For now.

And since this is all about one thing, the stock, market, it is worth noting that the Shanghai Composite Index had dropped as much as 3.8% to a 4 month low before the news that the cops were going to arrest anyone who used a wrong discount rate in their DCF, when everything suddenly took off, and the SHCOMP closed  a "Dramamine required" 5.8% higher, the biggest daily increase since March 2009!

"As China beefs up its efforts to rescue the market, with even the public security ministry involved, market sentiment is recovering slightly from a panicky stage earlier," Shenyin Wanguo analyst Qian Qimin says by phone

This is how some other Chinese markets fared: CSI 300 +6.4% led by industrials, consumer staples; the Shenzhen Composite Index +3.8%; all ChiNext shrs trading today were limit up a day after virtually the entire market was locked limit down. 

The best and briefest summary comes from China Southern Fund Management chief strategist Yang Delong, who said that the government efforts "hit the right spot."  Well, yes, when you threaten to arrest sellers, it does tend to have a short-term effect. The only escalation from there is arresting anyone who doesn't buy which in turn would promptly lead to this.

Elsehwere in Asia, the Nikkei 225 closed +0.60% after tumbling 3.2% earlier in the day, as the Chinese "anti-selling measures" spread and "inspired' confidence, with the ASX 200 unchanged and weighed by materials as iron fell to a record low. Across the board equities did pull off worst levels as gains in Chinese stocks sparked an improvement in confidence, which also weighed on JGBs, with losses exacerbated by a weak 30-year JGB auction which drew the lowest b/c since 2004.

The Chinese gain promptly rippled through Europe as well, which now appears more focused on Asia than on Greece, and European shares rose most since July 1. Ironically, for all the talk of an imminent deal, overnight none other than famous Grexitologist, Citi's Willem Buiter allowed us a 2011 deja vu when he joined JPM in saying that Greece’s exit from Eurozone is now the "base case" and most likely outcome, either via short-term exit in next few months or over next 1-3 years.

Curiously the Greek bond market seems to agree as can be seen by the price action in Greek 2 year bonds.


In any event the euphoria over Chinese central planners threatening with bodily harm in what is clearly one of the last steps before all control is lost, is enough to offset the unpleasant encroaching of reality. One wonders just what measures the US itself will take when faced with China's bursting-bubble predicament.

For now, however, after US stocks tumbled yesterday just before the NYSE "unexpectedly" closed for nearly 4 hours a day after 70% of Chinese stocks were frozen from trading, futures right now are set for a 1% open.

Somehow we doubt the NYSE will break today.

Newsflow has been relatively light in today's European session, thereby seeing equities (Euro Stoxx: 1.8%) take their lead from their Asian counterparts. In terms of US specific equity news, yesterday saw Alcoa officially kick off earning season after reporting Q2 Adj. EPS USD 0.19 vs. Exp. USD 0.22 and Q2 revenue USD 5.90bIn vs. Exp. USD 5.80bIn. Looking ahead to today, notable US earnings include Pepsi and Walgreens. With the state of play in Greece seeming to be on hold ahead of the weekend, Bunds have been relatively unmoved this morning, with fixed income markets seeing little price action and today's only notable auction a US USD 13bIn 30yr bond auction.

FX markets have seen a reversal of yesterday's moves in key pairs, with EUR and JPY weaker this morning, seeing USD/JPY retake 121.00 to the upside in an unwinding of safe haven flows after Chinese equities recovered some of yesterday's losses. The USD has also seen a reversal of yesterday's losses to trade higher this morning by around 0.2%.

Improved Chinese sentiment boosted the commodity complex with WTI (+0.73), Brent Crude (+0.59), with metals also  benefitting from the improved Chinese sentiment to rebound from recent weakness. This gold trading higher (+0.2%) as it bounced back from March 17th lows and copper (+0.9%) also benefitting after reaching its lowest level since 2009 yesterday. UBS have revised its avg. platinum price forecast for 2015 to USD 1160 /oz vs Prey. USD 1280 /oz and its Palladium avg. price forecast to USD 770 /oz vs Prey. USD850 /oz. UBS also lowered their long term Platinum price forecast to USD 1600 (RTRS).

Looking ahead, the rest of the day sees the BoE rate decision, US weekly jobs numbers and comments from Fed's Kocherlakota, Brainard and George.

In summary: European shares extend gains, rise most since July 1, with autos, financials outperforming; U.S. equity futures rise along with gold, oil, dollar. Asian stocks rise most since June 23. Iberian, Italian, French stocks lead outperformers among European bourses; yields on Dutch, German, Greek, U.K. 10-yr bonds rise; Spanish, Portuguese yields fall. U.S. jobless claims, continuing claims, Bloomberg consumer comfort due later

Market Wrap

  • S&P 500 futures up 1% to 2059.3
  • Stoxx 600 up 1.5% to 378.6
  • US 10Yr yield up 5bps to 2.24%
  • German 10Yr yield up 2bps to 0.69%
  • MSCI Asia Pacific up 0.7% to 140.7
  • Gold spot up 0.3% to $1162.4/oz
  • Eurostoxx 50 +1.7%, FTSE 100 +1.1%, CAC 40 +1.7%, DAX +1.6%, IBEX +2%, FTSEMIB +1.7%, SMI +1%
  • Asian stocks rise with the Shanghai Composite outperforming; MSCI Asia Pacific up 0.7% to 140.7
  • Nikkei 225 up 0.6%, Hang Seng up 3.7%, Kospi up 0.6%, Shanghai Composite up 5.8%, ASX up 0%, Sensex down 0.4%
  • Euro down 0.39% to $1.1034
  • Dollar Index up 0.23% to 96.51
  • Italian 10Yr yield down 5bps to 2.17%
  • Spanish 10Yr yield down 6bps to 2.17%
  • French 10Yr yield down 0bps to 1.12%
  • S&P GSCI Index up 0.8% to 412.6
  • Brent Futures up 1.2% to $57.7/bbl, WTI Futures up 1.5% to $52.4/bbl
  • LME 3m Copper up 1% to $5577.5/MT
  • LME 3m Nickel up 2.6% to $11240/MT
  • Wheat futures up 0.6% to 581 USd/bu

Bulletin headline summary from RanSquawk and Bloomberg:

  • Chinese markets staged a relief rally to see the Shanghai Composite post its largest one day gain since 2009 following a slew of additional measures by Chinese officials to curb losses coupled with encouraging CPI data.
  • Improved Chinese sentiment boosts the commodity complex, with gold and copper coming off their multi month lows.
  • Today sees the BoE rate decision, US weekly job numbers, EIA NatGas Storage change, comments
    from Fed's Kocherlakota, Brainard and George as well as earnings from Pepsi and Walgreens.
  • Treasuries decline amid gains in stocks and commodities, Greece headlines; week’s supply concludes with $13b 30Y bonds, WI 3.020% vs 3.138% in June.
  • The selloff in China’s stock markets halted after regulators late Wednesday banned major stockholders from selling stakes; more than half the country’s listed companies have been suspended from trading
  • Templeton Emerging Markets Group called the stock sale ban an act of “desperation”; UBS Wealth Management labels it “extreme”; Wells Fargo Funds Management says it just “postpones the inevitable”
  • China’s securities regulator suspended reviews of IPOs and other share sales, people familiar with the matter said
  • With a cacophony of voices predicting a possible exit of Greece from the currency, Tsipras has until Thursday     midnight to present an economic plan that includes spending cuts in exchange for a new bailout
  • Merkel is doubtful he’ll deliver, and is now willing to accept a Greek exit, according to two govt officals familiar with her strategy who asked not to be named
  • Draghi suggested the Greek debt crisis is getting increasingly hard to fix, speaking hours before the ECB maintained its freeze on extra aid for the country’s banks
  • An agreement to curb Iran’s nuclear program could create a bonanza for U.S. defense contractors who already are benefiting as the Obama administration tries to assuage Israeli and Gulf Arab concerns by cutting deals for more than $6b in military hardware
  • Sovereign 10Y bond yields mostly higher; Greek 10Y yields 19.439%. Asian stocks mostly higher. European stocks  and U.S. equity-index futures fall. Crude oil, gold and copper higher

US Event Calendar

  • 8:30am: Initial Jobless Claims, July 4, est. 275k (prior 281k)
  • Continuing Claims, June 27, est. 2.250m (prior 2.264m)
  • 9:45am: Bloomberg Consumer Comfort, July 5 (prior 44)
  • 1:00pm: U.S. to sell $13b 30Y bonds in reopening

DB's Jim Reid completes the overnight event summary

If anyone was under any illusions that we're living in free global markets then China's recent policy actions should be a reminder that we're not and haven't really been for several years. Global financial markets are not really operating under capitalism but then again I'm not really sure I know what you'd call the system we are currently living under.

A simplistic analysis of the problems over the last couple of decades is that bubbles are repeatedly being inflated by policy action and then never allowed to deflate properly when they turn. Whether that be a huge Greek government debt pile that the authorities have been too scared to see default over the last few years or whether that be a Chinese equity market in apparent free-fall, there is a link. These and numerous other examples in recent years leaves huge sub-optimal resource allocation issues throughout the global economy and a need for more and more stimulus to retain stability. To be fair China is only doing what the West did a few years ago when they banned the shorting of things like various company equities and sovereign CDS. However China does seem to be raising the bar in terms of intervention techniques. One such example came yesterday after the China close with the news that the China Securities Regulatory Commission has banned major shareholders (with stakes of more than 5%), corporate executive and directors from selling stakes in listed companies for six months. A truly breathtaking initiative.

For us the China situation is more potentially worrying than Greece for global markets but overall it fits with our view of intervention and high liquidity being needed across the globe for many years to come. Don't be surprised by more Chinese major policy initiatives over the coming days. If Greece does go towards the exit door, expect the ECB to further aggressively intervene.

Looking at the follow through this morning, there's been more volatility but there are perhaps some signs of the various measures of the last couple days having an effect with the Shanghai Comp (+1.30%), Shenzhen (+2.93%) and CSI 300 (+2.43%) currently in positive territory. The Shanghai Comp in particular initially opened nearly 4% lower only to then swing to a 2.5% gain in the space of an hour before then settling down. According to Bloomberg over 1400 companies are still suspended from trading on the mainland exchanges. Data for the region was almost overshadowed with so much of the focus on the equity moves. However, China’s CPI print for June showed a modest +0.2% rise to 1.4% yoy and was slightly above market expectations. PPI continues to remain under pressure however, with the June reading moving even lower to -4.8% yoy (vs. -4.6% expected) from -4.6%.

As we discussed over the last few days, the sell-off in China has also had a knock on impact on parts of the commodity market. Although rebounding slightly yesterday, Copper had struck a 9-year low on Tuesday, falling as much as 18% off the highs of early May. Iron ore has been another casualty of the sell-off with the commodity falling over 30% from the highs in June (including a 10% crash yesterday) which has had a knock on effect on Australian mining names in particular.

Returning to other markets this morning, the Hang Seng (+3.43%) is benefiting from the rebound in China but it’s a relatively weak session elsewhere with the Nikkei (-1.28%), Kospi (-0.08%) and ASX (-0.39%) all down. S&P 500 futures are around half a percent higher while 10y Treasury yields have moved up 3.4bps.

Over to the latest on Greece. Yesterday we learnt that Greece has submitted a request for a 3-year bailout program from the ESM as had been widely expected. In the letter, the Greek government said that it would detail a ‘comprehensive and specific reform agenda’ by today. There were some suggestions that the letter carried some softer language, including rhetoric around softer demands for debt restructuring however it will be the finalized list of reforms from the Greek side which will ultimately decide which direction we head over the weekend. Outside of the news of the formal loan request, a European Parliament session yesterday which included Greek PM Tsipras was said to have been stormy and led by more defiant rhetoric out of Tsipras. Elsewhere we also heard that Greek banks will stay closed through Monday and extend capital controls in light of Sunday’s summit, while the ECB also kept the ELA cap unchanged.

The subject of Greece was also a focus in the FOMC minutes with the text showing that ‘many participants expressed concern that a failure of Greece and its official creditors to resolve their differences could result in disruptions in financial markets in the euro area, with possible spillover effects on the US. Clearly a lot has happened since the last FOMC meeting last month with regards to Greece. We did however get a hint as to the current Fed thinking through San Francisco Fed President and voting member Williams. The Fed official played down a lot of the concern however, saying that the risks emanating from Greece are ‘unlikely to overturn the otherwise strong fundamentals’ of the US economy and that the economic impact on the global economy remained an ‘unlikely tail risk’. Williams also said that the ECB has the ‘means and will’ to limit the fallout.
The remainder of the minutes offered few surprises on the whole. Officials saw ‘economic conditions as continuing to approach those consistent with warranting’ a start to the normalization process, with members agreeing to make decisions on the target fed funds rate on a meeting-by-meeting basis while there was also some mention of members seeing room for additional progress in reducing labour market slack.

As well as his more conservative comments around Greece, the Fed’s Williams reiterated his forecast for 2015 liftoff and didn’t change his expectation of two hikes this year, saying that ‘every FOMC meeting is on the table’. Williams also noted that the employment goals ‘is in sight’ while there is ‘still some way to go on inflation’. Elsewhere and with regards to China, Williams said that he is ‘a lot less concerned’ about China’s near term outlook, while optimistic that they have the ‘will and the leeway to take the necessary policy actions’.

There was little in the way of market reaction following the minutes. Treasury yields had already declined in the run up and the 10y benchmark eventually closed 6.6bps lower at 2.193%. Fed Funds contracts took another leg lower with the Dec 15 (-1bp), Dec 16 (-4bps) and Dec 17 (-5bps) contracts falling to 0.245%, 0.885% and 1.550% respectively with the latter now creeping in on the YTD lows in yield. We still think the Fed won't hike in 2015 but market pricing is increasingly reflecting this possibility. Elsewhere, US equities had a weaker session with the S&P 500 falling 1.67% while the NYSE halted trading for over 3 hours following a technical malfunction. Oil markets were mixed with Brent (+0.35%) a touch higher but WTI (-1.30%) sliding now for the fifth consecutive session while Gold finished +0.27%. Consumer credit data for May came in below expectations at $16.1bn (vs. $18.5bn expected) but we did see a near $1bn upward revision to April’s print to $21.4bn. Elsewhere, Alcoa unofficially kicked off earnings season (reporting after the closing bell) in the US with a miss. The earnings calendar is set to kick into gear next week when we see the US banks reporting so along with Greece, China, and the Fed (Yellen's semi-annual testimony) there’ll be plenty to keep an eye on.

Closer to home yesterday, the impact from the turmoil in Chinese equities appeared to be relatively short lived in European markets as the Stoxx 600 (+0.04%), DAX (+0.66%) and CAC (+0.75%) all finished up, while peripheral markets largely outperformed with the IBEX and FTSE MIB +0.81% and +2.64% respectively. With markets swinging once again back to hope of progress in Greece, peripheral yields moved tighter with Italy (-5.0bps), Spain (-3.6bps) and Portugal (-12.2bps) all having a decent day. 10y Bunds moved 2.9bps higher to 0.669% while Greek yields surged wider, led by the 2y (+241bps) part of the curve.

Over in the UK, DB’s George Buckley noted that yesterday’s Budget (the first by an all-Conservative government since the late-1990’s) was long on measures. George summarised that what was announced amounted to a significant increase in tax-take/spending outlays for the Treasury, but it is important to see this for what it is. George believes that rather than a meaningful tightening in fiscal policy, we should view this as a ‘fleshing out’ of the austerity envelope that has already been announced and as a result George believes that this has little impact on when the BoE will begin to raise rates, with May 2016 still favored. 10y Gilts closed +5.9bps higher yesterday at 1.891%.

In terms of the day ahead, Greece and China will likely attract the bulk of the headlines again. Data wise in the European timezone this morning we’ve got German trade data due as well as the UK BoE decision at midday. Its quiet this afternoon in the US with just initial jobless claims due, although the Fed’s Kocherlakota, Brainard and George are all due to speak today.