…“People somehow think you must buy at the bottom and sell at the top to be successful in the market. That’s nonsense! The idea is to buy when the probability is greatest that the market is going to advance”… Jesse Livermore

1. China Factory Activity Remains Weak in June — China’s factory activity contracted for the fourth straight month in June, suggesting that more stimulus measures may be on the way. The HSBC/Markit Flash China Manufacturing PMI edged up to 49.6, from 49.2 in May, but remained below the 50 mark which separates contraction from expansion. Manufacturers also continued to cut their staff numbers, with the June reduction the sharpest in more than six years.
2. Supreme Court Rules 6-3 to Save Obamacare Subsidies — the U.S. Supreme Court ruled Thursday to save subsidies for as many as 8 million people under the Affordable Care Act. In the case of King v. Burwell, justices determined that the subsidies should be available in states that don’t have their own exchanges. The court determined that the broader context of the ACA allows subsidies to all those under the Obamacare program.
3. Korea Cuts GDP Forecast On MERS, Plans $13.5 Billion Stimulus — as its economy gets hammered by the MERS virus, South Korea is planning a stimulus package of more than 15T won ($13.5B) to cushion the economic impact of the deadly respiratory disease. The country’s finance ministry also cut its outlook for economic growth this year to 3.1% and slashed its inflation projection to 0.7%.
4. China Stocks Plunge 7%, Slide Toward Bear Territory — China’s stock markets plunged toward bear territory last Friday as margin financing in China started to explode in December. The Shanghai market, China’s largest, closed down almost 20% from its recent peak, while the second-largest Shenzhen market fell 20%, entering bear-market territory. Margin financing balance rose by 200 billion yuan to 1 trillion yuan in December according to WIND data. See chart below

5. Greece to Hold Referendum — PM Alexis Tsipras, facing a June 30 deadline for a bailout deal but with his leftist Syriza party threatening to revolt over the terms, plans to hold a July 5 referendum. That could give him the mandate to pass painful reforms and deficit cutting measures.

The week ahead — Economic data from Econoday.com:

..“Successful speculation requires staying on top of changes in industries and companies that either create new industries or improve on existing industries. The majority of your profits will come from these two … The shrewdest traders throughout history all adapted the skill of reactionary change, as the market constantly presents new and different opportunities.”.. — Bernard Baruch

1. Health-Insurance Sector in Consolidation Talks — merger talk in the health-insurance industry is heating up as firms grapple with the challenges and opportunities the federal healthcare overhaul has created. UnitedHealth (NYSE:UNH) has reportedly approached Aetna (NYSE:AET) about a takeover deal that would likely be valued at more than $40B, after Anthem (NYSE:ANTM) approached Cigna (NYSE:CI) with a $45B buyout offer that was rebuffed. Meanwhile, Aetna and others are considering buying Humana (NYSE:HUM), which is looking at strategic alternatives including a sale.
2. FDA Sets Date for Trans Fats Restrictions — beginning in 2018, companies will have to seek approval before they can put partially hydrogenated oils into foods, after the FDA said the ingredient should no longer be considered safe and laid out far-reaching restrictions. Possible companies effected by this decision are: Nestle (OTCPK:NSRGY), PepsiCo (NYSE:PEP), Tyson Foods (NYSE:TSN), Mondelez International (NASDAQ:MDLZ), Unilever (NYSE:UL), General Mills (NYSE:GIS), Kraft Foods (NASDAQ:KRFT), Kellogg (NYSE:K), Dean Foods (NYSE:DF), Campbell Soup (NYSE:CPB), Hormel (NYSE:HRL), Hershey (NYSE:HSY), Pilgrims Pride (NASDAQ:PPC).
3. EU Calls Emergency Summit on Greece — a meeting of eurozone finance ministers ended without a deal on Greece’s flailing bailout last Thursday, spurring a special summit of European leaders on Monday (June 22 2016). Greece’s €245 billion ($279 billion) bailout deal from other eurozone governments and the International Monetary Fund runs out on June 30. That same day the country faces a €1.54 billion payment to the IMF that it won’t be able to make without a new aid transfer.
4. China Stocks in Correction — Chinese shares suffered their worst week in more than seven years last week. Both the Shanghai and Shenzhen markets fell into correction territory. The Shanghai Composite (SHCOMP) finished down 6.4% at 4,478.36 and lost 13.3% for the week, marking the second time this year it has fallen into correction territory. Fears over liquidity and margin trading were cited as reasons for the declines. Year to date, Shanghai is still up 38.4% and Shenzhen is up 93.8%.
5. Bullish Sentiment Rebounded Last week — courtesy of BIG, the weekly survey from AAII, individual investor bullish sentiment rebounded from 20.0% up to 25.4%. In spite of the rebound, bullish sentiment has now been below 40% for 17 consecutive weeks. The last time we saw bullish sentiment below 40% for this long was back in the summer of 2012.

The week ahead — Economic data from Econoday.com:

“The market is better at predicting the news than the news in predicting the market” — Gerald Loeb.

1. China’s Imports Mark Need for More Stimulus — China’s exports fell for a third month in May, while imports slumped the most in three months, underscoring a sluggish domestic environment in need of more stimulus. Annual exports fell 2.5% while imports plunged 17.6%, data from the General Administration of Customs showed on Monday. Many analysts have already penciled in sub-7% growth for the second quarter, raising the risk that the government will not meet its full-year growth target of around 7%.
2. Google (GOOG) Electronic Payment Android Pay Update — according to the WSJ, Google ‘s mobile phone payment service, Android Pay, will not garner any transaction fees from credit card companies, possibly putting pressure on Apple (NASDAQ:AAPL) to drop or lower its charges for Apple Pay. Dominant payment networks, Visa (NYSE:V) and MasterCard (NYSE:MA), recently standardized their “tokenization” card-security service and made it free, preventing payment services, such as Google (GOOG, GOOGL), from charging fees to issuers.
3. Chinese rally Sign of Excess — Mainland speculators have borrowed a record $348B to bet on further gains, price-to-earnings ratios have climbed to the highest levels in five years, while Chinese exchanges have created $6.5T in just 12 months of trading. The economy, meanwhile, is mired in its weakest expansion since 1990.
4. China Stocks Will Have to Wait to Join the MSCI Index — MarketWatch, global stock-index compiler MSCI maker says issues remain before it can include mainland China-listed A-shares. MSCI offered a list of some issues it would discuss with the regulators, including the allocation of investing quotas for large investors, capital mobility and details over beneficial ownership.
5. May Retail Sales Surged Point to Revived U.S. Growth — MarketWatch, Sales at U.S. retailers rose sharply in May and increased for the third straight month, suggesting that warmer weather induced consumers to spending more in the spring after a winter lull. Consumers splurged on big-ticket items in May, when sales of new cars and trucks hit a postrecession high. Sales at auto dealers rose 2%.
6. Greece Deal in Peril — IMF creditors walked out of talks late last week citing “Greece decisions not negotiations” are needed. Greece’s is scrambling , as time runs out for the country to fend off a looming default.
7. Bearish Sentiment Overtake The Bulls – courtesy of BIG, bullish sentiment fell from 27.34% down to 20.04%. This is the lowest weekly reading for bullish sentiment in more than two years (April 2013). At its current level, bullish sentiment is now just slightly more than a point above its lowest levels since the start of 2009 (18.92%).

The week ahead — Economic data from Econoday.com:

“The four most expensive words in the English language, “This time it’s different”” – Sir John Templeton.

1. The Reserve Bank of India Cut Interest Rates — the Reserve Bank of India cut interest rates for the third time this year, lowering its key repo rate by 25 bps to 7.25%, in a move that appears at odds with recent data showing the country’s economy has become one of the fastest-growing in the world. Data on Friday showed India’s output expansion accelerated to 7.5% last quarter, outpacing China in terms of growth.
2. HP sets November 1 spinoff date, partners with Arista — Hewlett-Packard (NYSE:HPQ) co-chief executive Meg Whitman said the separation of HP and Hewlett-Packard Enterprise would be effective November 1. Last October, HP announced it would split into two listed companies, separating its printer unit from its hardware and services operations. HP has also announced a partnership with fast-growing data center switch vendor Arista (NYSE:ANET).
3. Global Bond Yields Fly Higher — bond yields across global markets continued their sell-off into last week as a six-week-long bond rout rumbled on. ECB President Mario Draghi said asset prices tend to be more volatile in a low interest rate environment and policymakers were prepared to look through the sharp rise in yields. With the ECB seeing no reason to adjust its stance on monetary policy, German 10-year Bund yields rose to fresh 2015 highs today at 0.95% (up from near zero in mid-April). U.S. 10-year yield +3 bps to 2.4%.
4. Greece Delays $339 mil Debt Payment — Greece formally requested a deferral of June 5 ‘s payment due to the IMF after insisting it would make the payment. All parties in the negotiations continued to express optimism, but leftist members of the ruling Greek party were indignant at concessions.
5. Bullish Sentiment Increases Slightly — courtesy of BIG, bullish sentiment increased from 27.0% up to 27.34%. This represents the 13th straight week where bullish sentiment has come in below its bull market average of 38.5%. That is the longest streak of below average bullish sentiment since August 2012 when bullish sentiment was below average for 20 consecutive weeks.

The week ahead — Economic data from Econoday.com:

There will not be any re-cap for the week of May 29 2015. We are away for some needed R&R.

The staffs at EGS.