“Short term volatility is greatest at turning points and diminishes as a trend becomes established.” – George Soros.

1. China Factory Activity Shrank Again in July — China’s factory activity shrank more than initially estimated last month, tightening the most in two years and extending the sell-off of Chinese equities. The final Caixin/Markit China Manufacturing PMI dropped to 47.8, from 49.4 in June, marking the fifth straight month of contraction. The final reading was lower than the flash PMI of 48.2 and the official manufacturing PMI, which fell to 50.0 in July from 50.2 in June.
2. Puerto Rico Debt-Crisis Grows as Payments Halt, Agency Defaults — Puerto Rico has confirmed that it failed to make a debt payment over the weekend, placing the U.S. commonwealth into default for the first time in its history. Congress may help the territory through the passage of a bankruptcy bill, although that effort has faced opposition. The island has also floated the idea that the Treasury Department could guarantee its debt when it seeks to borrow in the market again – helping to lower the cost significantly.
3. Greek Stock Market Re-Open After a Five-Week Shutdown — the Athen’s ASE Stock Index plunged nearly 30% last week, the worst fall on record, after the Athens Stock Exchange reopened following a five-week shutdown. Greek Banking stocks down by another near 30% plunge in banking stocks, as investors react to continuing questions about a new bailout from the EU and the country’s worsening economy.
4. Bill Ackman Takes $5.5 billion Stake in Oreo Maker Mondelez(MDLZ) — Ackman’s Pershing Square Capital Management LP revealed its stake, which amounts to about 7.5% including options and forward contracts, in a statement late Wednesday night. Nelson Peltz’s Trian Fund holds 3.1% of MDLZ.
5. China Spends Heavily to Prop Up Stocks — Peking University economist Christopher Balding has added up the bailout and stimulus measures announced since the Chinese equity panic in late June. They total $1.3T, or more than 10% of GDP. To put that in perspective, America’s Troubled Asset Relief Program was originally authorized to spend $700B. And that was a response to a systemic financial crisis in an economy some 70% bigger than China’s.
6. Bullish Sentiment Sees Slight Rise — courtesy of BIG, according to the weekly survey from the American Association of Individual Investors (AAII), bullish sentiment increased from 21.11% up to 24.32%. Even after the increase, though, bullish sentiment remains well below its average of 38% for the current bull market; a level it hasn’t been above for 19 weeks now.

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: