Originally posted at Briefing.com
Let's see. Do we start with the 7.4% decline in China's Shanghai Composite on Friday or with the news that there is still no definitive news on a deal between Greece and its creditors? We'll go with the former since the latter has been a broken record all week.
For the second straight session, the Shanghai Composite got clobbered. The startling thought for many participants in that market, and holders of related stocks and ETFs, is that the selloff happened without a specific news catalyst. In fact, one could argue that the selling itself became the news, which led to more selling.
There were various reasons cited for the selloff, but the primary reasons revolved around valuation concerns, deleveraging by margin account holders, anxiousness over the increased supply of new share listings, and panic selling by weak-handed speculators who had been chasing the parabolic rally in the Shanghai Composite.
The remarkable aspect about the losses on Friday in the Shanghai Composite, which is now down 19.0% over the last two weeks, is that they had virtually no spillover effect here. The S&P futures dipped just three points at their worst level in overnight action and are now up three points.
That goes to show that participants recognize the Shanghai Composite is operating in a crazy world of its own and that there are no undue worries at this juncture about a rout in that market having any contagious economic effect.
At the same time, the overnight resilience in the S&P futures reflected an ongoing pre-occupation with the negotiations between Greece and its creditors and the abiding belief that an eleventh-hour solution will be reached.
On a related note, Bloomberg is reporting this morning, citing an unnamed European official, that Greece's creditors are proposing a five-month extension of the bailout program and $17.3 billion of funding.
[Hear: Update on Greece With Frances Coppola]
We can't confirm the reports that the proposal has been delivered to Greece in a can with kick marks in it, but it sounds like it's a pretty good possibility.
Anyhow, the S&P futures appeared to get a little boost on the speculation, but they have not gotten a hyper-boost since participants have come to recognize that an "unnamed European official" talking about a possible compromise is a lot different than Angela Merkel, Christine Lagarde, Mario Draghi, or Jean-Claude Juncker making such an announcement. Also, a Handelsblatt report has indicated the aforementioned proposal is contingent on Greece accepting the requested reforms.
The S&P futures are up three points, but are trading 0.2% below fair value.
This back-and-forth headline action is apt to persist with Angela Merkel herself telling reporters that a finance ministers meeting this weekend is going to be a decisive period for finding a solution (if one is to be found).
In other developments, Nike (NKE) put up some encouraging fiscal fourth quarter results and is trading 3.5% higher in pre-market action. Micron (MU), on the other hand, disappointed with its results and outlook and is indicated 15.0% lower, which will pressure the Philadelphia Semiconductor Index.
The economic calendar is light today with on the final reading for the June University of Michigan Consumer Sentiment report (Briefing.com consensus 94.6; prior 94.6) on the docket at 10:00 a.m. ET.
Trading activity might not be all that heavy during the day as the uncertainty over the Greek situation continues to hang over things. Nonetheless, look for big volume today when it is all said and done as the annual Russell 2000 reconstitution will take place at the close.
