–Showing them the exit: Greece’s back is to the wall; its time has run out; it is stuck between a rock and a hard place with other rocks waiting to fall on its collective head; etc. Europe’s response to Greece’s overwhelming «no» vote on July 5th came through late last night. There will be no concessions made to Greece. On the contrary, by early Friday morning Greece must submit to its creditors a new bail-out proposal, which contains more cuts and more significant reforms than those in the offer voters rejected last Sunday.
If it does, Greece’s European partners will decide on Sunday whether to accept or reject the plan. If they accept it, or something like it, new discussions on a long-run bail-out programme (lasting 2-3 years) can begin, and the European Central Bank (ECB) will presumably step in to prevent Greek banks from collapsing.
If they reject it, the ECB will withdrawal all emergency liquidity aid to Greek banks, essentially forcing the Greek government to issue an alternative currency to prevent a massive collapse of the banking system. That’s assuming Greece’s troubled banks don’t begin failing between now and Friday.
– The great leap backward: China looks like it is following the model pretty closely, having reached stage four already. The Shanghai Composite rose 130% between September 2014 and June 12 this year and has fallen 31% since then, with another 6% decline today. More than half of all Chinese stocks are now suspended from trading.
– Where there’s a will, there’s a way to buy votes: Britain’s government had a budget deficit of 5.2% of GDP in the past financial year and is aiming to eliminate that shortfall by 2018-2019. As a result, this week’s Budget is expected to reveal a £12 billion ($18.7 billion) crackdown on welfare spending.
– A Caribbean fuse: Puerto Rico, like Greece, added to its problems by borrowing profligately to fund generous public payrolls at artificially low interest rates—in Greece’s case because lenders assumed the European Union would back the debt; in Puerto Rico’s because income from its bonds is tax-exempt for mainlanders. Both have seen their tax bases dwindle as younger workers have emigrated: Puerto Rico’s population has shrunk by 10% over the past decade. Resolving this impasse will require intervention from America’s federal government. Congress could appoint a committee to administer the territory’s finances, allow Puerto Rico’s state-owned firms to declare bankruptcy or bail out the island directly.
– New York Stock Exchange Suspends Trading in All Securities: The New York Stock Exchange halted trading in all securities for an undisclosed reason. Stocks listed on the exchange continued to trade on other markets such as the Nasdaq Stock Market. The halt took effect at 11:32 a.m. in New York. Sara Rich, an NYSE spokeswoman, didn’t immediately reply to an e-mail seeking comment. Kevin Callahan, a spokesman for the Securities and Exchange Commission, declined to comment.
–Here Are Central Banks That Have Been Getting It Right — and Wrong: The best forecaster of all: the International Monetary Fund. It beat the Bank of Canada, the winner in the rankings, more often than not on growth and inflation. But the IMF doesn’t have a national mandate to set interest rates or deploy other tools, which is a key reason central banks exist and the motive for their forecasts. The projections are cranked into guidance on future policy moves that banks are offering more than ever — guidance that gets used by companies and governments for their own decisions.
The Bloomberg analysis shows central banks’ performance has improved as the crisis eased. Since 2012, as the European debt crisis started to fade, they’ve mostly had lower forecast errors for either growth, or inflation, or both. The BOE had one of the biggest improvements, with its forecast error for inflation falling to 0.68 percentage point from 1.23. The BOJ is still struggling with its growth projections, with the average error rising to 2.1 percentage points from 1.39 point.
– Pension Funds Look Outside U.S. to Fortify Investment Returns: Facing a $2 trillion unpaid tab for benefits to retirees, U.S. public pension funds are chasing higher returns in emerging markets overseas, even though such stocks have trailed their U.S. counterparts for the past five years. The largest fund, the $302 billion California Public Employees’ Retirement System, has about half of its stocks outside of the U.S., with almost 10 percent in emerging markets. The second-largest, the California State Teachers’ Retirement System, is considering a push into emerging markets as it re-calibrates its mix of $193 billion in assets.
–Alibaba to JD.Com Plunge as Investors Flee From All Things China: U.S.-traded Chinese stocks plunged the most in four years as the rout that’s wiped $3.2 trillion from the value of mainland equities spreads. Chinese American depositary receipts tumbled 5.1 percent as of 12:42 p.m. in New York, extending their slump to 18 percent from this year’s high. Alibaba Group Holding Ltd. tumbled to the lowest since its initial public offering, while JD.com Inc. sank as much as 12 percent.
Stocks fell in the U.S. after the Shanghai Composite Index sank for the fourth time in five days as government measures to stabilize mainland markets failed to stop a retail investor selling spree. Even after the median price-to-earnings ratio in China dropped to 55 from 108 at the height of the rally in June, valuations are more than twice as high as those on the Standard & Poor’s 500 Index.