If it was Greece's intention to crush the Chinese stock market instead of Europe's, well - it succeeded. Because despite the PBOC and politburo throwing everything but QE at the stock market, China stocks closed down sharply on Thursday after another wild trading day as investors shrugged off regulators' intensified efforts to put a floor under the sliding market, by cutting trading fees and easing margin rules, which has now crashed 25% in about two weeks wiping out $2.5 trillion of the peak $10 trillion in Chinese stock market cap as of June 14. This ultimately resulted with the Shanghai Composite closing under 4000 for the first time since April.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 3.4 percent, to 4,107.99, while the Shanghai Composite Index lost 3.5 percent, to 3,912.77 points, on volume of 58.3 billion shares as margin calls are accelerating and as regulators realize that investor took leverage upon margin upon leverage.

The only good news out of China is for those long realized vol; if only there was some way to be long realized vol that is...

Elsewhere in Asia, most markets ignored the ever louder noise out of China, and are so far doing their best to ignore what is going on their neighbor China, trading mixed following a positive Wall Street close, where renewed Greek optimism lifted sentiment after the Greek government showed a willingness to meet creditor's demands. The Nikkei 225 (+1.0%) rose supported by JPY weakness, with lower than prior CPI forecasts from BoJ's Tankan Survey adding to the case of further easing measures by the BoJ. Yes, bad news remains good news.

The ASX 200 (+1.5%) traded in the green with all sectors in positive territory, with gains exacerbated by a break above its 200 DMA (5584.62). Hang Seng (+0.12%) was bolstered by financials, while the Shanghai Comp (-3.48%) bucks the trend despite measures by the nation to support the stock markets by cutting trading fees and ease margin rules. JGB's fell 40 ticks amid spill-over selling in USTs coupled with today's lacklustre 10-yr JGB auction.

But while Greece may be happy with its "impact" on China, which alas could care less about the fate of Athens, the European session kicked off with equities trading in mixed territory (Euro Stoxx: -0.21%) amid fairly light newsflow as many market participants look ahead to US Nonfarm Payrolls scheduled for 8:30 Eastern as well as any potential Greek comments, which however have slowed to a trickle following the Eurogroup's response it would not negotiate until after Sunday's referendum.

In stock specific news, Syngenta (+2.3%) outperforms, boosting the SMI after reports pre market stated Monsanto (MON) CEO has travelled to Europe in order to hold discussions with Syngenta investors amid Monsanto's bid for the Co.

Amid the light Greece related newsflow and supply from France and Spain, Bunds have drifted lower throughout the morning in a continuation of yesterday's trend, while USTs also trade in the red, lower on the day by 4 ticks.

Today's most notable news come as the Riksbank unexpectedly cut their interest rate by 10bps to -0.35% from -0.25%, QE extended by SEK 45b1n and cut inflation expectations for 2015 & 2016. This happens even though as we explained previously, the Riksbank has become the first central bank for whom QE has failed as incremental QE merely drives rates higher due to a soaring illiquidity premium. The announcement immediate downward pressure on SEK, with EUR/SEK reaching highs of 9.3683. Elsewhere, UK Construction PMI (58.1 vs. Exp. 56.5) came out better than expected, leading to strength in GBP, which in turn contributed to greenback weakness with the USD in modest negative territory (-0.2%).

Looking ahead, the Nonfarm Payroll report dominates this afternoon's data slate, while participants will also be looking out for ECB minutes and US Factory orders as well as comments possible from ECB's Draghi and Mersch.

The energy complex resides is modest positive territory having retraced earlier gains amid reports of progress in Iran nuclear talks ahead of the new deadline for an agreement to be reached of July 7th. Participants are wary of a possible deal due to concerns of Iran being able to increase supply substantially if a deal is agreed.

In terms of Genscape alerts, Pony Express pipeline, with a capacity of 235k bpd has seen increased flow to capacity from 56k bpd. Other notable energy news has seen reports that Saudi Arabia are expected to cut official selling price differentials for most of crude grades loading in August for Asian buyers according to trade sources. Libya have reduced Es-Sider OSP for July to USD 1/bbl discount to dated Brent and participants look ahead to EIA NatGas Storage Change (Exp. 70).

Elsewhere, the metal complex has also weakened overnight, with concerns over China failing to subside, while a note from UBS forecasts an increase in nickel prices amid rising Chinese imports and cancelled warrants as well as a fall in exchange inventories.

In summary: European shares remain little changed with the utilities and oil & gas sectors outperforming and tech, media underperforming. Greek poll shows voters almost evenly split ahead of referendum, Varoufakis says he’ll quit if Greek’s vote  yes. Sweden deepens negative interest rates to curb gains in krona. Shanghai Composite falls below 4,000. U.K. house prices drop most in 9 months. The Swiss and U.K. markets are the best-performing larger bourses, Swedish the worst. The euro is stronger against the dollar. Japanese 10yr bond yields rise; German yields increase. Commodities gain, with wheat, zinc  underperforming and natural gas outperforming. U.S. jobless claims, continuing claims, Bloomberg consumer comfort, ISM New York, factory orders, nonfarm payrolls, unemployment, average earnings, labor force participation due later.

Market Wrap

• S&P 500 futures up 0.1% to 2073.7
• Stoxx 600 little changed at 387.2
• US 10Yr yield up 1bps to 2.43%
• German 10Yr yield up 5bps to 0.86%
• MSCI Asia Pacific up 0.1% to 146.7
• Gold spot down 0.4% to $1164.4/oz
• 7 out of 19 Stoxx 600 sectors rise; utilities, oil & gas outperform, tech, media underperform
• Asian stocks rise with the ASX outperforming and the Shanghai Composite underperforming; MSCI Asia Pacific up 0.1% to 146.7
• Nikkei 225 up 1%, Hang Seng up 0.1%, Kospi up 0.4%, Shanghai Composite down 3.5%, ASX up 1.5%, Sensex down 0.3%
• Euro up 0.21% to $1.1076
• Dollar Index down 0.09% to 96.23
• Italian 10Yr yield up 2bps to 2.31%
• Spanish 10Yr yield up 1bps to 2.29%
• French 10Yr yield up 6bps to 1.3%
• S&P GSCI Index up 0.2% to 433.3
• Brent Futures up 0.4% to $62.3/bbl, WTI Futures up 0.1% to $57/bbl
• LME 3m Copper up 0.4% to $5798.5/MT
• LME 3m Nickel up 1.7% to $12230/MT
• Wheat futures down 1.2% to 581.5 USd/bu

Bulletin Headline Summary

• Markets remained relatively subdued during the European session, with the most notable data showing UK Construction PMI (58.1 vs. Exp. 56.5) coming out better than expected, leading to strength in GBP
• Riksbank unexpectedly cut their interest rate by 10bps to -0.35% from -0.25%, QE extended by SEK 45b1n and cut inflation expectations for 2015 & 2016
• This afternoon sees Nonfarm Payroll report (Exp. 233k) as well as ECB minutes, US Factory Orders and comments from ECB's Draghi and Mersch
• Treasuries steady, yields higher by 1bp-2bp before reports forecast to show U.S. economy added 233k jobs in June while unemployment rate declined to 5.4% from 5.5%.
• Greek voters are almost evenly split heading into a referendum in three days that European leaders said could plunge the country into economic darkness, with 47% endorsing austerity and 43% backing the government’s rejection of it
• Greek finance minister Varoufakis said in a BTV interview in Athens that he would “rather cut my arm off” than sign a deal that fails to restructure Greece’s debt and he’ll quit if voters don’t back him in Sunday’s referendum
• Merkel’s disapproval helped end the political careers of former Italian prime minister Silvio Berlusconi and Greek leader George Papandreou; Tsipras could be next after burning through whatever goodwill he had
• The ECB added state-backed company debt to the list of assets eligible for purchase under its quantitative easing program, widening efforts to spur growth in the region
• The Shanghai Composite Index fell below the 4,000 level for the first time since April, as margin traders continued to unwind positions amid doubts over the effectiveness of government measures to support equities
• As China’s stock-market slump spurs margin traders to unwind record bullish bets, authorities have responded with a policy that analysts say could exacerbate the problem: make it easier to take on even more leverage
• Sovereign 10Y bond yields mostly higher; Greece 10Y yields -20.2bps to 14.78%. Asian stocks mixed; Shanghai plunges over 3.5%. European stocks mostly lower, U.S. equity-index futures gain. Crude oil and copper higher, gold declines

US Event Calendar

• 8:30am: Change in Nonfarm Payrolls, June, est. 233k (prior 280k)
  • Change in Private Payrolls, June, est. 225k (prior 262k)
  • Change in Mfg Payrolls, June, est. 6k (prior 7k)
  • Unemployment Rate, June, est. 5.4% (prior 5.5%)
  • Average Hourly Earnings m/m, June., est. 0.2% (prior 0.3%)
  • Average Hourly Earnings y/y, June, est. 2.3% (prior 2.3%)
  • Average Weekly Hours All Employees, June., est. 34.5 (prior 34.5)
  • Underemployment Rate, June, est. 10.7% (prior 10.8%)
  • Change in Household Employment, June (prior 272k)
  • Labor Force Participation Rate, June est. 62.9  (prior 62.9%)
• 8:30am: Initial Jobless Claims, June 27, est. 270k (prior 271k); Continuing Claims, June 20, est. 2.236m (prior 2.247m)
• 9:45am: Bloomberg Consumer Comfort, June 28 (prior 42.6)
• 9:45am: ISM New York, June (prior 54)
• 10:00am: Factory Orders, May, est. -0.5% (prior -0.4%)
  • Factory Orders Ex-Trans, May (prior 0%) * Central Banks
• 11:00am: ECB’s Draghi speaks in Milan

DB's Jim Reid completes the overnight event summary

For Greece it was a day of high excitement, lots of soundbites, positive sounding headlines and positive global markets but in truth not much changed apart from sentiment. From my angle one of the interesting developments came just after we went to press yesterday. The first opinion poll (for Efysn) showed a 'no' vote in the lead. Interesting 57% said they'd vote no before the closure of banks vs. 30% who said yes. After the closure of the banks 46% said no vs. 37% who said yes. The reason I found it interesting is that this was still a 'no' and the poll hardly impacted early trading yesterday which can mean one of two things. Firstly that markets were encouraged that the yes vote had some momentum after the banks were closed despite being behind or secondly that a no vote will not actually bring too much market turmoil if it materialises. If there is a hint of the latter then yesterday's early trading reaction could be seen as a big positive.

After US markets closed yesterday a second opinion poll hit the wires which showed a higher proportion of yes (47%) versus no (43%) votes. The poll (run by GPO) was said to have been taken on Tuesday according to Bloomberg and the result is lending support to the argument of momentum perhaps moving towards the yes vote. Interestingly the poll was split into four categories with votes split between ‘definitely’ and ‘leaning’ with the ‘definitely yes’ at 43% and ‘definitely no’ at 39%. There are still a large number of undecided so all to play for on Sunday.

Equity markets in Asia are generally firmer this morning after the latest poll with the Nikkei (+1.09%), Hang Seng (+0.56%), Kospi (+0.25%) and ASX (+1.55%) all up. Treasuries are unchanged while Asian credit is around a basis point tighter. The outlier once again is in China where the Shanghai Comp (-1.24%) and Shenzhen (-1.95%) have both fallen although the former has pared losses of almost 4% in earlier trading. The moves in fact have come despite the news yesterday that the China Securities Regulatory Commission will no longer require brokerages to force the sale of stock held by clients with insufficient collateral. The Shanghai and Shenzhen exchanges have also announced that stock transaction fees would be cut by nearly a third.

Back to Greece, the better sentiment yesterday, particularly in early European trading, appeared to come about on the back of a story out of the FT which suggested that Tsipras was set to accept most of the earlier bailout terms. Despite some additional concessions it appeared that some important differences still remained and focus instead turned to a defiant nationally-televised address from the Greek PM who once again reiterated a push towards a ‘no’ vote. Addressing the people, Tsipras remarked that ‘the sirens of destruction are blackmailing you to say yes to everything without any prospect of exiting the crisis’ while ‘a no vote is a decisive step toward a better agreement that we aim to sign right after Sunday’s result’.

So with Eurogroup President Dijsselbloem saying that that there are no grounds for further talks at this point and that ‘we will simply wait now for the outcome of the referendum’, and with Merkel also ruling out any negotiations until post Sunday’s result it feels like the Europeans are relaxed enough about the poll and subsequent consequences to not rush to make any concessions ahead of Sunday.

In the meantime we’ve got US payrolls to look forward to today which is coming on the back of a better than expected June ADP employment change report (237k vs. 218k expected) which was up 34k from the May reading and to the highest level since December, with the details all largely supportive. Current market consensus is for a 233k reading for payrolls today, with DB’s Joe Lavorgna at 225k. Yesterday’s employment data helped support a slight lift in yields although in fairness the market was already in more of a risk-on mode with the Greece headlines. 10y Treasuries eventually closed +6.9bps higher in yield at 2.423% and not far off Friday’s closing level of 2.474% just before the referendum announcement. US equities, despite paring some of the initial early bounce, still closed higher on the day with the S&P 500 finishing +0.69%. The gain came despite a notably weaker day for energy stocks which saw the sector fall 1.31% after a particularly weak day in the oil complex. WTI (-4.22%) and Brent (-2.48%) both took a steep leg lower to $56.96/bbl and $62.01/bbl after an EIA report showed US inventories rising for the first time in nine weeks and also signs of crude output from OPEC accelerating last month.

European equity markets saw their first positive day yesterday since the referendum announcement. The Stoxx 600 (+1.51%), DAX (+2.15%), CAC (+1.94%), IBEX (+1.32%) and FTSE MIB (+2.15%) all firmed, while in credit markets Crossover did initially tighten by as much as 25bps on back of the early optimism before eventually paring back some of the gains but still ending the session 12bps tighter. Sovereign bond markets echoed the better sentiment where we saw 10y yields in Italy (-4.0bps), Spain (-2.7bps) and Portugal (-6.0bps) all close tighter, while Greek 2y (-120bps) and 10y (-21bps) yields rallied. 10y Bunds ended +4.8bps higher in yield by the end of the session at 0.811%.

Running over the rest of yesterday’s data, as well as the solid ADP print yesterday we also saw construction spending numbers for the month of May up +0.8% mom and ahead of market expectations of +0.4%. The final June manufacturing PMI reading was revised up 0.2pts to 53.6, while the ISM manufacturing was also supportive (53.5 vs. 53.2 expected) having risen 0.7pts from May with both new orders and employment edging up. There was some slight disappointment in the ISM prices paid however which remained unchanged at 49.5 after expectations of a 1.5pt rise. Finally total vehicle sales for June fell more than expected to 17.11m saar (vs. 17.20m expected). Following yesterday’s construction spending report, the Atlanta Fed GDPNow model was revised up to 2.2% for Q2 growth (from 2.1%), although it is still tracking below market forecasts of 2.5%-3.2%.

Data flow in Europe yesterday was centered on the manufacturing PMI reports where we saw no change to the final Euro area reading for June at 52.5 (a 0.3pt improvement from May). There was likewise no change for Germany at 51.9, while France’s print was revised up a modest 0.2pts to 50.7. Readings for the peripherals were slightly softer than forecast however. Italy saw a 0.7pts fall to 54.1 (vs. 54.3 expected) while Spain fell 1.3pts to 54.5, well below expectations of 55.5. There was unsurprising weakness in Greece meanwhile with a 46.9 reading, down 1.1pts from May. In the UK the reading fell 0.5pts to 51.4, surprising the market after expectations for a rise to 52.5.

Looking at the day ahead now, the focus in the European timezone this morning and away from the obvious Greece headlines will be on the ECB's account of the monetary policy discussion from the June 3rd meeting, as well as Euro area PPI. We’ll also get UK house price data this morning. Payrolls will be the focus this afternoon in the US, while we also get average hourly earnings data, unemployment, initial jobless claims, factory orders and the ISM NY.