Job Openings Grind Higher

May’s Job Opening and Labor Turnover (JOLTS) survey showed a new all time high for the total number of job openings. Separations crashed, driven lower by fewer layoffs in the month. Downward revisions kept the Openings Rate for both all workers and Private workers flat versus initially reported figures last month, but both remain within a few tenths of a percent of all time highs, continuing to illustrate strong labor demand.

Quits continued to move sideways, in keeping with their recent trend for both total and private quit rates.  While the current level is showing no deterioration and is well above rates observed for most of the recovery, a lack of acceleration in quits remains a headwind for wages as workers are unable or unwilling to “trade up” to higher paying jobs.

U.S. Trade Report Paints Picture of Global Weakness

Slumping U.S. exports due to a strong dollar and deteriorating foreign demand boosted the trade deficit in May. Slightly softer imports of components for the production process, including industrial supplies and capital goods, are a sign that manufacturing is suffering. (…) (Chart from Haver Analytics)

From Christine to Janet:

• IMF: U.S. Economy at Risk of Stalling If Rates Raised Too Soon

• Dollar rise threatens US growth, says IMF

Growth in Major Economies Seen Slowing

The CLIs continue to point to firming growth in the Euro area, including France and Italy, and to stable growth momentum in Germany, Japan and India.
On the other hand, the CLIs point to easing growth in the United States, Canada, China as well as the United Kingdom, albeit from relatively high levels.
The CLI for Russia shows tentative signs of a positive change in growth momentum while in Brazil the CLI continues to point to a loss in growth momentum.

Based on the OECD LEIs, world growth momentum is sustained by Germany, France and Italy.

• Europe is blowing itself apart over Greece – and nobody seems able to stop it

(…) Events are now spinning out of control. The banks remain shut. The ECB has maintained its liquidity freeze, and through its inaction is asphyxiating the banking system.

Factories are shutting down across the country as stocks of raw materials run out and containers full of vitally-needed imports clog up Greek ports. Companies cannot pay their suppliers because external transfers are blocked. Private scrip currencies are starting to appear as firms retreat to semi-barter outside the banking system.

Yet if Greece is in turmoil, so is Europe. The entire leadership of the eurozone warned before the referendum that a “No” vote would lead to ejection from the euro, never supposing that they might have to face exactly this. (…)

Yet 15 of the 18 governments now sitting in judgment on Greece either back Germany’s uncompromising stand, or are leaning towards Grexit in one form or another. The Germans are already thinking beyond Grexit, discussing plans for humanitarian aide and balance of payments support for the drachma. (…)

The result could be costly. RBS puts the direct financial losses for the eurozone from a Greek default at €227bn, compared with €140bn if they bite the bullet on an IMF-style debt restructuring.

But that is a detail compared with the damage to the European political project and the Nato alliance if Greece is thrown to wolves against the strenuous objections of France, Italy and the US.

It is hard to imagine what would remain of Franco-German condominium. Washington might start to turn its back on Nato in disgust, leaving Germany and the Baltic states to fend for themselves against Vladimir Putin’s Russia, a condign punishment for such loss of strategic vision in Greece.

Mr Lapavitsas said Europe’s own survival as civilisational force in the world is what is really at stake. “Europe has not show much wisdom over the last century. It launched two world wars and had to be saved by the Americans,” he said

“Now with the creation of monetary union it has acted with such foolishness, and created such a disaster, that it is putting the very union in doubt, and this time there will be no saviour. It is the last throw of the dice for Europe,” he said.

China ramps up efforts to halt stock rout Sell-off spreads to HK as mainland share suspensions top 50%

(…) The renewed selling followed another round of share suspensions overnight that have now halted trading in 1,476 stocks — or more than 50 per cent of all listed companies on China’s two main exchanges. The suspensions have frozen $2.6tn worth of equity, according to Bloomberg calculations. (…)

The People’s Bank of China said it was helping state-owned China Securities Finance Corporation access liquidity to help the fund “hold the line against the outbreak of systemic or regional financial risk”.

This is the clearest statement yet about what CSF is doing — buying shares directly using PBoC money, a big departure from its traditional role of lending to brokerages to support margin lending.

The CSF is also providing Rmb260bn ($41.8bn) of credit to brokerages in order to help them buy shares, according to the China Securities Regulatory Commission. (…)

In a separate statement the CSRC added that the CSF would continue to buy blue-chips, but would also step up purchases of shares in smaller companies to “relieve the problem of strained liquidity”.

In a further effort to halt the rout, China’s state-sector administrator instructed government-owned companies not to sell shares, while the insurance regulator said it had cleared “qualified insurers” to increase their asset allocation to equities. (…)

China Stock Sellers Frozen Out of 71% of Market

At least 1,331 companies have halted trading on mainland exchanges, freezing $2.6 trillion of shares, or about 40 percent of the country’s market capitalization. Another 747 fell by the 10 percent daily limit on Wednesday, making it all but impossible to find buyers at the prevailing price. (…)

On the Shanghai exchange, 365 companies suspended trading, equivalent to 33 percent of all listings. A further 992 were halted in Shenzhen, or 56 percent of the total.

Deng warned about that a while back:

Deng Xiaoping’s statement on stock markets during his Southern Tour included the legitimation to pursue stock market development: ” … some people insist stock is the product of capitalism. We conducted some experiments on stocks in Shanghai and Shenzhen, and the result has proven a success. Therefore, certain aspects of capitalism can be adopted by socialism. We should not be worried about making mistakes. We can close it [the stock exchange] and re-open it later. Nothing is 100% perfect.” (Deng Xiaoping as translated and quoted in Henry M. K. Mok (1995), p. 24.3.) (Via FT Alphaville)

China stock crash sparks fears of contagion to financial system

China’s tumbling stock market has led to fears of contagion to the broader financial system, especially state-owned banks, a bedrock of the economy.

At first glance, banks should not be on the hook for falling stock prices. They are not permitted to buy shares for their own balance sheets, nor are they directly involved in margin lending to stock investors.

But analysts warn that banks developed circuitous ways to participate in the frothy run-up in stock prices that began late last year and peaked in mid-June before a dramatic reversal in the past three weeks. The potential risk to banks helps explain why the government has surprised market watchers with a series of extraordinary moves to stem the losses.

Lack of reliable data about stock market-linked lending has led to a debate among analysts, with some saying systemic risk is minimal but others warning that bankruptcies of banks or securities brokerages may be imminent. (…)

Much of the worry centres on so-called “umbrella trusts” in which banks sell wealth management products to retail customers that promise a fixed return.

The funds raised are channelled through trust companies, which lend them to hedge funds to make leveraged stock bets. In addition to hedge funds, so-called “fund-matching” companies also distribute some umbrella trust funds to retail speculators as grey-market margin loans.

Such informal margin lending to hedge funds and “fund-matching” clients is not subject to the same leverage restrictions as regulated margin finance by brokerages. Leverage can reach six-to-one, compared with a maximum of two-to-one for margin loans from brokerages. Haitong Securities estimates that umbrella trusts and similar structures have channelled Rmb500bn-Rmb1tn ($80bn-$160bn) into the stock market. (…)

The risk now is that with the fall in prices, margin investors will not be able to repay loans from fund-matching companies and umbrella trusts. That could threaten the ability of banks and trusts to pay out on wealth management products (WMPs) as promised. In most cases banks offer no formal guarantee on stock market-linked WMPs, so they are not legally required to protect investors from losses.

But the experience of previous defaults on WMPs suggests that lenders would face huge pressure to ensure payouts in order to protect their reputations and avoid the spectacle of unruly pensioners demonstrating outside bank branches.

So far there is little sign that any equity-linked WMPs are facing imminent default. But because most such products carry a maturity of at least a year, it could be months before problems emerge.

Another source of bank exposure to the stock market is through loans collateralised by equity. Shares worth Rmb2.5tn had been pledged as collateral by the end of June, according to 21st Century Business Herald, although only a fraction of that total would be to banks. (…)

Beijing’s Response to Stock Selloff Reveals Deep Insecurity

Far more than simply a market crisis, the turmoil on the Shanghai Stock Exchange is viewed by China’s leadership as a potential security threat to the regime.

That helps explain the barrage of measures unleashed by financial authorities to counter a sudden market downturn that threatened to shake public confidence in the government.

In that sense, the unprecedented rescue moves, including a multibillion-dollar fund set up by Chinese brokerages at the government’s behest to buy blue chips, is a preview of what’s to come following the passage last week of a national-security law that massively expands the definition of threats to the state to cover almost every aspect of domestic life, including “financial risk,” as well as international affairs. The law explicitly states that economic security is the foundation of national security. (…)

Stock ownership in China is still quite limited, and the individual accounts that dominate trading are small. In fact, the only real losses so far have been among stock investors who arrived late to the party. Economists argue over whether a full-scale collapse would have much impact on the overall economy.

Yet the government’s response revealed an urgent—some say panicked—impulse not only to protect investors but to shield the party from criticism and head off possible social unrest.

The ultimate goal of Chinese security is weiwen, or “stability maintenance,” which is another way of saying “maintaining party rule.” (…)

Social stability has become the overriding concern of the bureaucracy. Indeed, the most critical job-performance target for local officials is to prevent social unrest from breaking out on their patches. (…)

If the Shanghai index continues to sell off despite the all-out government attempt to change its course, the damage to the party’s image could get worse. Ironically, in his quest for absolute security for the party, Mr. Xi may have just undermined it.

Commodities, China and Greece Hint at Deflation Like a falling barometer, sliding commodity prices can often signal an approaching storm for investors.

Testing, testing…