And while US equities futures were looking grim overnight, China at least started off on the right foot, rising a little over 2% in early trading following China’s scramble to stabilize markets as it knows the alternative could very well be (deadly) civil unrest.  And then something unexpected happened: the market did not follow the Chinese central bank script. In fact, as noted earlier, stocks plunged tumbling as much as limit down for CSI-300 futs, and the SHCOMP crashing the most since 1996.

This was not supposed to happen: in fact, with China unleashing the bazooka of the double rate cuts, it was virtually assured that at least China’s stock would rise as the rest of the world tumbled on Greek worries. That it did not was the biggest red flag, far more so than what the Greek referendum reveals this weekend, as it means that after Sweden last week, now China has lost control!

According to Paul Chan, chief investment officer for Asia ex-Japan at Invesco in Hong Kong, “China’s fourth interest-rate cut since November failed to stabilize the stock market as it was seen as a stopgap measure to stem a slide in share prices rather than an effort to revive the economy.” He added that “It seems like policy makers are more worried about the stock market than about the real economy. The economy is slowing down and they are so much behind the curve in terms of easing.

But as the stock market corrected, they jumped in, putting in all the policies. It gives people a sense of panic.”

That’s about right: and now with rate cuts no longer stabilizing the market which as revealed was the PBOC’s only real motive, the next and final option for the Chinese central bank is QE, just as we predicted.

But until we get then, there is a question: what happens in the interim. Because at the open, Europe looked in the abyss, and with no help coming from China, it did not like what it saw:

• EURO STOXX 50 FUTURES FALL 7% AT MARKET OPEN
• DAX FUTURES DOWN 5%. CAC DOWN -5.3%
• GERMAN BONDS SURGE AT OPEN, 10-YEAR YIELD FALLS 20 BPS TO 0.72%
• ITALIAN BONDS DECLINE WITH 10-YEAR YIELD RISING 57 BPS TO 2.72%
• SPANISH 10-YEAR BONDS DECLINE WITH YIELD RISING 43 BPS TO 2.54%

And then the answer came from the Swiss National Bank, which stepped in to prevent the collapse just as Europe was opening. Because seemingly out of nowhere, a tremendous bid came in to lift the EURCHF, buying Euros (against the CHF and the USD) and selling Europe’s last left safety currency.
We now know that it was the SNB, the same central bank which is the proud owner of well over $1 billion in Apple stock.

• JORDAN: SNB INTERVENED IN FRANC OVER NIGHT
• JORDAN: SITUATION OVER WEEKEND MADE INTERVENTION NECESSARY

End result:

As the SNB president admitted: “There was an increased demand for francs” over night, Thomas Jordan says at conference in Bern. “The SNB intervened in the market to stabilize it.”
In other words, without the SNB, the situation would have been truly dire.

And this is only on Monday night: we now have 5 more days of agonizing wait until we get to the Greek rerferendum, which may not even happen because as German FAZ reports Greece may not even have the funds to hold the Greferendum!

To be sure before the week is done every single other central bank will have a go at stabilizing the “market” although if everyone else decides to sell, the Chinese contagion will spread as central bank after central bank loses market intervention credibility. At that point, it will be time to really get the hell out of Dodge.

A deeper look at markets, starting in Asia: PBoC cut interest rates for a 4th time in 7 months by 25bps with the lending rate lowered to 4.85% and the deposit rate lowered to 2.00%, while it also cut the RRR rate by 50bps for banks which lend to agricultural and small and medium sized businesses and by 300bps for Non-banking financial companies. (China Economic Net)

Asian equities plunged as participants react to the latest developments in the Greek crisis, while losses in the Nikkei 225 (-2.9%), ASX 200 (-2.2%) and Hang Seng (-2.6%) were exacerbated by weakness in financials. Shanghai Comp (-3.4%) yet again traded in erratic fashion, as the index entered bear market territory having fallen 20% from its June 12th highs, with the PBoC’s decision over the weekend to cut interest rates by 25bps months failing to provide a sustained rally in the index. Finally, JGB prices jumped by 39 ticks with USTs rising by over a point as safe havens benefited from a widespread risk-off tone.

Weekend developments in Greece have dominated headlines and market moves this morning, with Greek PM Tsipras announcing a referendum on 5th July and imposing a bank holiday for the week. For a full roundup of developments in Greece please click here. This saw European equities (Euro Stoxx: -3.1 %) open the session in negative territory, with FTSE (-1.4%) and SMI (-1.0%) outperforming as the UK and Switzerland are not members of the Eurozone. On a sector specific basis, financials are lagging with some Italian banks failing to post as opening price.

While fixed income markets have seen Bunds trade around 175 ticks higher, fears of contagion have not been realised despite analysts at Goldman Sachs forecasting that Italian and Spanish spreads would widen by 150-175 bps against the German benchmark, but have instead widened by around 30bps and have come off their worst levels throughout the morning.