TheChek News Flow

This weekend, the Greek government has surprised the market—among others. Greek

developments have been a tail risk of varying intensity for the markets over the past

few months. While on its way to a culmination point, a deal between Greece and its

creditors was looking increasingly likely in recent days; the opposite is now the case.

Very soon, global markets and policy makers will need to react to the new information.

How much will each react and how should we think about it?

Think of the End Game but Focus on Next Week: First Down then Up?

Forecasting Greek developments and their market impact has been a humbling

exercise; it just got more difficult. Our framework is to tie two medium-term

probabilities and one outcome together for this week. We examine the current

dynamics around a) the probability of GREXIT and b) the probability of contagion. We

also imagine the most negative outcome for markets: GREXIT coupled with noncredible

policy response at least within the market relevant timeframe (please see below

for details and milestones). The intersection of these three sub-exercises paints a picture

of uncertainty for this coming, critical first week, which will need to be priced but also

likely to be adjusted with the help of policy makers.

Think Bunds at First, (Our) Focal Points Next and for the Rest

It is unlikely that investors can afford to passively observe the developments play out

this week, irrespective of their confidence on the degree of credible policy response.

The impact ahead is likely global, so the potential menu of instruments used for market

action is large. However, legacy policy as well as likely new policy initiatives coupled

with liquidity considerations point to buying bunds as a dominant strategy at the very

beginning of this week. Beyond the first reaction, and for a richer set of asset

implications, our exercise above generates our expected average market reaction during

the coming week. The farther away we observe assets from their respective average

response, the higher our preference to act (please see discussion of these focal points

later on in the report).

*BREWIN DOLPHIN RAISED TO OUTPERFORM AT RBC CAPITAL

*THYSSENKRUPP RAISED TO BUY AT HSBC

*UNITED UTILITIES RAISED TO BUY AT HSBC

>>> Down

*SEB CUT TO HOLD VS BUY AT DEUTSCHE BANK

>>> PT Change

>>> Initiation

*CLOSE BROTHERS RATED NEW SECTORPERFORM AT RBC, PT 1,600P

*COM HEM RATED NEW NEUTRAL AT CREDIT SUISSE, PT SK73

>>> Call

Dow+0.32% S&P-0.03% Nasdaq-0.62% Russell-0.27%

US market closed on a mix note with big index near the flat line and tech index lower. Greece was still in focus. Germany's Handelsblatt reported that creditors have offered Greece EUR15.50 billion in bailout funds over the next five months if Greek representatives can agree to the requested reforms; however, that offer was turned down by the Greek delegation. European markets appeared unconcerned with the lack of progress as France's CAC, Germany's DAX, and Italy's MIB spiked between 4.0% and 4.8% for the week. Not to be outdone, Greece's Athens General Composite surged 13.8% for the week, returning into the middle of this year's range. ermany's Handelsblatt reported that creditors have offered Greece EUR15.50 billion in bailout funds over the next five months if Greek representatives can agree to the requested reforms; however, that offer was turned down by the Greek delegation. European markets appeared unconcerned with the lack of progress as France's CAC, Germany's DAX, and Italy's MIB spiked between 4.0% and 4.8% for the week. Not to be outdone, Greece's Athens General Composite surged 13.8% for the week, returning into the middle of this year's range. Volume were above average with 2bil shares becasue of Russell rebalancing....Teva announced that they will meet Israelis institutions on Perrigo...Greek PM Tsipras blindsided European creditors and global investors by effectively staging a walkout from negotiations and declaring a Yes or No referendum for the Greek people on whether to support bailout conditions demanded by creditors. Eurogroup said that even though they were taken by surprise by the announcement, they would have still considered extending the bailout before Syriza went on to endorse a NO vote. As it is, EMU ministers declared the EFSF financial arrangement with Greece would end on June 30th, leaving Greek govt responsible for safeguarding the country's financial system. Later on Sunday, ECB also decided not to increase the cap on ELA funding for Greek banks, pulling the safety net from the system, sending Greeks to empty out the nation's ATMs, and leading to the introduction of capital controls which Athens had previously claimed it could avoid. Banks will remain closed until July 6th, bank payments and transfers abroad would be banned, ATMs will be formally closed on Monday and then operate with a €60 daily limit from Tuesday. Of note, a local press survey suggested some 57% of Greeks support a deal with European creditors and only 29% would endorse a break from creditors, though there is little clarity on whether a YES vote would require another political transition. Extreme flight to safety was reflected across the asset classes but most notably in the currency markets. EUR/USD fell as much as 200pips below 1.0960, EUR/JPY was down as much as 450pips below 134, and USD/JPY fell as much as 170pips to 122.10. AUD and NZD were down about 60pips at their worst levels against USD - the latter hitting a 5-year high below 0.68 - before paring much of those losses. S&P futures are down 30pts or 1.4% and front-month gold was up about 1% at its highs above 1,185. China markets remained active after another sharp selloff on Friday which had sent Shanghai Composite down nearly 20% from its peak. Over the weekend, PBoC announced a 25bp cut in interest rates and a 50bp cut in RRR to select lenders (those involved in agriculture and small business loans) - the first time both were cut since the height of GFC in late 2008. However, after opening up 2.3%, Shanghai Composite entered its midday break down 3.8%. Economist with PBoC made reassuring remarks, noting liquidity was ample. Premier Li also said economic fundamentals remain strong, but CASS offered a Q2 GDP forecast of 6.9% - down from 7% in Q1. Nikkei225, which had seen its multi-year highs as recently as last week, is also down nearly 2% on strong JPY and overall risk aversion. Fed's Dudley - one of the FOMC's biggest doves - stating that September rate hike was still "very much in play". Dudley acknowledged that Greece uncertainty is a "wild card", but added there were signs of recovery in Europe and Japan, along with accelerating wage gains and growing household spending alleviating worries about sustainability of economic momentum in the US. Dudley concluded he would not be surprised "if we decided to lift off in September, or it wouldn't shock me if the data were a little softer and it caused us to wait."

Nikkei -2.53% Hang Seng -2.60% Shanghai -2.84%

Eur$1.1018 JPY 122.44 GBP1.5721 CHFEUR 130339 RUB $55.3312 WTI $58.60(-1.73%)

S&P -1.37% EuroStoxx -5.4% DAX -5.06% SMI -4.10%

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- Greece Scenarios and Impact on Euro, Rates, Stocks: UBS

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- BAYN GY : Bayer Fungicide May Have Hurt Grapes, Neue Zuercher Zeitung Says

- BBVA SM : BBVA Said to Weigh Sale of Debt, Real Estate Portfolios: WSJ

- DBK GY : Deutsche Bank Says BaFin Report Confirms Its Findings

- DBK GY : Deutsche Bahn Plans Revamp, Admin Cuts, Welt Am Sonntag Says

- DLG IM : De Longhi May Seize M&A Opportunities, Sole Reports

- 7KT GY : *FOSUN MAY BUY AS MUCH AS 20% IN KTG AGRAR, HANDELSBLATT SAYS

- FER SM : Ferrovial, Macquarie May Sell Chicago Toll Road Stake: Reuters

- LHA GY : Lufthansa Pulls Long-Haul Planes From Dusseldorf: Handelsblatt

- ROG VX : Roche Launches Improved Point-Of-Care Test for Heart Attacks

- SKY LN : Sky, Liberty Said to Weigh Bidding for F1 Stake: Sunday Times

- STL NO : Statoil Signs $5b Multicurrency Revolving Credit Line

- TIT IM : Generali Cut Telecom Italia Stake to 0.1% Vs 4.3%: Consob

- VOD LN : Vodafone Says It Remains Committed to Business in Greece