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Just in case you were worried that David Rosenberg had turned all bright and happy with regards to the US equity markets – he brings us his 7 major risks brewing:

  • China hard landing (PMI down to 51, perilously close to contraction mode)…equity market may have begun to price in some probability of such.
  • Contagion sovereign credit risks in Europe (the rating agencies have already begun to take action against Spain, Italy and Belgium).
  • Countertrend rally in the US dollar – this is crushing the risk-on carry trades: the unwinding of net speculative short positions in the dollar and long positions in the Euro seem to have further to go based on the latest CFTC data.
  • Deepening recession in Japan – still one of the world’s largest economies; spill-over on global production schedules still to be felt.
  • US fiscal policy is becoming more radically austere at all levels of government.
  • The end of QE2 will be a very big deal given the 89% correlation between the Fed’s balance sheet and the movements in the S&P 500 over the past two years.
  • US leading economic indicators are rolling over. Β The Conference Board Index fell in April for the first time since June 2010; the coincident-to-lagging indicator is down three months in a row; and the ECRI smoothed index is down now for four straight weeks, a streak last seen in July 2010.

Source: Gluskin Sheff

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