US UNEMPLOYMENT CLAIMS ROSE BY 20,000 AND CHINA'S BRAKE ON LOANS

The headline says it all. Unemployment claims rose more than expected by 20,000 (294,000 vs expected 274,000), following a miserable jobs report in early May. This follows last week claims which has also risen above expectations.

This seems to indicate that US payrolls could see some headwinds in the coming months.With retailers continue to deliver poor Q1 2016 results, we can expect more layoffs in the near future, and possible bankruptcy in others.

Ignore the Fed's optimism. US economy is weakening. How else can you explain the fourth quarter in a row where earnings are in negative growth?

The S&P's rise has reached its limit, and likely to see further downward pressure in the coming weeks.

As Jeff Gundlach says, there is likely another measly 2% upside for the S&P vs a potential 20% downside. So the odds are increasing for a substantial  drop in the S&P which could hurt investors.

There is a rush into US treasuries, especially the 10 year treasuries, which cause the US$ to spike vs other currencies. This could result in US made goods being more expensive than other countries and could likely hit the US companies earnings in Q2 2016.

On the EU side, Italian banks are facing a crisis as their NPLs skyrocketed to 360B Euros  The ECB is in a bind. Should it bail out the Italian banks, what abut the banks in Greece? Spain? How the treatment of one differs from another? And if the Italian banks crisis is dragged further it could undermine the ECB's efforts and cause a chain reaction.

In Japan Abenomics is proving to be a flash in the pan. Meanwhile the BOJ continues to rack up its balance sheet with more bonds and ETFs buying, so much so that the BOJ is the top ten shareholder in 90% of the Nikkei stocks.

China's pro Beijing media recently ran an article that suggested that China should reduce its leverage and focus on restructuring rather than stimulating the economy with even more debt. It said that debt in China has reached a dangerous level. Another economist also suggested that China's growth in the coming years will likely be in "L" shape rather than "U" or "V" shape. So we can safely assume that China will start to deleverage, settle for a period of low growth and focus on restructuring its economy. Gone are the days of double digit growth. What will be the impact?

As deleveraging China could result in the following:

1) A devaluation of the Renminbi, This could spark a currency war that will spread across the globe, causing further deflation.

2) A deflation hits, commodities prices will fall and commodities based economies will suffer, putting them at risk of a recession.

3) A slowing China will mean slowing global trade which is already trudging along at snail's pace, and put central banks' policies at risk.

The trillions of dollars in global debt accumulated since 2008 will force the world into yet another financial crisis, only this time, it will be worse than ever before experienced. Yes, it will be the Greater Depression.


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