“Equity investors are facing the four horsemen of the apocalypse thundering towards them.” Albert Edwards (pictured, below), the famously bearish global strategist at French bank Société Générale, is not known for pulling his punches. His latest
note to clients sees him tackling the big four issues facing markets right now: a jump in US bond yields; an “escalating trade war”; weakening emerging market currencies; and the battle in the eurozone over Italy’s budget plans.
Edwards has long been a bond bull – he expects prices to keep rising and yields to keep falling, with the US eventually going the way of Japan, with long-term bond yields near 0%. So he was “most surprised” that the ten-year Treasury yield “managed to smash through its multi-decade downtrend” in recent weeks, helped by expectations of further interest-rate hikes from an increasingly aggressive-sounding Federal Reserve. Yet while the push above the 3.05% mark was a “highly significant technical breach”, Edwards is sticking with his view that ten-year yields will fall into negative territory during the next recession. Don’t be surprised, he says, if the current Treasury sell-off “loses energy”.
Edwards also notes that hostility towards the European Union (EU) from within Italy is set to grow. Unlike the UK, where young people are more positive about the EU than older people, in Italy, the under-45s are more likely to vote to leave. “Time is one thing the pro-EU establishment does not have on its side in Italy.”