Equity risk ticks-up in the US, Canada, Japan and Australia; Asset correlations climb in the US; Mexican peso strengthens against the US dollar
AXIOMA RISK MONITOR
MULTI-ASSET CLASS EDITION

Government yields fall on trade war fears;
Dollar index flat as currencies diverge

 

HIGHLIGHTS FOR THE WEEK ENDED MARCH 2

 
 

Government yields fall on trade war fears

 

Interest rates on government securities fell slightly in the week ending March 2, 2018. The 10-year US Treasury yield briefly dipped towards 2.80%, after President Donald Trump announced the imposition of significant tariffs on steel and aluminium imports on Thursday, sparking fears of a potential trade war. The decline was more pronounced for British Gilts, with the 10-year yield ending the week 4 basis points lower, as tensions heightened over contentious Brexit issues, such as whether the UK should remain in the customs union, the Irish border and the feasibility of a transition period.


20180306 first graphic.png

Please refer to figures 4 of the current Multi-Asset Class Risk Monitor (dated March 2, 2018) for further details.

 


Dollar index flat as currencies diverge

 

The dollar index—a measure of the USD’s value relative to a basket of foreign currencies—rose to a 6-week high on Wednesday, February 28, 2018, but gave up almost all of its gains later in the week. The US currency was buoyed by new Federal Reserve Bank Chair Jay Powell’s optimistic outlook on the US economy in his first congressional testimony, which corroborated market expectations of more and sooner rate hikes. While gains in the first half of the week had been more or less uniform against most major rivals, exchange rates started to diverge over the last two days. The yen was lifted more than 1% by remarks from Bank of Japan Governor Haruhiko Kuroda on Friday that the central bank would consider ending its ultra-loose monetary policy, if inflation hits its 2% target next year. The pound, on the other hand, continued to be weighed down by ongoing concerns around the Brexit negotiations, ending the week almost 1.5% in the red.


20180306 second graphic.png

Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated March 2, 2018) for further details.

 


Portfolio risk and correlations remain stable

 

Short-term risk in Axioma’s global multi-asset class model portfolio remained stable around 12.2% in the week ending March 2, 2018. The effect of slightly higher equity volatility was almost exactly offset by lower exchange rate variation. Correlations among major risk factors also remained mostly unchanged. The interaction of stock and bond prices showed signs of reverting into negative territory, which resulted in a marginal risk reduction from US Treasuries. However, this diversifying effect was cancelled out by an even closer relationship between equity and oil price returns.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated March 2, 2018) for further details.

 



 
 
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