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

Sovereign yields climb on trade deal hopes; Pound rises as no-deal fears subside; Portfolio risk drops on lower equity volatility and correlation

 

HIGHLIGHTS FOR THE WEEK ENDED JANUARY 18

 
 

Sovereign yields climb on trade deal hopes

 

Government bond yields rose on both sides of the Atlantic in the week ending Jan. 18, 2019, as global stock markets continued their ascent for the fourth week in a row. The rally was fueled by ongoing optimism about a resolution of the trade dispute between China and the United States, based on reports that the US administration was prepared to scale back tariffs on Chinese imports. Further support came from stronger-than-expected industrial output reported by the Federal Reserve Bank on Friday. This was in contrast to production data in the Eurozone, which suffered its sharpest fall in almost 3 years, resulting in a less pronounced increase in Bund yields. The 10-year UK benchmark rate also dipped 4 basis points ahead of the parliamentary vote on the proposed Brexit deal on Tuesday, although it rebounded the next day and ended the week up 0.06%.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated Jan. 18, 2019) for further details.

 



Pound rises as no-deal fears subside

 

The British pound appreciated against the US dollar in the week ending Jan. 18, 2019, buoyed by renewed hopes that a cliff-edge Brexit can be avoided. The rejection of Prime Minister Theresa May’s proposed EU withdrawal agreement had been widely expected and markets seemed to deduce that it would more likely lead to an extension of the Article 50 deadline than the dreaded no-deal scenario. Subsequently, cable almost cracked the $1.30 mark—a level not seen since the day former Brexit secretary Dominic Raab resigned in mid-November—on Thursday, further supported by the government’s victory in Wednesday’s confidence vote. Sterling was the only G10 currency that was up against the greenback, which gained considerable positive momentum from returning risk appetites. Safe-haven currencies, such as the Swiss franc and the Japanese yen, suffered the most severe losses of more than 1%.


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Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated Jan. 18, 2019) for further details.

 


Portfolio risk drops on lower equity volatility and correlation

 

Short-term risk in Axioma’s global multi-asset class model dropped almost 2 percentage points to 10.39% as of Friday, Jan. 18, 2019, reduced by combination of lower equity volatility and a weaker correlation between share prices and FX rates against the US dollar. Increased risk appetites after four consecutive weeks of stock market gains and the accompanying dollar appreciation meant that proceeds from non-USD share holdings were offset by exchange-rate losses. Even though this lessened profits for US investors, it also resulted in lower overall portfolio volatility. Nonetheless, equities remained the biggest source of portfolio risk with a combined contribution of 93%.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated Jan. 18, 2019) for further details.



 
 
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