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

US Treasury curve steepens in ‘risk-on’ environment; Pound rallies as ‘no-deal’ fears subside; Portfolio risk drops as volatility and correlations fall

 

HIGHLIGHTS FOR THE WEEK ENDED MARCH 1

 
 

US Treasury curve steepens in ‘risk-on’ environment

 

Long government bond yields rose in the week ending March 1, 2019, while US equity benchmarks recovered to levels last seen in October and November. The latter was mostly due to a surge in share prices on Friday, following a week of perceived progress in the ongoing US-Chinese trade talks, particularly the delay of a tariff hike planned for March 1. The short end of the US Treasury curve, on the other hand, remained subdued by a recent downward revision in interest-rate expectations, resulting in a slight overall steepening. The 10y-2y term spread rose to 0.22%—its widest level since the start of the year. On the other side of the Atlantic, Gilt yields climbed even further, buoyed by renewed hopes that the dreaded ‘no-deal’ Brexit could be avoided.

20190218 first image.png

Please refer to figure 3 of the current Multi-Asset Class Risk Monitor (dated Mar. 1, 2019) for further details.

 



Pound rallies as ‘no-deal’ fears subside

 

The pound sterling gained almost 1.5% against the US dollar in the week ending March 1, 2019, as concerns about a ‘no-deal’ Brexit receded. The British currency climbed to its highest level in more than 8 months, after Prime Minister Theresa May conceded that the UK’s exit process from the European Union could be temporarily put on hold to avoid a disorderly departure. Should no agreement be reached by March 12, members of Parliament will have the chance to decide whether the country should leave without a deal, or whether an extension of Article 50 should be sought. Short-horizon risk on the GBP/USD exchange rate also jumped by 0.2% to 7.6%.


20190218 second image.png

Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated Mar. 1, 2019) for further details.

 


Portfolio risk drops as volatility and correlations fall

 

Short-term risk in Axioma’s global multi-asset class model portfolio dropped by 0.90% to 6.83% as of Friday, March 1, 2019. Most of the decline was due to a combination of lower equity volatility and a reduced co-movement of exchange rates with other asset returns. The risk reductions were, therefore, most notable in the non-USD categories, both equity and fixed income. Oil and gold also saw their volatility contributions fall by a combined 0.15%, due to lower correlations with share prices.


graph.png

Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated Mar. 1, 2019) for further details.



 
 
Stay Connected
 
 

Webinars

Webinar Recording | Axioma Insight™ Quarterly Multi-Asset Risk Review

In this webinar, Christoph V. Schon, Axioma's Executive Director of Applied Research, examined how portfolio risk has changed from very little diversification in a climate of inflation fears to a ‘flight-to-quality’ environment entirely dominated by stock market volatility.

Watch the recording here.


Webinar Recording | ESG Vendor Data Inconsistency and Its Impact on Investment Portfolios

Using a small set of different ESG vendors, Anthony Renshaw, Ph.D., Director of Index Solutions at Axioma, examined how pervasive ESG disparities are and what drives material differences in vendor scores. He also evaluated how those disparities impact portfolio construction.

Watch the recording here.


 
 

On the Blog


The impact of Fed policy on portfolio risk and diversification

As the latest US rate-hiking cycle enters its final phase, market participants are paying ever-closer attention to comments and actions of Federal Reserve Bank officials.

Finding Opportunities with Axioma’s Asia Pacific ex-Japan Model

A study of style factor returns for Axioma’s Asia ex-Japan (APxJP) fundamental variant risk model reveals some potential investment opportunities for factor-based managers investing in the region.

Are the wheels coming off the volatility cycle?

If the last three months of market volatility seem eerily familiar, it is because they are.

 
 
 

Latest Research

A Survey of ESG Vendor Data: Strategies for Managing Score Differences

Using a small set of different ESG vendors, Anthony Renshaw, Ph.D., Director of Index Solutions at Axioma, examines how pervasive ESG disparities are and what drives material differences in vendor scores.

Catch Me If You Can - Capturing Runaway Asian Spreads in the Equity World

In this research note, we use the newly released APAC ex-Japan model from Axioma (AX-APxJP4) to construct an equity portfolio of high-yield issuers and use the new fundamental style factors in the model to draw a parallel between the equity and the bond world.

 

In the News

Axioma Appoints Amaury Dauge as President

Axioma announced today the appointment of Amaury Dauge as President. Dauge will also continue to serve as CFO, a position he has held since joining Axioma in June 2016.

Base case scenario is still a slowdown in China, analyst says

Olivier D'Assier, head of applied research, APAC at Axioma discusses the investment in Chinese markets amid ongoing trade tensions.

Axioma Releases New APAC Equity Risk Models

Axioma, the leading global provider of enterprise risk management, portfolio management and regulatory reporting solutions, announces the release of its new APAC (AP4) and APAC ex-Japan (APexJP4) Risk Models – the most recent update to the firm’s next-generation Equity Factor Risk Model suite.

 

Axioma Risk Monitor

A Weekly Report on Market Risk

The Axioma Risk Monitor reports use Axioma’s solutions to bring you insights on trends in market and portfolio risk. You can subscribe to both the multi-asset class and equity edition here.

 
 
 
 

MiFID II Statement: Axioma believes that the research we provide falls outside the purview of the MiFID II regulations, which are intended to provide transactional transparency and unbundle research and trading costs. Axioma does not provide recommendation research, is not a regulated company and our business is not transactional. As such, we do not believe that we are subject to MiFID II regulation.

Axioma  17 State Street, 2700    New York  NY  10004  United States