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

Global yields fall amid disappointing economic data; Euro dives as ECB turns (even more) cautious; Portfolio risk falls in flight to quality

 

HIGHLIGHTS FOR THE WEEK ENDED MARCH 8

 
 

Global yields fall amid disappointing economic data

 

Government bond yields declined around the globe in the week ending March 8, 2019. The 10-year Treasury rate dropped 13 basis points, while US share prices recorded losses for 5 days in a row. The equity market sell-off was fuelled by a wave of disappointing economic news, including weaker-than-expected job growth and a decade-peak in the US trade deficit. The 10-year German Bund yield also fell 0.12% to 0.07%—its lowest level since October 2016—as the Eurozone benchmark came under additional pressure from a reduced growth forecast by the European Central Bank. The same-maturity British Gilt rate declined by a similar amount, as traders braced themselves for another week of Brexit uncertainty.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated Mar. 8, 2019) for further details.

 



Euro dives as ECB turns (even more) cautious

 

The euro fell to a 20-month low against the US dollar in the week ending March 8, 2019, after the European Central Bank dramatically lowered its outlook for the Eurozone economy. The rate-setters now expect the single-currency area to grow 1.1% in 2019—down 0.7 percentage points from their previous projection in December. The common currency dropped 0.8% against its American rival on Thursday, as ECB President Mario Draghi announced fresh monetary stimulus measures for the region’s flailing economy and promised to keep refinancing rates at their present levels “for as long as necessary.” The British pound was also weighed down, with no apparent progress in the ongoing Brexit negotiations and growing doubts that a revised deal could pass through Parliament in the week ahead.


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Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated Mar. 8, 2019) for further details.

 


Portfolio risk falls in flight to quality

 

Short-term risk in Axioma’s global multi-asset class model portfolio fell by half a percentage point to 6.33% as of Friday, March 8, 2019. The drop was mostly due to a more pronounced negative correlation between stock and bond markets, as investors fled share holdings for the relative safety of government bonds amid a flurry of discouraging economic news. The flight-to-quality movement boosted the risk-reducing properties of US fixed-income assets. Despite the stock market sell-off, equity factor volatility declined further. Non-US stocks saw the biggest absolute risk reduction, although part of the effect of the lower standalone volatility was offset by an intensified co-movement of share prices and exchange rates against the US dollar, as European currencies were hit by downward revisions in economic growth forecasts and ongoing Brexit uncertainty.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated Mar. 8, 2019) for further details.



 
 
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