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 drop on dovish central bank comments; Pound plummets amid Brexit turmoil; Portfolio risk drops as stock/bond interaction gets more negative

 

HIGHLIGHTS FOR THE WEEK ENDED MARCH 29

 
 

Sovereign yields drop on dovish central bank comments

 

Yields on German government debt descended even deeper into negative territory in the week ending March 29, 2019, after European Central Bank President Mario Draghi signalled a further adjustment of the bank’s rate forward guidance in a speech on Wednesday. Traders took this as an indication that the initial rate hike could be delayed even more, and the 10-year Eurozone benchmark rate dropped below -0.06% as a result—a level not seen since October 2016. The same-maturity US Treasury yield also fell 4 basis points on speculation that the Federal Reserve Bank might start cutting rates before the year is out. Fed fund futures now assign a 75% chance to this, fuelled by similar demands from President Trump’s nominee for the Federal Open Market Committee, Stephen Moore. Meanwhile, British Gilt yields also hit their lowest levels in more than 21 months, following a renewed round of setbacks in the Brexit process.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated Mar. 29, 2019) for further details.

 



Pound plummets amid Brexit turmoil

 

The British pound lost 1.5% against the US dollar in the week ending March 29, 2019, as Prime Minister Theresa May’s proposal for the EU withdrawal bill was voted down by parliamentarians for the third time on Friday. The defeat followed a series of ‘indicative’ votes on the previous day, in which Members of Parliament explored alternative options to the PM’s plan—none of which was able to assemble a majority of votes either. Even May’s offer of an early resignation could not sway enough Tory rebels to support her deal. The pound’s weakness also helped push the dollar higher, which gained 0.65% against a basket of foreign currencies. The greenback’s rise was further supported by a resumption of trade talks between China and the United States on Thursday.


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Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated Mar. 29, 2019) for further details.

 


Portfolio risk drops as stock/bond interaction gets more negative

 

Short-term risk in Axioma’s global multi-asset class model portfolio dropped by almost a percentage point from 6.40% to 5.49% as of Friday, March 29, 2019. The decline was almost entirely due to the interaction between share and bond prices becoming more negative. This also significantly increased diversification in the portfolio. The impact from a slightly higher stock market volatility, on the other hand, was completely offset by a lower correlation with foreign exchange rate changes against the US dollar. In terms of the asset class breakdown, the fixed-income holdings in the portfolio saw their combined percentage risk contribution go down by 5 points. The gold and JPY cash holdings also benefitted from a more inverse relationship with stock prices.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated Mar. 29, 2019) for further details.



 
 
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