Equity risk ticks-up in the US, Canada, Japan and Australia; Asset correlations climb in the US; Mexican peso strengthens against the US dollar

Yields jump on trade deal and Brexit hopes; Pound flat after choppy week; Portfolio risk unchanged, but diversification increases




Yields jump on trade deal and Brexit hopes


Government bond yields rose on both sides of the Atlantic in the week ending April 5, 2019, as the US and China indicated considerable progress in their trade negotiations. The 10-year US Treasury benchmark rose 9 basis points, further buoyed by upbeat manufacturing and job market data, which both exceeded analyst expectations. Rate gains were even bigger in the UK, where the same-maturity Gilt climbed 12 basis points. The majority of the increase occurred on Wednesday, when Members of Parliament narrowly pushed through a bill, which requires the government to seek an extension of the Brexit negotiation period in order to avoid leaving without a deal on April 12. Prime Minister Theresa May also met opposition leader Jeremy Corbyn in another attempt to break the parliamentary deadlock.

20190218 first image.png

Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated Apr. 5, 2019) for further details.


Pound flat after choppy week


The British pound closed just above $1.30 on Friday, April 5, 2019—almost the same level as the previous weekend—after hitting a mid-week high of $1.316. The currency was lifted by renewed hopes that a hard, no-deal Brexit on April 12 will still be avoided, despite the fact that the Prime Minister’s proposal has already been rejected three times by the House of Commons. The exchange rate against the US dollar reached its pinnacle on Wednesday, when Parliament approved a bill—by just one vote—which forced Theresa May to return to the European Union and ask for more time to come up with a viable proposition for the exit agreement. For the same purpose, the PM initiated talks with Labour leader Jeremy Corbyn, which, in turn, generated a lot of opposition in her own party. The dichotomy was reflected in the sawtooth pattern the pound exhibited over the course of the week.

20190218 second image.png

Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated Apr. 5, 2019) for further details.


Portfolio risk unchanged, but diversification increases


Short-term risk in Axioma’s global multi-asset class model portfolio remained almost unchanged at 5.55% as of Friday, April 5, 2019, as a surge in share price variation was offset by a lower correlation with exchange rates and fixed-income assets. Standalone equity volatility rose by more than a percentage point, as investors relinquished the relative safety of government bonds to buy riskier stocks as risk appetites increased, driven by perceived progress in the US-China trade talks. The more pronounced countermovement of the two asset classes resulted in a significant diversification benefit, which offset most of the higher equity risk. Non-USD government bonds saw the biggest decline in their volatility contribution, now also actively reducing overall portfolio risk alongside their US counterparts.


Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated Apr. 5, 2019) for further details.

Stay Connected


Webinar | Axioma Insight™ Q1 2019 Risk Review

In this webinar, Melissa R. Brown, Managing Director of Applied Research, will discuss the major drivers of the change in risk during the first quarter and provide a comprehensive picture of the risk environment impacting investor portfolios.

Register here.

Webinar | Axioma Insight™ Quarterly Multi-Asset Risk Review

In this quarterly webinar, Olivier d'Assier will review recent market events and discuss the key risk factors driving volatility in global markets with an emphasis on their impact on Asia Pacific portfolios.

Register here.


On the Blog

A Tough First Quarter for Systematic Managers?

According to the returns for Axioma’s factors, the first quarter of 2019 was probably a tough one for many systematic, factor-based investors, especially those investing in the US.

Who Wins and Who Loses, if Gold Keeps Rising?

If gold continues to rise, as equities fall in a “risk-off” environment, who are the likely winners and losers?

Cloud native vs. cloud hosted: The differences are big…and they matter

The cloud is “in.” But dig a little deeper, and you find that firms have simply switched to a cloud-hosted infrastructure, rather than a thoroughly modern cloud-native environment.


Latest Research

What, Exactly, Is a Factor?

According to BlackRock, as of June 2018 there was $1.9 trillion invested in factor-based strategies. There is no question that these strategies have moved to the forefront of investing, but their growing popularity begs the basic question: what do we mean by “factor”?

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

The lack of risk aversion in the market is troubling: Axioma

Olivier d’Assier of Axioma says the way markets seem to be shrug off bad news is “a bit too fast” for his liking.

Not All Stock Factors Are Created Equal — Even When They Have the Same Name (Sign-In Required)

Building a portfolio based on “factors,” in industry jargon, can be tricky, since any variation in the process can lead to vastly different basket of stocks and performance patterns.


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