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

Stocks and bonds rise on US growth and inflation data; Dollar gains as shares reach record highs; Portfolio risk drops as equities and FX decouple

 

HIGHLIGHTS FOR THE WEEK ENDED APRIL 26

 
 

Stocks and bonds rise on US growth and inflation data

 

Equity and bond prices rose in unison in the week ending April 26, 2019, following a combination of encouraging growth and inflation data. US stock markets reached another record high, after a 3.2% rise in gross domestic product significantly beat analyst predictions of 2.3%. At the same time, core personal consumption expenditures—the Federal Reserve Bank’s preferred inflation measure—was reported at 1.3%, way below the consensus forecast of 1.6%. The subsequent downward revision of short-term interest-rate expectations resulted in a steepening of the US Treasury curve, with the 2-year yield down 9 basis points, while the 10-year benchmark descended only 6 basis points.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated Apr. 26, 2019) for further details.

 



Dollar gains as shares reach record highs

 

The Dollar Index—a measure of the USD’s value against a basket of foreign currencies—rose to its highest level in almost 2 years in the week ending April 26, 2019, as US equity benchmarks climbed to record highs. The greenback’s strength was broad-based against almost all G10 currencies. The only exception was the Japanese yen, which gained 0.3% against its American rival. Meanwhile, short-horizon currency risk declined across the board, with another notable 0.18% drop for the pound, taking predicted volatility for GBP/USD down to 7.16%.


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Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated Apr. 26, 2019) for further details.

 


Portfolio risk drops as equities and FX decouple

 

Short-term risk in Axioma’s global multi-asset class model portfolio dropped by half a percentage point to 3.84% as of Friday, April 26, 2019. The decline was caused by a mixture of lower stock market volatility and a decoupling of equity and FX returns. In previous weeks, the correlation between the two risk factor types had been dominated by the political and economic situation in Europe, in particular the recession fears in France, Germany and Italy. With earnings reporting season in full swing now and positive news on the economic growth and inflation fronts, market focus has once again shifted toward the United States. Given the more somber outlook on the other side of the Atlantic, this led to a weaker relationship of share prices across regions and also with currency exchange rates. This, in turn, resulted in a lower volatility contribution from non-US equities and increased overall diversification.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated Apr. 26, 2019) for further details.



 
 
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