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

Treasury yields drop on renewed recession and trade-war fears; Pound plunges as Brexit talks stall; Portfolio risk rises, despite increased diversification

 

HIGHLIGHTS FOR THE WEEK ENDED MAY 17

 
 

Treasury yields drop on renewed recession and trade-war fears

 

US Treasury yields fell across all maturities in the week ending May 17, 2019, after surprise declines in both retail sales and industrial production reignited recession fears. The monetary policy-sensitive 2-year rate fell to its lowest level since February 2018 on Wednesday, while 10-year Notes provided the same yield as 3-month T-Bills. Earlier in the week, sovereign bond prices had already benefitted from outflows from the US stock market, which hit 2.5% on Monday—the biggest 1-day fall so far this year—after China threatened to retaliate against the latest US import tariffs.

20190218 first image.png

Please refer to figure 3 of the current Multi-Asset Class Risk Monitor (dated May 17, 2019) for further details.

 



Pound plunges as Brexit talks stall

 

The pound sterling plunged to its lowest level in more than 4 months in the week ending May 17, 2019, as Brexit uncertainty dragged on. The British currency lost more than 2% against its American rival as the cross-party talks, with which Prime Minister Theresa May had hoped to break the parliamentary deadlock, seemed to falter. The move led to a slight uptick in short-horizon risk for the GBP/USD exchange rate to 7.12%, while the euro, Swiss franc and Japanese yen all saw their predicted volatility decline.


20190218 second image.png

Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated May 17, 2019) for further details.

 


Portfolio risk rises, despite increased diversification

 

Short-term risk in Axioma’s global multi-asset class model portfolio rose by 0.43% to 4.93% as of Friday, May 17, 2019. A sharp uptick in standalone equity volatility added almost a percentage point to the overall risk, although more than half of it was offset by a more negative interaction between share prices and foreign-exchange rates against the US dollar. The latter also translated into an increased diversification benefit. At the same time, gold became more negatively correlated with the stock market, which meant that the precious metal significantly curtailed overall portfolio volatility, alongside other safe-haven assets, such as government and investment-grade corporate bonds and the Japanese yen. The biggest risk reduction came from non-US sovereigns, which further benefitted from the inverse FX/equity relationship.


graph.png

Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated May 17, 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 different scenarios affected the overall risk and diversification opportunities of a global multi-asset portfolio.

Watch the recording here.


 
 

On the Blog


Commonly Used Portfolio Constraints Have Exacerbated Weak Results from Poor Factor Performance in 2019

After a tough end to 2018 for factor-based managers, hopes were high for a turnaround this year. Unfortunately, the turn has failed to materialize.

Axioma’s ROOF Scores Explained

Axioma’s ROOF Scores were created to quantify market sentiment—in other words, bullish or bearish?

Putting a dent in auto imports: Stress-testing the impact of US tariffs on EU cars

Much attention has been paid to the trade conflict between China and the US. There is also the threat of tariffs on car imports to the US from the EU.

 
 
 

Latest Research

The Stock-Bond Correlation: Where to from here?

In this paper, we review the historical relation between share and bond prices and relate it to recent developments. We examine the impact on portfolio risk, explore alternatives for diversification options and provide an outlook on a potential future relationship.

Q1 2019 Insights: Risk Retreats Around the Globe

Stocks rallied around the globe in the first quarter of 2019, with most indices nearly recouping the steep losses of the previous quarter.

Beyond Volatility: Detecting Risk-On / Risk-Off Sentiment Through the Lens of a Risk Model

This paper provides an attempt to design a measure that quantifies the current balance between risk-tolerant and risk-averse investors in the equity markets.

 

In the News

German auto sector could drop as much as 12% if Trump announces tariffs, analyst says

The German stock market could fall as much as 6% and its automobile and components sector, could see losses of up to 12%, according to Christoph Schon.

Sentiment a Good Predictor of Market Levels (Radio)

Olivier d’Assier joined Daybreak Asia to discuss his assessment of investor sentiment and risk appetite, saying the trade war is a big binary event for markets.

 

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