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

Bond yields plunge as trade-war fears escalate; Pound and FTSE both drop—for different reasons; Portfolio risk flat, as less diversification offsets lower volatility

 

HIGHLIGHTS FOR THE WEEK ENDED MAY 24

 
 

Bond yields plunge as trade-war fears escalate

 

US Treasury yields fell to their lowest levels since 2017 in the week ending May 24, 2019, as share prices were once again rocked by trade-war fears. The 10-year US benchmark plunged 10 basis points on Thursday, driven lower by flight-to-safety flows from the stock market. Tech companies were hit particularly hard, after reports that Chinese firm Hikvision—the world’s largest surveillance company—could be added to a blacklist, which would effectively prevent it from buying US technology. British Gilt yields ended the week even deeper in the red, as they were further depressed by rising Brexit uncertainty, while other safe-haven assets, such as gold, also benefitted. The oil price, on the other hand, dropped sharply alongside equities, pushed down by concerns that the trade conflict could weigh on fuel demand.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated May 24, 2019) for further details.

 



Pound and FTSE both drop—for different reasons

 

The pound sterling and the FTSE 100 benchmark index both fell in the week ending May 24, 2019, though each for apparently different reasons. The British currency lost 0.33% against its American rival, with the biggest drop occurring on Wednesday, when Prime Minister Theresa May offered the Labour Party the possibility of a second EU referendum in a last-minute attempt to gain cross-party support for her controversial Brexit deal. Yet, the UK stock market ended that day marginally in the black, as traders seemed to rate the benefits of a weaker exchange rate higher than the potential risks of ongoing Brexit uncertainty. The opposite picture could be observed on Thursday, when British share prices were dragged down by their US counterparts, while the pound remained almost flat amid general dollar weakness. All other G10 currencies, on the other hand, ended the week higher, with the safe-haven Swiss franc being the biggest beneficiary.


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Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated May 24, 2019) for further details.

 


Portfolio risk flat, as less diversification offsets lower volatility

 

Short-term risk in Axioma’s global multi-asset class model portfolio remained almost flat at 4.87% as of Friday, May 24, 2019, as a decrease in equity volatility was offset by a less negative relationship between share prices and foreign exchange rates against the US dollar. This meant that US stocks saw a much bigger decline in their risk contribution than their non-USD-denominated counterparts. American fixed-income securities, on the other hand, benefitted from a more inverse relationship with share prices, caused by increased flight-to-quality flows. The oil holding, meanwhile, saw its volatility contribution more than double to 8.5%, due to its simultaneous price drop with the stock market.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated May 24, 2019) for further details.



 
 
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