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

Bonds and stocks rally on dovish central bank signals; CHF risk surges as dollar drops; Portfolio risk surges as asset-class co-movements increase




Bonds and stocks rally on dovish central bank signals


US Treasury yields fell to their lowest levels since the November 2016 in the week ending June 21, 2019. The 10-year benchmark rate briefly dipped below the 2% mark—for the first time since the US presidential election—on Thursday, after the Federal Reserve Bank changed its rhetoric from patient and neutral to a more dovish and expansionary tone. At the same time, the prospect of early interest-rate cuts propelled US stock market indices to record highs, despite an explicit downgrade of the Fed’s economic growth projections. On the other side of the Atlantic, German Bund yields ventured deeper into negative territory, after the European Central Bank indicated that it may resume its bond-buying programme, if inflation persistently remained well below the bank’s 2% target. British Gilt rates, on the other hand, were fairly stable, as the Bank of England bucked the trend, sticking with its forward guidance of ongoing monetary-policy tightening “at a gradual pace.”

20190218 first image.png

Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated June 21, 2019) for further details.


CHF risk surges as dollar drops


The US dollar depreciated sharply against all its major rivals in the week ending June 21, 2019. The Dollar Index—a measure of the greenback’s value against a basket of foreign currencies—dropped 1.4%, despite unprecedented index levels at the American stock markets. This indicates that FX traders focused more on the Federal Reserve Bank’s transition toward a more accommodative monetary-policy stance and the implications for interest rates and bond yields. Exchange-rate losses were particularly pronounced against the Swiss franc, which ended the week 1.7% higher. The move resulted in a 0.29% jump in short-horizon risk for the CHF/USD currency pair to 5.29%.

Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated June 21, 2019) for further details.


Portfolio risk surges as asset-class co-movements increase


Short-term risk in Axioma’s global multi-asset class model portfolio surged more than 2 percentage points to 8.87% as of Friday, June 21, 2019. The rise was caused by the increased co-movement of stocks with bond prices and foreign-exchange rates against the US dollar, as market participants once more focused on central bank policy. The changes were most notable for non-US equities, where local stock-market gains were amplified by currency gains against the depreciating greenback. Oil and emerging market stocks experienced the biggest rises in their percentage risk contributions, due to an increased correlation with the US market. US Treasuries and investment-grade corporate bonds also no longer reduced overall risk, due to their increasingly positive interaction with share prices, although contributions for the former still remained close to zero.


Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated June 21, 2019) for further details.

Stay Connected


Webinar | Axioma Insight™ Q2 2019 Risk Review

Date: July 10, 2019
Time: 11:00 AM ET / 4:00 PM BST 

In this webinar Melissa Brown, Managing Director of Applied Research, will provide illuminating insights into key drivers of risk and the resulting implications for portfolio managers, risk managers, investment strategists and all those wrestling with the uncertainties facing today’s markets.

Register here.


On the Blog

Fixed Income factors: Why do we build credit curves?

We take a look at how we build credit curves to serve as a foundation for fixed income models and the advantages they have over some other methodologies.

Factor Performance Continued to Fall Short in Q2—and Constraints Only Made Things Worse

Momentum’s recovery in Q2 was a welcome event for many factor-based investors. Unfortunately, that recovery probably wasn’t enough to pull quant managers out of the hole.

The Truth About Fixed Income Factors

Traditional fixed income models are not well placed to live up to more advanced demands. So what to do?


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

Axioma Introduces Next Generation Fixed Income and Multi-Asset Models in Axioma Risk™

These new, bottom-up risk models are constructed using Axioma’s proprietary methodology for modeling global fixed income returns across both developed and emerging markets.

Special Tariffs Ahead: Drive Defensively

The Swiss franc and confederation bonds are likely to benefit from a deterioration in the EU-U.S. trade relationship, according to Christoph Schon.

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.


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