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

Bunds outperform as economic disparity widens; GBP risk rises as hard Brexit concerns deepen; Portfolio risk continues to fall on lower equity volatility

 

HIGHLIGHTS FOR THE WEEK ENDED JULY 19

 
 

Bunds outperform as economic disparity widens

 

German Bunds outperformed their British and American peers in the week ending July 19, 2019, as investors once more flocked to the relative safety of government debt, following another flurry of gloomy growth forecasts. The 10-year benchmark rate declined by a total of 10 basis points, as the ZEW indicator of economic sentiment ventured further into negative territory, while US retail sales beat analyst expectations. Nevertheless, the same-maturity US Treasury yield also ended the week 0.06% in the red, amid the latest rise in tensions between the West and Iran and concerns about the slow progress of the trade negotiations between China and the United States.

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Please refer to figure 3 of the current Multi-Asset Class Risk Monitor (dated July 19, 2019) for further details.

 


GBP risk rises as hard Brexit concerns deepen

 

The British pound dropped to a 27-month low in the week ending July 19, 2019, as traders priced in an even higher probability of a no-deal Brexit. The UK currency briefly dipped below $1.24 on Tuesday, following indications from both Tory leadership contestants that they would drop the controversial Irish backstop clause from the withdrawal agreement—despite countless warnings from the EU that there was no room for renegotiation. The move led to a rise in short-horizon risk for the GBP/USD exchange rate to 7.15%—making the pound the riskiest and worst-performing (over the past 6 months) major developed-market currency.




Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated July 19, 2019) for further details.

 


Portfolio risk continues to fall on lower equity volatility

 

Short-term risk in Axioma’s global multi-asset class model portfolio dropped another 0.69% to 5.73% as of Friday, July 19, 2019. The decrease was once again driven by a 1% decline in standalone share-price volatility and was therefore primarily reflected in the equity buckets. At the same time, fixed-income securities and gold also saw their share of overall risk decline amid the latest flight-to-quality movements. However, they still remained largely uncorrelated with stock markets, due to the constant shift in focus between geo-political concerns, economic-growth expectations and central bank policies. The contribution from oil, on the other hand, rose by 1.2 percentage points to 4.5%, as escalating tensions in the Middle East pushed up both the price and the volatility of the commodity.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated July 19, 2019) for further details.



 
 
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