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

Sovereign yields lifted by renewed hopes of a trade deal and a soft Brexit; Pound recovers as hard Brexit is ruled out; Portfolio risk remains stable, despite higher risk appetites

 

HIGHLIGHTS FOR THE WEEK ENDED SEPTEMBER 6

 
 

Sovereign yields lifted by renewed hopes of a trade deal and a soft Brexit

 

High quality government bond yields rose around the globe in the week ending Sep. 6, 2019, as rising optimism and increased risk appetites lured investors from safe havens into more speculative asset classes. The 10-year US Treasury yield surged 11 basis points on Thursday, following an announcement that China and the US would resume trade talks next month. The same-maturity British Gilt yield had already climbed 8 basis points the day before, buoyed by hopes that the dreaded ‘no-deal’ Brexit could be avoided by new legislation passed by Parliament, taking the total 2-day gain to 0.18%. Meanwhile, the borrowing rate of the Italian government dropped to all-time lows—compressing the risk premium over German Bunds to its tightest level since the formation of the populist coalition in May 2018—after the announcement of a new governing alliance ended weeks of political uncertainty.

20190218 first image.png

Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated September 6, 2019) for further details.

 


Pound recovers as hard Brexit is ruled out

 

The pound surged over 1% against the US dollar in the week ending Sep. 6, 2019, as Members of Parliament pushed through a new law that would force the Prime Minister to ask for an extension of the Brexit deadline, if no deal is reached by Oct. 19. The British currency rebounded sharply on Wednesday, after having briefly dipped below $1.20—a level not consistently seen since 1985—during the day before, ending the week firmly in the black. Yet, the possibility of ‘hard’ Brexit remains, as a potential extension would also have to be approved by the European Union. In fact, several EU politicians have already indicated that they are not prepared to keep extending the deadline time and again, “unless the deadlock in London is broken.”




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

 


Portfolio risk remains stable, despite higher risk appetites

 

Short-term risk in Axioma’s global multi-asset class model portfolio remained once more unchanged at 6.50% as of Friday, Sep. 9, 2019. While increased risk appetites led to higher standalone equity volatility, much of the share gains was offset by losses in fixed-income securities, which, in turn, raised diversification. However, a renewed decoupling of share prices and FX rates also meant that stock-market returns were no longer dampened by exchange-rate changes, resulting in an increased volatility contribution from non-US equities.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated September 6, 2019) for further details.



 
 
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