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 rise despite ECB rate cut; Yen drops on trade deal hopes; Portfolio risk drops, as equity volatility falls

 

HIGHLIGHTS FOR THE WEEK ENDED SEPTEMBER 13

 
 

Bond yields rise despite ECB rate cut

 

Government bond yields surged around the globe in the week ending Sep. 13, 2019, amid a series of goodwill gestures from China and the United States, aimed at de-escalating the trade conflict between the two nations. The 10-year US Treasury rate booked its biggest weekly gain since the US presidential election in November 2016, as traders also reassessed their interest-rate expectations ahead of Federal Reserve meeting on Sep. 17-18. Yield rises were considerably less pronounced on the other side of the Atlantic, however, where the European Central Bank lowered its refinancing rate by 0.1% (as expected) and announced that it would resume its bond-buying program. The latter declaration especially helped Italian BTPs, which saw their risk premium over German Bunds drop by another 20 basis points to 1.40%.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated September 13, 2019) for further details.

 


Yen drops on trade deal hopes

 

The Japanese yen lost more than 1% against its American rival in the week ending Sep. 13, 2019, as investors shifted their money from safe havens to riskier asset classes and currencies. The increase in risk appetites was fueled by reports that the United States and China were considering an “interim” trade deal, which would include the reduction or removal of some tariffs. Hopes of a peaceful resolution were further underpinned by the cancellation of tariffs on certain US food imports into China, while President Trump agreed to postpone planned levies from Oct. 1 to Oct. 15. Meanwhile, the pound soared to its highest level since late July, following a report in The Times that the Northern Irish Democratic Unionist Party had agreed to relax some of its red lines regarding the so-called Irish backstop. Even though the party leadership later denied the rumors as groundless, the British currency held on to its gains.




Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated September 13, 2019) for further details.

 


Portfolio risk drops, as equity volatility falls

 

Short-term risk in Axioma’s global multi-asset class model portfolio dropped 0.60% to 5.90% as of Friday, Sep. 13, 2019, as standalone equity volatility fell more than 1 percentage point to 13.5%, while US stock indices almost regained their previous record highs. The change was, therefore, mostly reflected in the US equity bucket, which saw its percentage risk contribution go down by 1.3% to 73.5%. USD-denominated fixed-income assets also extended their risk-lowering properties, as they remained firmly negatively correlated with share prices in an environment of increasing risk appetites.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated September 13, 2019) for further details.



 
 
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