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

European yields surge on Brexit deal hopes; Pound remains riskiest developed currency; Portfolio volatility shoots up, as political risk in Europe increases

 

HIGHLIGHTS FOR THE WEEK ENDED OCTOBER 18

 
 

European yields surge on Brexit deal hopes

 

Yields on European sovereign bonds rose in the week ending Oct. 18, 2019, driven by rising hopes that a Brexit deal could still be reached before the Oct. 31 deadline. The 10-year Gilt benchmark rate climbed 7 basis points, when the first reports emerged that British and EU negotiators were close to a draft agreement on Tuesday. However, the gain merely offset a downward move from the previous day, so that the UK bellwether ended the week flat. The same-maturity German Bund, on the other hand, ended the week 7 basis points in the black, receiving additional support from slightly better-than-expected data releases, as both Eurozone industrial production and the ZEW investor survey came in above consensus estimates.

20190218 first image.png

Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated October 18, 2019) for further details.

 


Pound remains riskiest developed currency

 

The British pound remained the riskiest developed-market currency in the week ending Oct. 18, 2019, climbing to its highest level against the dollar in 5 months, buoyed by a perceived negotiation breakthrough at the European Council summit on Thursday and Friday. That said, the increased short-horizon volatility of 7.85% underscored the still-elevated uncertainty surrounding the Brexit debate, with discussions in Parliament over the weekend once again highlighting the continued strength of domestic resistance. The euro also benefitted from the renewed optimism, gaining almost 1% against its American rival.




Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated October 18, 2019) for further details.

 


Portfolio volatility shoots up, as political risk in Europe increases

 

Short-term risk in Axioma’s global multi-asset class model portfolio surged 1.38% to 6.79% as of Friday, Oct. 18, 2019, as an increase in political risk in Europe resulted in a higher correlation of share prices and foreign-currency movements. This meant that the returns of non-US equities were amplified by exchange-rate fluctuations, boosting the percentage risk contribution of the corresponding bucket by 7.3% to 26.7%. At the same time, heightened FX and stock-market volatility was largely offset by a more inverse relationship between stock and bond price returns, meaning that all government-bond categories in the portfolio once again actively reduced overall risk.


graph.png

Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated October 18, 2019) for further details.



 
 
Stay Connected
 
 

Webinars

Webinar Recording | Axioma Insight™ Q3 2019 Risk Review

In this webinar, the Applied Research team broke down the drivers of volatility, style factor returns and their portfolio implications, and other topics that can help portfolio managers, risk managers, asset owners and any other investors better understand the risk environment that drove their portfolio returns.

Watch the recording here.


Axioma in Toronto | Advancements in Risk Modelling

Date: October 24, 2019
Time: 4:30 PM - 8:00 PM

Please join us for insightful presentations focused on new advancements to Axioma’s risk models followed by a reception in downtown Toronto!

Register here.


Axioma Financial Intelligence Summit: New York 2019

Date: November 20, 2019

Join us for a full day of expert presenters, illuminating presentations and thought-provoking discussion. The full event agenda and speaker line-up will be announced shortly.

Register here.


 
 

On the Blog


Minimum Variance: A Leg Up on Geopolitical Risk?

In our latest paper, we examined the impact of recent market risk events on a range of STOXX® minimum-variance indices vis-à-vis their corresponding global and regional broad benchmarks.

The Value of Getting Sentimental about Your Alphas

We believe that investors would benefit from combining their independent alpha signal with some measure of investor sentiment via an alpha-shrinking process.

 
 
 

Latest Research

Q3 2019 Insights

Markets around the globe wavered over the past three months, but the decade-long global bull market endured in the third quarter. Despite the market’s gyrations, risk was little changed. Nonetheless, a lot has happened beneath the surface.

Qontigo's New Granular Fixed-Income DTS-Style Risk Model for Axioma Risk

Modeling potential losses of a credit-risky bond portfolio based on granular, issuer-level return data is notoriously difficult.

 

In the News

Financial Investigator: Why Build Fixed Income 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.

 

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