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

Gilts outperform, as Brexit uncertainty persists; Dollar benefits from economic and political risk in Europe; Portfolio risk drops, as equity volatility and correlations decline

 

HIGHLIGHTS FOR THE WEEK ENDED OCTOBER 25

 
 

Gilts outperform, as Brexit uncertainty persists

 

British government bonds outperformed their Continental European and North American counterparts in the week ending Oct. 25, 2019, as investors sought the relative safety of sovereign debt amid ongoing Brexit uncertainty. Despite Parliament’s apparent support for Boris Johnson’s exit deal proposal in principal, a majority of MPs demanded more time to scrutinize the draft before making a final decision. Hence the scheduled departure on Oct. 31 is unlikely, instead creating more uncertainty around the final exit date and adding the possibility of a general election before the year is out. On the other side of the Atlantic, however, US Treasury yields received a boost from renewed trade-deal hopes, after President Trump indicated on Monday that an agreement could be signed by mid-November.

20190218 first image.png

Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated October 25, 2019) for further details.

 


Dollar benefits from economic and political risk in Europe

 

The US dollar appreciated 0.56% against a basket of foreign currencies in the week ending Oct. 25, 2019, lifted primarily by weakness among its European rivals. The euro lost 0.44%, as a report from Germany’s central bank (Bundesbank) and the latest purchasing manager index data both indicated that the Eurozone’s largest economy may already be in a technical recession—defined by two consecutive quarters of negative growth—for the first time in almost 6 years. Losses were slightly higher for the pound (-0.50%), which was weighed down by the added uncertainty of a further Brexit delay and a potential general election.




Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated October 25, 2019) for further details.

 


Portfolio risk drops, as equity volatility and correlations decline

 

Short-term risk in Axioma’s global multi-asset class model portfolio fell 0.77% to 6.02% as of Friday, Oct. 25, 2019, driven mostly by 1.5% decline in standalone equity volatility. At the same time, the current focus on political risk resulted in weaker correlations between share prices on one side and exchange rates and bond returns on the other, leading to offsetting effects on overall portfolio risk. While European currencies suffered from ongoing recession fears and Brexit uncertainty, the yen was largely unaffected, resulting in a generally reduced co-movement of equity and FX returns. The risk-lowering effect of this was, however, offset by a less inverse relationship between stock and bond prices, as sovereign yields decoupled across the different regions.


graph.png

Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated October 25, 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 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