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

Stocks and bonds both lifted by Fed rate cut; Dollar drops as interest rates fall; Portfolio risk drops on lower equity volatility

 

HIGHLIGHTS FOR THE WEEK ENDED NOVEMBER 1

 
 

Stocks and bonds both lifted by Fed rate cut

 

Stock markets and government bond prices both rose in a rare co-movement in the week ending Nov. 1, 2019, as investors shifted their focus toward central bank policy. US benchmark indices rallied to record highs, while bond prices were lifted by falling yields, after the Federal Reserve Bank cut its target rate by 25 basis points—as expected—but also indicated that it was done lowering rates for the time being. The Fed’s optimistic outlook on the economy was underpinned by better-than-expected job-market data on Friday and reports of progress in the US-Chinese trade negotiations.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated November 1, 2019) for further details.

 


Dollar drops as interest rates fall

 

The US dollar depreciated 0.6% against a basket of foreign currencies in the week ending Nov. 1, 2019, despite encouraging job-market news and renewed optimism about a trade deal with China. The downward move, which was spread across a wide range of major currencies, indicated that traders focused more on the decline in interest rates and bond yields, which, in turn, could make investing in the US seem less attractive. The British pound was one of the main beneficiaries of the greenback’s weakness—appreciating 0.9%—after the possibility of crashing out of the European Union without a deal had finally been taken off the table. Having said that, short-horizon risk for GBP/USD remained elevated around 7.7%—more than 2 percentage points above that of its biggest rivals—due to the uncertainty surrounding the upcoming general election in the UK on Dec. 12.




Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated November 1, 2019) for further details.

 


Portfolio risk drops on lower equity volatility

 

Short-term risk in Axioma’s global multi-asset class model portfolio dropped 0.71% to 5.31% as of Friday, Nov. 1, 2019. The decline resulted from a combination of lower equity volatility—which decreased more than 1 percentage point—and a less positive correlation between share prices and foreign-exchange rates against the US dollar. The latter seems counterintuitive, given the recent widespread dollar depreciation and simultaneous stock-market gains. However, the drop in share-price volatility made the observed co-movement of the two asset classes appear lower, leading to a perceived weakening of the relationship.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated November 1, 2019) for further details.



 
 
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