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 soar on trade-deal hopes; Dollar strengthens, as Eurozone economy remains in the doldrums; Offsetting correlation effects leave portfolio risk unchanged

 

HIGHLIGHTS FOR THE WEEK ENDED NOVEMBER 8

 
 

Sovereign yields soar on trade-deal hopes

 

Government bond yields rose sharply across the globe in the week ending November 8, 2019, as US stock indices racked up even more record highs. The 10-year US Treasury benchmark soared more than 20 basis points to levels last seen in early August, amid reports that Chinese and American trade negotiators had agreed to remove some tariffs, ahead of plans for Presidents Xi Jinping and Donald Trump to sign a “phase one” deal in December. Yield increases were more subdued on the other side of the Atlantic—with the 10-year German Bund bellwether only rising 12 basis points—as investors remained concerned about the health of the Eurozone’s manufacturing sector.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated November 8, 2019) for further details.

 


Dollar strengthens, as Eurozone economy remains in the doldrums

 

The US dollar gained 1.15% against a basket of foreign currencies in the week ending November 8, 2019, as global investors poured their funds into the US stock market amid rising optimism that a trade deal could finally be within reach. The strengthening was widespread across all its major competitors, with the euro being one of the biggest losers. The single currency depreciated 1.3%, following the release of IHS Markit’s Eurozone manufacturing purchasing managers’ index on Tuesday, which remained firmly in contractionary territory. Germany was once again severely affected, as export orders tumbled amid the ongoing uncertainty surrounding Brexit and the US-Chinese trade negotiations.




Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated November 8, 2019) for further details.

 


Offsetting correlation effects leave portfolio risk unchanged

 

Short-term risk in Axioma’s global multi-asset class model portfolio remained almost unchanged at 5.18% as of Friday, November 8, 2019, as the effects of decreased equity volatility and a reduced interaction of share prices and exchange rates were largely offset by an intensified co-movement of US interest rates and the dollar. As investors shifted their funds from government securities and foreign currencies into the American stock market, the value of the greenback increased alongside bond yields, which meant that the price declines in non-USD fixed-income securities were amplified by FX-rate losses. Consequently, the International Treasury bucket experienced the biggest rise in its percentage risk contribution from 0.6% to 3.1%.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated November 8, 2019) for further details.



 
 
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