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

In a rare move, stocks and bonds both rise, despite opposing trade outlooks
Pound rises on hope of Tory victory
Portfolio risk drops on lower equity volatility

 

HIGHLIGHTS FOR THE WEEK ENDED NOVEMBER 15

 
 

In a rare move, stocks and bonds both rise, despite opposing trade outlooks

 

Bond and stock prices rose in a rare co-movement in the week ending November 15, 2019, as traders in both markets appeared to have a different take on the latest trade news. When it comes to geopolitical issues—such as a trade war between the world’s largest economies—these two asset classes typically move in opposite directions, with money flowing from one into the other. The fact that US stock indices posted yet another record high last week indicates that equity investors remained optimistic about an imminent trade agreement. This despite President Trump’s comments on Tuesday that he was ready to “substantially” raise import duties, if the deal were to fall apart at the last minute. Falling sovereign yields and a depreciating dollar, on the other side, painted a different picture, implying that bond and FX traders did not share that same positive outlook.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated November 15, 2019) for further details.

 


Pound rises on hope of Tory victory

 

The pound rose almost 1% against the US dollar in the week ending November 15, 2019, after the Brexit party announced that it would not field candidates in over 300 constituencies, where the Conservative Party is projected to win. The motion was seen as strengthening the Prime Minister’s chances of securing a majority in the upcoming general election, which would then enable him to get his proposed exit deal through Parliament. The pound’s upward move was also part of an expanded weakening of the dollar, which depreciated 0.36% against a basket of foreign currencies, as FX traders seemed to remain skeptical about the prospect of an imminent trade agreement between China and the US.




Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated November 15, 2019) for further details.

 


Portfolio risk drops on lower equity volatility

 

Short-term risk in Axioma’s global multi-asset class model portfolio fell 0.63% to 4.55% as of Friday, November 15, 2019, following a 1.3-percentage drop in standalone equity volatility. Cross-asset class correlations, in contrast, remained largely unchanged, despite the recent reversal of the interaction of stock and bond prices from negative to positive. US and developed non-US equities were, therefore, the only two buckets to see a major reduction in their contributions to overall portfolio risk.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated November 15, 2019) for further details.



 
 
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On the Blog


Beware what lurks beneath the surface of low volatility

On Friday November 8, the VIX closed at 12.07, a level not seen since Q4 of 2017. The US economy and stock markets have once again outperformed those of every other developed country this year.

Curiouser and Curiouser: Reflections on 2019 Factor Performance or “Shortchanged by the No-Short Constraint”

Many quant managers are having a tough year. While one might blame factors in general, their returns do not tell the whole story (or even the bulk of the story).

 
 
 

Latest Research

A New Data-Driven Fixed-Income Risk Framework

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

Shortchanged by the No-Short Constraint — and Other Observations on 2019 Factor Performance

Many quant managers are having a tough go of it this year. While one might blame factors in general, their returns do not tell the whole story. We think one of the major culprits in the US is that a number of factors worked better on the short side and among small-cap names.

 
 

In the News

CNBC: Trade war the most dominant geopolitical risk over market sentiment, strategist says

Christoph Schon, executive director of applied research at Qontigo, discusses optimism toward a “phase one” trade deal between China and the United States.

Qontigo Appoints Stephan Flägel as Global Head of Indices & Benchmarks to Lead STOXX Portfolio

Qontigo has announced the appointment of Stephan Flägel as Global Head of Indices & Benchmarks, effective as of December 2, 2019.

 

Axioma Risk Monitor

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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.

 
 
 
 

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