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 drop on virus fears
Pound rocked by base-rate uncertainty
Portfolio risk declines amid flight to quality

 

HIGHLIGHTS FOR THE WEEK ENDED JAN 24

 
 

Sovereign yields drop on virus fears

 

Government bond yields dropped around the globe in the week ending January 24, 2020, as fears of a coronavirus pandemic resulted in the biggest weekly US stock-market drop in almost four months. American blue-chip indices posted their worst one-day performance since the beginning of October on Friday, after health officials reported a second case of the potentially lethal flu-like virus in the United States. The 10-year US Treasury benchmark ended the week 16 basis points lower. In contrast, rate decreases were much less pronounced on the other side of the Atlantic, following better-than-expected composite purchasing manager index data in Germany and the UK.

20200110_Image 1.PNG

Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated January 24, 2020) for further details.

 


Pound rocked by base-rate uncertainty

 

The British pound seesawed in the week ending January 24, 2020, as the latest bout of economic news for the UK left traders divided on whether to still expect the Bank of England to lower its base rate at this week’s Monetary Policy Committee meeting. In last week’s newsletter, we noted how interest-rate futures markets had assigned a 72% probability to a 25-basis point cut, following previous signs of economic weakness. Meanwhile, the most recent labor-market report exhibited the lowest unemployment rate since the 1970s, while the more forward-looking purchasing manager index indicated that the UK economy may be growing again, lifting GBP/USD by 0.7% by mid-week. Yet, the pound gave up most of its gains afterwards, as futures traders remained almost evenly split about Thursday’s rate decision.


20200110_Image 2.PNG

Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated January 24, 2020) for further details.

 


Portfolio risk declines amid flight to quality

 

Short-term risk in Axioma’s global multi-asset class model portfolio declined 0.34% to 3.50% as of Friday, January 24, 2020, reduced by a combination of lower equity volatility and a more inverse interaction of stock and bond prices. The latter relationship intensified amid flight-to-quality movements, as investors dumped riskier equities in favor of the relative safety of government bonds, fueled by coronavirus concerns. The move mostly benefitted non-US sovereigns, which saw their share of overall portfolio risk decline by 1.2 percentage points, further aided by an appreciation in the yen and the pound.


20200110_Image 3.PNG

Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated January 24, 2020) for further details.



 
 
Stay Connected
 
 

Events

Webinar | Qontigo Insight™ Quarterly Multi-Asset Risk Review

Date: February 18, 2020
Time: 11:00 AM (ET) | 4:00 PM (GMT)

Join Christoph V. Schon, Qontigo’s Executive Director of Applied Research, in this webinar to hear how this apparent disagreement between the two major asset classes affected portfolio risk and diversification opportunities.

Register here >


Qontigo Investment Intelligence Summit: London 2020

Date: April 2, 2020

This one-day event will bring together more than 300 investment and risk professionals to discuss the latest in portfolio construction and risk analytics, indexing and technology. Join us for a full day of expert presenters, illuminating presentations and thought-provoking discussion.

Register here >



Latest Research

STOXX Factor Indices: Targeted Factor Exposures with Managed Liquidity and Risk Profiles

This paper provides a comprehensive description of the STOXX factor Indices and an extensive discussion of their characteristics and performance.

Markets celebrating! But Factor Investors? Not So Much…

2019 was a remarkable year, with benchmarks around the world climbing to new records, while volatility plunged. Both emerging and developed markets shared in the overperformance, with all components of risk falling for both markets. However, style factors saw mixed results, with few reporting outsized returns for the quarter or year.

How to model a trade war - just in case...

This paper shows how stress tests can be used to identify potential vulnerabilities and unwanted exposures in portfolios, and also points out strategies for diversification and loss-minimization.

On the Blog

Outlook 2020: It’s All About the Trade War…and a Potential Trump Card for Reelection?

Among the (known) variables driving investor forecasts for 2020, the US-China trade war is number-one. Nothing else—a new UK government or a possible Brexit re-run—comes close. Will it be resolved? If a buoyant stock market is a prerequisite for Trump’s reelection, then a trade-war resolution in 2020 is all but assured.

 

In the News

Qontigo Combines Index and Analytics Expertise in STOXX Factor Indices

The new STOXX Factor Index suite delivers more clarity to the market for factor investors by relying on the institutionally tested analytics of Axioma Factor Risk Models.

South China Morning Post: Ways to prosper in the Year of the Rat

Olivier d'Assier, Head of Applied Research, APAC, at Qontigo, explains ways for investors to prosper in the Year of the Rat in the South China Morning Post.

Axioma Risk Monitor

A 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