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

Bund yields drop, as Eurozone economy contracts
US dollar falls as unemployment continues to soar
Portfolio risk continues to decline on lower equity volatility

 

HIGHLIGHTS FOR THE WEEK ENDED MAY 1

 
 

Bund yields drop, as Eurozone economy contracts

 

Prices on German government bonds rose more than those of their major rivals in the week ending May 1, 2020, as Bund yields fell to their lowest levels in seven weeks. The 10-year benchmark rate dropped 10 basis points on Thursday, as preliminary estimates from Eurostat indicated that the Eurozone economy may have shrunk by 3.8% in the first quarter of 2020—the largest contraction since records began in 1995 and more than the -3.2% recorded in Q4 2008. European Central Bank President Christine Lagarde added fuel to the fire by warning that GDP for the currency bloc could fall by up to 12% for the entire year. On a more positive note, she announced that the central bank was prepared to lend money to banks at rates as low as -1%, although she did not mention any plans to buy more debt from governments hit hardest by the coronavirus outbreak. Some market participants seemed to be disappointed by the latter, and the risk premium on Italian BTPs over German Bunds increased to 2.37%.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated May 1, 2020) for further details.

 


US dollar falls as unemployment continues to soar

 

The US dollar depreciated 1.3% against a basket of foreign currencies in the week ending May 1, 2020, as 3.8 million more Americans filed claims for unemployment benefits, driving the total since the start of the lockdown to over 30 million. The Norwegian krone was the biggest beneficiary among the G10 currencies, gaining more than 3% against the greenback, as oil prices rose from their recent lows. The pound also recouped its losses from the previous week, but remained Developed Europe’s second riskiest currency, with a predicted short-horizon volatility of 12.1%, compared with over 20% for NOK/USD.


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Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated May 1, 2020) for further details.

 


Portfolio risk continues to decline on lower equity volatility

 

Short-term risk in Qontigo’s global multi-asset class model portfolio fell another 2.5% to 26.1% as of Friday, May 1, 2020. For the third week in a row, the change was chiefly a result of lower equity volatility, while correlations between asset classes remained largely unchanged. As stock and government-bond markets remained uncoupled, US Treasuries provided the best diversification benefits. The returns of non-US sovereign bonds, in contrast, were outweighed by changes in foreign-exchange rates. European currencies, in particular, had shown an increased correlation with share prices in the past four weeks, as former liquidity concerns eased and some of the previous flows into USD cash reversed.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated May 1, 2020) for further details.



 
 
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