by Qontigo
- Sticky inflation boosts Eurozone yields
- Euro and pound appreciate over Northern Ireland deal
- Portfolio risk drops as US stocks end losing streak
Sticky inflation boosts Eurozone yields
Eurozone sovereign yields soared to their highest level in almost 12 years in the week ending March 3, 2023, following indications that consumer-price growth in the region had not slowed as much as market participants had hoped. The flash estimate from Eurostat published on Thursday put inflation over the 12 months ending in February at 8.5%—significantly higher than the consensus forecast of 8.2% and only marginally lower than the 8.6% recorded in January. The strong reading fueled speculation that the European Central Bank could tighten monetary conditions even more than previously expected, potentially raising its deposit rate by another 150 basis points to 4% by summer and leaving it at that level for the remainder of the year.
Please refer to Figures 3 & 4 of the current Multi-Asset Class Risk Monitor (dated March 3, 2023) for further details.
Euro and pound appreciate over Northern Ireland deal
The euro and the pound both appreciated against the US dollar in the week ending March 3, 2023, as the European Union and the United Kingdom struck a deal to reform the controversial Northern Ireland protocol. The latter was put in place after Britain formally left the EU in January 2020 to avoid a hard border on the island of Ireland, but it effectively created a trade barrier between Northern Ireland and the rest of the UK. The new agreement, dubbed the “Windsor framework”, creates two categories for goods that cross the Irish Sea from Great Britain: a green line for those that will remain in Northern Ireland and a red lane for those that will head on to the Republic of Ireland and the EU single market. Although Northern Ireland will still follow a limited set of EU rules, the hope is that the new deal will alleviate much of the friction created by the original agreement.
Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated March 3, 2023) for further details.
Portfolio risk drops as US stocks end losing streak
The predicted short-term risk of Qontigo’s global multi-asset class model portfolio receded 0.9% to 8.2% as of Friday, March 3, 2023, due to recovering share prices on both sides of the Atlantic. The effect was most pronounced for US equities, which saw their percentage risk contribution fall from 47.2% to 46.2%, after the STOXX® USA 900 index ended its previous streak of three consecutive down weeks. Non-US developed and emerging-market stocks, on the other hand, both expanded their share of total portfolio volatility by 0.7% each to 15.5% and 4.9%, respectively, as local gains were amplified by appreciating exchange rates against the US dollar.
Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated March 3, 2023) for further details.
