MAC Monitor — May 31, 2022

Multi-Asset Class Risk Monitor Highlights | Week Ended May 27, 2022

  • Traders discount another rate hike and Treasuries rally
  • Euro strengthens as ECB hints at positive rates
  • Portfolio risk falls as share prices rise

Accelerating inflation boosts Gilt yields

US Treasuries rallied as yields dropped across all maturities in the week ending May 27, 2022, with investors betting on a less aggressive tightening of monetary conditions by the Federal Reserve. The reassessment was triggered by a profit warning from social media company Snap, which also rattled other technology companies. Yield decreases were most pronounced at the monetary policy-sensitive 2-year point, which ended the week 10 basis points lower. Short-term interest-rate futures markets indicated that traders now expect the federal funds rate to peak at 2.95% in July next year, compared with 3.38% at the beginning of May.

Please refer to Figure 3 of the current Multi-Asset Class Risk Monitor (dated May 27, 2022) for further details.

Euro strengthens as ECB hints at positive rates

The euro climbed to its highest level against the US dollar in more than a month in the week ending May 27, 2022, as European Central Bank President Christine Lagarde indicated that the rate charged to commercial banks for their deposits with the central bank—currently at -0.5%—could rise to zero within months. Lagarde wrote in a blog post that, based on the governing council’s current outlook, the ECB could “exit negative interest rates by the end of the third quarter.” That being said, the euro appreciation was also part of a broader dollar weakening, with traders unwinding some of their recent safe-haven positions in the world’s largest reserve currency, as the STOXX® USA 900 broke out of its 7-week losing streak.

Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated May 27, 2022) for further details.

Portfolio risk falls as share prices rise

Predicted short-term risk in Qontigo’s global multi-asset class model portfolio fell by another 0.6% to 13.1% as of Friday, May 27, 2022, as US equities recorded their first weekly gain since the beginning of April. However, part of the benefit was offset by a stronger co-movement of share prices and FX rates, as all major currencies recouped some of their recent losses against the US dollar, thereby further amplifying local stock-market gains. US Treasuries, the Japanese yen, and gold, meanwhile, remained mostly uncoupled from share prices, meaning that those traditional safe havens neither added to nor subtracted from overall portfolio risk.

Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated May 20, 2022) for further details.