MAC Monitor — September 20, 2021

Multi-Asset Class Risk Monitor Highlights | Week Ended September 17, 2021

  • Retail sales increase and inflation drops—but stocks and bonds keep falling
  • Consumer-price surge lifts UK yields
  • Portfolio risk falls, as correlations weaken

Retail sales increase and inflation drops—but stocks and bonds keep falling

Stock and bond prices dropped in unison for the second week in a row, as investors pondered the potential impact of recent economic data on monetary policy. The STOXX® USA 900 fell to its lowest level in four weeks on Friday, September 17, 2021, apparently discounting solid industrial production data and an unexpected rise of 0.7% in retail sales in August—in contrast with the consensus forecast of a 0.8% decline for the latter. Traders speculated that the strong readings could lend support to FOMC members in favor of tapering the Federal Reserve’s asset purchases sooner rather than later. On the same basis, the 10-year US Treasury benchmark yield ended the week 3 basis points higher—resulting in falling bond prices—despite a moderation in consumer-price growth reported on Tuesday.

Please refer to Figure 4 of the current Multi-Asset Class Risk Monitor (dated September 17, 2021) for further details.

Consumer-price surge lifts UK yields

A surprise surge in UK inflation lifted British sovereign yields across all maturities in the week ending September 17, 2021. The Office for National Statistics reported on Wednesday that consumer prices had risen 3.2% in the 12 months ending in August—a significant uptick from the 2% reported for the previous month and surpassing average analyst predictions of 2.9%. When realized inflation deviates more than one percentage point from the Bank of England’s 2% target, the governor is required to write an open letter to the Chancellor of the Exchequer, explaining the extraordinary CPI growth and what the central bank intends to do to bring it back in line. The unexpected acceleration in consumer prices will likely add pressure on the Monetary Policy Committee to tighten its policy, resulting in an almost parallel rate surge of around 10 basis points across the entire Gilt curve.

Please refer to Figure 3 of the current Multi-Asset Class Risk Monitor (dated September 17, 2021) for further details.

Portfolio risk falls, as correlations weaken

Short-term risk in Qontigo’s global multi-asset class model portfolio dropped another 0.7% to 5.2% as of Friday, September 17, 2021, due to a combination of lower equity volatility and a less intense co-movement with foreign-exchange rates against the US dollar. Most of the overall risk reduction (84%) was, therefore, concentrated in the three equity categories, with non-US developed stocks exhibiting the biggest decline relative to their monetary weight. That said, it was the oil holding, which experienced the largest fall in its percentage risk contribution, from 7.7% to 6.5%, due to a significant drop in its correlation with share prices.

It is worth noting that the analysis does not include the market turbulence at the start of this week.

Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated September 17, 2021) for further details.