MAC Monitor — September 7, 2021

Multi-Asset Class Risk Monitor Highlights | Week Ended September 3, 2021

by Applied Research Team
  • Inflation shock boosts Bund yields
  • Dollar falls over disappointing jobs data—but stocks continue to climb
  • Lower equity volatility reduces portfolio risk

Inflation shock boosts Bund yields

The yield on 10-year German government bonds climbed to its highest level in seven weeks in the week ending September 3, 2021, following a surprise jump in inflation rates for both Germany and the Eurozone as a whole. The harmonized consumer price index for Europe’s biggest economy was estimated to have grown 3.4% in the 12 months to August—its steepest rise since July 2008. For the entire currency bloc, the preliminary number came in slightly lower at 3%, which would constitute the biggest increase since autumn 2011, shortly after the European Central Bank last raised interest rates. The numbers are expected to provide additional backing for more ‘hawkish’ rate setters at this week’s governing council meeting. That said, the recent change of the ECB’s price-stability mandate from “below, but close to, 2% over the medium term” to a “symmetric 2% inflation target” should still provide some leeway for ongoing monetary stimulus.

Please refer to Figure 4 of the current Multi-Asset Class Risk Monitor (dated September 3, 2021) for further details.

Dollar falls over disappointing jobs data—but stocks continue to climb

The US dollar extended its losses against a basket of major currencies in the week ending September 3, 2021, once again moving in the opposite direction to the American stock market. The so-called Dollar Index fell 0.7% to 92.035—its lowest level since July 29—while the STOXX® USA 900 posted an equal and opposite gain to close at another record high. Share prices rose for most of the week, still buoyed by Fed Chair Powell’s balanced comments during his Jackson Hole speech and in anticipation of another strong US non-farm payroll report on Friday. However, when the actual numbers came in much lower than predicted—235,000 new jobs created, compared with a consensus forecast of 750,000—it was the dollar that took the main brunt, while stock indices were mostly unchanged.

Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated September 3, 2021) for further details.

Lower equity volatility reduces portfolio risk

Short-term risk in Qontigo’s global multi-asset class model portfolio fell slightly to 6.3% as of Friday, September 3, 2021, mainly due to a 0.6% fall in standalone equity volatility. Most of the 0.3% decline in overall predicted risk was recorded in the US equity category, as non-US shares saw their local returns amplified by an increased co-movement with foreign-exchange rates against the US dollar. Global index-linked bonds exhibited the second largest decrease in percentage risk contribution from 3.5% to 2.4%, as breakeven rates remained anchored below 2.4%, thus further decoupling from rising share prices.

Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated September 3, 2021) for further details.