by Qontigo
- Robust jobs and service sector data boost Treasury yields
- Worsening Eurozone recession fears increase pressure on common currency
- Portfolio risk falls slightly as stronger FX fluctuations offset lower equity volatility
Robust jobs and service sector data boost Treasury yields
US Treasury yields rebounded in the week ending September 8, 2023, following better-than-expected job market and economic activity data. The Institute for Supply Management reported on Tuesday that its service sector purchasing managers’ index rose from 52.7 in July to a 6-month high of 54.5 in August, beating consensus expectations of a decline to 52.5. A day later, new jobless claims of 216,000 for the week ending September 2 undershot analyst predictions of 234,000.
Yield increases were most pronounced at the 2-year point of the curve, which rose 11 basis points to just under 5%, as traders were split equally between expecting the Fed to hike rates one more time in November or leaving rates at current levels until at least May next year. Not change is expected at the upcoming FOMC meeting on September 19-20.
Please refer to Figure 3 of the current Multi-Asset Class Risk Monitor (dated September 8, 2023) for further details.
Worsening Eurozone recession fears increase pressure on common currency
The euro plummeted to a 3-month low against the US dollar in the week ending September 8, 2023, as a key measure of economic activity for the region descended deeper into recessionary territory. The common currency traded below $1.071 for the first time since early June on Tuesday, after S&P Global revised its HCOB Eurozone Composite Purchasing Managers’ Index for August further downward from a preliminary estimate of 47 to a final value of 46.7. All major economies on the continent had readings of below 50—which is an indication of economic contraction—with Germany at the bottom of the table for both the manufacturing (39.1) and the composite (44.6) measures.
Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated September 8, 2023) for further details.
Portfolio risk falls slightly as stronger FX fluctuations offset lower equity volatility
The predicted short-term risk of Qontigo’s global multi-asset class model portfolio fell marginally from 8.5% to 8.4% as of Friday, September 8, 2023, as the benefits of lower equity volatility were largely offset by greater fluctuations in exchange rates against the US dollar. The increased FX risk was most notable for non-USD government bonds, which saw their share of overall portfolio volatility expand from 8.5% to 10.6%. This was in contrast to the oil position, which experienced a similarly sized drop of 1.9% in its percentage risk contribution, as the latest surge in crude prices—on the back of announced supply cuts from Saudi Arabia and Russia—counteracted the losses in the stock, bond, and currency markets.
Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated September 8, 2023) for further details.
