Currency markets appeared to reflect textbook signs of risk aversion: The sentiment-sensitive Australian and New Zealand Dollars fell while the anti-risk Japanese Yen and US Dollar traded higher. Asia Pacific bourses did see weakness at the open, but prices steadied quickly and recovered. Region-wide equity averages are on pace to close modestly higher on the day. The mood in G10 FX remained cautious, however.

What’s more, bellwether stock index futures are trading flat, hinting at indecision in near-term sentiment trends. Given the absence of major macroeconomic event risk, all this seems to point to anxiety about the resumption of the first-quarter corporate earnings reporting season. Today alone, 26 constituents of the S&P 500 are slated to publish results.

That this has markets nervous seems telling by itself. The jitters seem justified. Outcomes released thus far – for reference, about a fifth of the S&P 500 has already reported – suggest that sales and earnings growth dropped sharply, continuing a downtrend from early 2018. A backdrop of deterioration in global economic growth fits neatly with such outcomes.

If this portends a downbeat tone, the early risk-off cues in currencies may spread across financial markets more broadly. That might see JPY and USD continue to build higher while commodity bloc FX bears the brunt of selling pressure. Currencies finding themselves in the middle of the risk on/off divide – like the Euro, for example – may weaken against the anti-risk group but gain ground elsewhere.

CHART OF THE DAY – S&P 500 IN A PRECARIOUS SPOT AS EARNINGS SEASON RESUMES

Technically speaking, the S&P 500 remains in a precarious position. Prices are treading water having all but fully erased the late-2018 selloff. The formation of a Rising Wedge chart pattern as well as negative RSI divergence warns that upside momentum is ebbing and a reversal might be in the works. The feedback loop from a confirmed reversal across global markets may prove to be dramatic, with potent risk-off moves triggered in major asset classes.