FX Update: A revival in risk-off positioning
FX Update: A revival in risk-off positioning saw the yen more than recover losses seen earlier in the day, while S&P 500 went from showing a 0.7% gain to a 0.6% loss in overnight trading. Beijing's vow to take "necessary countermeasures" rekindled investor anxiety, offsetting President Trump's decision to delay the latest earmarked tariffs to December from September. USD-JPY, after hitting a peak at 106.78, dove back to the 105.80 area. This is classic price action for this pairing amid phases of flip-flopping risk-off and risk-back-on sentiment shifts. The decline in safe government bond yields has the effect of increasing equity risk premiums, which some equity analysts have been highlighting as a reason behind recent dip-buying, though this view is increasingly being overwhelmed by an increased recession risk in major economies such as the the U.S. and Europe. An inversion of the U.S. yield curve, which appeared yesterday for the first time since 2007, has portended each recession the U.S. economy has seen since 1955. Elsewhere, EUR-USD was fairly stable, near 1.1150, after yesterday breaking free of a week-long period of narrowly orbiting the 1.1200 level. Sterling traded moderately firmer in the wake of the unexpected 0.2% m/m growth in UK July retail sales, which thwarted the median forecast for a 0.3% contraction, showing the dependable UK consumer has remained unperturbed by the threat of a no-deal Brexit. Cable climbed back above 1.2100, over 50 pips up on yesterday's closing levels. The Aussie Dollar also traded firmer, with an unexpectedly solid Australian employment report catalyzing a short-covering fuelled rally.