Emerging markets hit by heavy pressure

Clare MacCarthy
Senior Editor, Saxo Bank

"We had a big change of gear in forex markets yesterday day over further doubts on this US-North Korea summit, and whether it will take place," says John J Hardy, Saxo’s Head of Forex Strategy. South Korea, apparently, believes that US national security advisor John Bolten's recent comments are putting the North Koreans off the idea of meeting Trump.

The upshot of this is that risk appetite came off, for once more in FX than elsewhere with the JPY playing safe haven again. "The classic safe-haven pair is AUDJPY and a pretty major turnaround in a key position has put the bulls in a bad spot. JPY meanwhile, is higher across the board," Hardy says. 

In the emerging markets space we've got continued weakness with a lot more focus on the most exposed currencies. There was a big ugly spike lower in TRY overnight, some people may fear that capital controls might happen," notes Hardy.

In Italy, what Hardy calls "the awkward coalition" has come up with their candidate for prime minister and the powerful president’s approval or non-approval could come as early today.

From an equities point of view the Eurozone PMIs could be today's most interesting event. "I would definitely watch those numbers and I wouldn’t be surprised to see a surprise to the downside," says Peter Garnry, Head of Equity Strategy at Saxo Bank. Turkish equities are down 2% in EUR terms and are now down to their lowest levels since July 2009. “This isn’t a time to be overweight EM equities,”says  Garnry. Indeed, there’s some talk that Pakistan could be the next EM casualty – there are rumours it’s going to seek help from China or the IMF.

"We have a small retracement going on in the oil market and on the charts we’ve had two shooting stars in recent days, suggesting that we’re seeing buyer fatigue above $80/barrel," says Ole Hansen, Saxo’s Head of Commodity Strategy. More importantly, the threatened US sanctions on Venezuela because of the reelection of the leftist president Maduro has investors speculating that Opec/Russia may agree to ease their production cuts at their June 23 meeting. "If prices do turn lower, it’ll be to the $77.50/b area," Hansen says

"All the focus at the moment is on EM and the fact that the US 10-yr yield is persistently above 3% is putting stress on EM bonds," says Althea Spinozzi, from Saxo’s bond trading desk. The weakness is playing out differently among various countries: Turkey has seen the yield on its 10-yr benchmark rise 230bps since the start of the month; Argentina says it won’t sell Eurobonds until 2019 and will instead seek a bailout from the IMF while South Africa is back on track after a huge selloff.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Pty Ltd.
Level 25, 2 Park Street
NSW 2000
Sydney
Australia

Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Combined Financial Services Guide & Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.