Emerging markets hit by heavy pressure

Clare MacCarthy

Senior Editor, Saxo Bank
Clare MacCarthy first joined Saxo Bank in 2012 to work as a senior editor on TradingFloor.com. Prior to this, she worked as a Denmark-based foreign correspondent for The Economist and the Financial Times and also served as Copenhagen bureau chief for Dow Jones Newswires.

"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.

You can access both of our platforms from a single Saxo account.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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