Emerging markets hit by heavy pressure

"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.