Emerging Markets are bouncing today with Turkish lira (TRY) and South African rand (ZAR) both up over 1.5% driving capital flows as China seems to be winning the PR war. The news from Asia sets up today to continue the bounce in risk mood, writes Bob Savage Wednesday.

First: the Moon-Kim Korea summit produces another deal on denuclearization and peace.

Second: Chinese Premier Li vows not to use the Chinese yuan (CNY) as a weapon in trade to boost exports.

Third: the BOJ stuck to its long-term promises of easy money. While this lifted Asia shares which continued the S&P 500 (SPX) bounce, the European session had two stories that mattered and stalled the rally.

Italy sees its BTP rally end on rumors that the 5-Star Leader pushed for more spending in budget – this was later denied but rates are higher in periphery.

The second surprise came from the UK where CPI zoomed higher to 2.7% and that shifted up expectations for a BOE hike again. The British pound (GBP) has already squeezed, a bit like the euro (EUR), and so the heavy lifting of markets pivots to fixed income today.

The break out of U.S. 10-year rates at 3.05% matters – with the Chinese selling of U.S. Treasuries as show from the TIC report yesterday evening one factor, but the budget deficit and better Emerging Markets the other two.

Mike Larson's Trading Lesson: Will China play "Trump Card" in trade war? Watch bonds.

Emerging Markets are bouncing today with Turkish lira (TRY) and South African rand (ZAR) both up over 1.5% driving capital flows as China seems to be winning the PR war on trade. No weapons in forex mean that worries bleed elsewhere – with the correlation of forex to stocks in play in EM but not in developed markets as much. Focus today in the U.S. will be on housing starts and the sensitivity of rates to growth.

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