A rebound in Chinese shares and a rally in Italian bonds failed to keep Europe’s spirits up on Tuesday, as a renewed burst of dollar strength and news South Africa had slumped into recession ramped up the pressure on emerging markets again.

The sight of European shares at a two-month low [.EU], a 2.3 percent thumping for South Africa’s rand and fragile Facebook shares meant Wall Street was facing a choppy restart after a long holiday weekend. [.N]

India’s rupee and Indonesia’s rupiah had both slumped to new lows overnight in Asia too and the Turkish lira, Mexican peso and Russian rouble were all deep in the red again to complete a turbulent EM picture. [EMRG/FRX]

Major FX pairs such as the euro and yen were knocked back too. The euro fell 0.5 percent to a 10-day low at $1.1558 while the yen dropped to 111.30 per dollar having strengthened during Asian trading.

“The general sentiment is that the dollar has not done too badly out of the trade war concerns, with concerns the U.S. might signal a fresh escalation in the trade conflict,” said Kenneth Broux, an FX strategist at Societe Generale in London.

The public comment period on a U.S. proposal for new tariffs on Chinese goods is set to end on Thursday, after which U.S. President Donald Trump can follow through on plans to impose levies on $200 billion more of Chinese imports, though it is unclear how quickly that will happen.

What is sure though is that the concerns are starting to take their toll.

Manufacturing surveys published on Monday showed mounting stress on factories across Europe and Asia as the outlook for global trade dims.

Emerging market currencies are coming in for special punishment. The latest dro in Turkey’s lira took it back past 6.6 per dollar and all eyes were on how Argentina’s peso would fare during the Latin American session after it ended more than 3 percent weaker on Monday.

That came despite President Mauricio Macri announcing new taxes on exports and steep cuts to government spending in what he termed “emergency” measures to balance next year’s budget as part of a $50 billion IMF support package.

“We are just waiting for something to turn the EM (emerging market) sentiment because the valuations look really attractive, but it’s just a slow meltdown at the moment,” said Standard Life Aberdeen EM portfolio manager Viktor Szabo.

He pointed out that South Africa’s rand had now wiped out all the gains it made after Cyril Ramaphosa replaced Jacob Zuma as the country’s president in February.

metaLS BUCKLE

European shares were down almost 1 percent ahead of the U.S opening, reversing a positive start.

Financials held up a bit better, supported by strength among some Italian banks following soothing comments from Italian ministers on forthcoming budget proposals. [GVD/EUR]

Well-placed sources told Reuters that Rome’s Economy Minister Giovanni Tria was pushing the governing coalition to keep next year’s budget deficit below 2 percent of output. Deputy Prime Minister Matteo Salvini had said on Monday that it would not breach the European unio’s 3 percent limit.

Italian government bonds also rallied with yields on two-year bonds, flirting with their biggest daily dro in almost three months at 1.265 percent. Yields move inversely to a bond’s price.

The closely-watched Italy/Germany 10-year bond yield spread also narrowed.

“I would say the overall price action is quite encouraging and Salvini’s comments yesterday gave the market another push,” Commerzbank rates strategist Christoph Rieger said.

Elsewher it was a very different story. Emerging market debt presented an ugly picture amid the widespread gloom, while expectations that the Federal Reserve will raise U.S. interest rates again this month pushed up the yield on benchmark 10-year Treasury notes to 2.8640 percent.

More sensitive two-year U.S. yields touched 2.637 percent, compared with Friday’s close of 2.629 percent.

The moves were also helped by rising oil prices.

U.S. crude rose past the $71 per barrel mark, with production coming under pressure as two Gulf of Mexico oil platforms were evacuated in preparation for a hurricane. U.S. crude was 0.5 percent higher at $70.15 per barrel.

Brent crude was up at $79.03 per barrel after earlier trading lower on news that India had permitted its state refiners to import Iranian oil if Iran arranged tankers and insurance.

Gold was slightly lower as the dollar strengthened, with spot gold traded at $1,195 per ounce, while silver, palladium and industrial metals such as copper and nickel saw more than 1 percent falls.

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