Emerging markets start off week on a quiet note; Polyus, Rusal expected to price soon

By Rebecca Melvin

New York, Jan. 22 – Emerging market credit started off the week on a quiet note, with market players eyeing deals on the primary calendar this week, but few catalysts to initiate activity on Monday.

The Central & Eastern Europe, Middle East and Africa region has two deals on the calendar, including United Co. Rusal plc’s dollar-denominated benchmark offering of notes and PJSC Polyus’ proposed senior unsecured eurobond, but otherwise the new issue calendar was quiet, market sources said.

Both deals were expected to price toward the later part of the week.

London-based Polyus is a gold producer with mines in Russia and Kazakhstan, and Rusal is a Moscow-based aluminum company.

Elsewhere in the region, new issuance is being rumored, but there has been nothing announced, a London-based trader said.

There are a number of roadshows underway for Latin America deals, but no new business was heard on Monday.

Early caution in U.S. stock markets gave way to strength on Monday after news that the U.S. Senate was able to hash out a stop gap measure to end a federal government shutdown that began over the weekend. New legislation garnered enough votes to allow the government to reopen through Feb. 8.

The major U.S. stock indexes rallied to new records after the legislation cleared a procedural hurdle in the Senate. The Dow Jones industrial average rose 142.88 points, or 0.55% to 26,214.60; the S&P 500 stock index gained 22.67 points, or 0.81% to 2,832.97; and the Nasdaq Composite index added 71.65 points, or 0.98% to 7.408.03.

But there was other positive news in the session too. The International Monetary Fund on Monday revised up its forecast for world economic growth in 2018 and 2019, saying U.S. tax reform was likely to boost investment in the world’s largest economy and help its main trading partners. The U.S. corporate tax rate was cut to 21% from 35% and taxes on individuals is temporarily reduced as well.

The IMF lifted its global growth forecast to 3.9% for both 2018 and 2019, which was an increase of 0.2% from its October forecast. The IMF has lifted its prediction for U.S. economic growth to a 2.7% expansion compared to a 2.3% forecast in October.

The bank also cautioned that the effect of tax cuts would not last for an extended period and a “troubling” increase in debt levels across many countries was a signal that policymakers need to look now at structural deficiencies in their economies.

A sudden spike in interest rates could lead to questions about the sustainability of debt in some countries.

Nevertheless the IMF maintained its forecast for growth in emerging markets and developing countries for 2018 and 2019. In Latin America, a pickup in economic activity in Brazil and Mexico was expected to be tempered by Venezuela’s potential default of some $70 billion in cross-border debt.

In addition there were worries on Monday about an intensifying military offensive by Turkey against U.S.-allied Kurdish militia in northern Syria. Turkey had been warning the international community that it would not tolerate control of much of its border with Syria by the Kurdish YPG militia. The United States was calling for restraint by all sides on Monday; a call that Turkey’s President Recep Tayyip Erdogan was not sounding like he was willing to heed. But the United States has not demanded an end to the Turkish operations.

© 2015 Prospect News.
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