Emerging markets stronger into Thanksgiving; market volume light; Ecuador up on talk of payment

By Aaron Hochman-Zimmerman

New York, Nov. 26 - Emerging markets were mostly improved along with the market tone as traders in the United States went home early to beat the Thanksgiving traffic.

Trading volumes were nearly nonexistent, but many investors were left feeling positive, at least in the short term.

Ecuador provided much of the good news as it seemed more likely it would make a $30 million payment on its bonds due 2012.

The bonds due 2015 added 1.5 points.

Still, "I don't see anybody doing cartwheels," a syndicate official said, adding that the fits and starts and conflicting messages are "more of the same" from Ecuador.

The short-term good news was not enough to change the broader picture, which is still as bleak as ever.

"The market's up, but on no liquidity," he said.

"Layoffs," he said, "that's really what's dominating the attention" and will likely continue to loom around trading desks for the rest of the year.

"We're not even close to new deals," he said.

Elsewhere, equities in the United States were mixed into the early afternoon.

By the bond market's 2 p.m. close, volatility had fallen steadily by 4.30 to 56.60, according to the VIX index. The index is a common measure of market volatility.

Despite some success in price terms, emerging markets spreads were seen wider by 5 basis points at a spread of 705 bps, according to JPMorgan's EMBI+ index.

"That's because you have the 10-year [Treasury bond] plunging as we speak," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging market debt.

LatAm 'a touch stronger'

In general, Latin America traded "a touch stronger," said IDEAglobal's Alvarez, and "on a very positive note for high-beta."

Argentina and Ecuador led the charge with promises of stimulus plans and interest payments.

Ecuador announced that it may, after all the bluster about skipping a $30 million interest payment, actually pay its obligation on its 12% bonds due 2012 before Dec. 15.

The Ecuadorian bonds due 2012 were better by 2 points at 30 bid, 33 offered.

Also in Argentina, president Cristina Kirchner announced a 71 billion peso public works program, effective Dec. 15, in order to stimulate the economy and encourage job growth, the Buenos Aires Herald reported.

Kirchner also intends to send proposals to the legislature for a series of tax cuts and other incentives to investment.

"It all seems to be working positively," Alvarez said.

The 8.28% Argentine discount bonds due 2033 added 0.375 point to 30.25 bid, 30.5 offered.

Elsewhere, Venezuela was up despite a visit from Russia's navy for joint training exercises.

The presence of the Russian navy in the Western Atlantic makes many people in the Western hemisphere uneasy, Alvarez said.

The 9¼% Venezuelan government bonds due 2027 added 0.5 point to 66.25 bid, 68 offered.

Meanwhile in Brazil, Russian president Medvedev continued his talks with president Luiz Inacio Lula da Silva.

The two discussed energy cooperation, including Russian assistance for Brazil's growing oil industry and Brazilian uranium resources for Russia's nuclear programs.

The 7 1/8% Brazilian sovereigns due 2037 were quoted at 94.25 bid, 94.75 offered.

"We're pressing up against recent highs," Alvarez said about the entire category.

Going into the Thanksgiving holiday, "that puts the market in a lightly optimistic tone," he said.

China chops rates

Meanwhile, equity markets in emerging Asia were largely improved on a 108 bps rate cut from China's central bank.

The cut dropped the key one-year lending rate to 5.58% from 6.66%. The one-year deposit rate fell to 2.52% from 3.60%.

"In terms of the effect of China's slowdown on the world, there's good news and bad news," said David Dollar, World Bank country director for China in a press release.

China's recent stimulus package made up most of the good news; the bad news is a likely drop in China's purchase of raw materials from exporters around the world, he said in the release.

A recent World Bank report estimates the Chinese GDP rate near 7.5% in 2009, compared to 9.4% in 2008.

Chinese export growth will be sliced to 3.5%, compared to 11% in 2008.

The yuan was seen trading at 6.829 to the dollar.

Asia tighter, improved tone

"It definitely helped the tone," a trader said about the Chinese rate cut.

Still, on a short day before a closure for Thanksgiving in the United States, "there's very little going on," he said, although issues "are quietly moving higher."

In recent sessions, credit has outperformed Asian equities, but "we need to see equities break out higher ... before we go much further," he said.

"A lot depends on what equities do," he said about the week beginning Dec. 1.

In Indonesia, the government may rescind permits issued to allow for the import of heavy machinery.

If enacted, the new policy would prevent the export of capital in favor of local industry, said Ansari Bukhari, director general for metal, textile, machinery and miscellaneous industries for the Interior Ministry, according to the Jakarta Post.

"Imports of used machinery should be banned because such machines consume 15% to 20% more energy than the latest versions and energy is really an issue in this country," he said.

The Indonesian bonds due 2018 were seen at 68 bid, 72 offered.

The Philippines' government bonds due 2030 were quoted at 105 bid, 108 offered.

Also in Asia, Pakistan remained off of its lows with the promise of a cash influx from the IMF.

The Pakistani bonds due 2017 were spotted at 38 bid, 43 offered.

Emerging Europe sinks

Emerging Europe slipped lower on slow volumes as the major players worked through emergency measures to aid their economies.

In Russia, trading was led lower by a falling ruble, but president Dmitry Medvedev signed a bill easing tax laws in order to encourage investment amid the world's economic crisis.

The new law cuts profit taxes by 4% to 20%, according to the RIA Novosti News Agency.

"We must cut profit tax by 4% from Jan. 1, 2009 at the expense of the federal budget," said prime minister Vladimir Putin in the report.

"This will cost 400 billion rubles. All this money will stay in the economy next year, and will work in the economy," Putin said.

Proceeds from the profit tax will make up 6.5% of the federal budget and 17.5% of the state budgets.

The ruble was seen trading at 27.446 to the dollar.

The Russian government bonds due 2030 fell 1 point to 81.75 bid.

In Ukraine, a local newspaper, Delo, reported that the government is planning larger deployments to the Russian border as a reaction to the recent hostility in the Caucasus, according to RIA Novosti.

"The events in the Caucasus have forced every country in this region to think about security," defense minister Yuriy Yekhanurov said.

"It turns out that not everything is so calm, that even Europe may experience military conflicts," he said.

His comments came as the United States has been pressing NATO members to consider the membership action plans for Ukraine as well as Georgia.

At NATO's last meeting in April, many countries including Germany and France did not back Ukraine and Georgia's near-term membership.

In Turkey, the state-run Halkbank plans to inject $445 million to $480 million into the local economy said chief executive officer Huseyin Aydin, according to the Hurriyet Daily News.

Halkbank also recently announced a $1.5 billion lending program for small- and medium-sized businesses.

The Turkish sovereign bonds due 2030 dropped 2.625 points to 131.35 bid.

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