Emerging markets gain as rally eases; Gazprom bonds trade up; primary on early weekend

By Aaron Hochman-Zimmerman

New York, April 4 - Emerging markets firmed as the week's rally cooled along with a mixed day in equities. Still, optimism was riding high.

The Federal Reserve's recent moves have taken pressure off financial institutions and left room for some tightening, a market source said.

Still, the worst may be ahead if emerging markets show any further susceptibility to toxic spillover from the major markets, the source said.

"Clearly the market just wants to go up," an emerging markets strategist said.

Although, over the week "it's surprising that the market held up as well as it did," he said.

The good fortune will likely last at least until earnings reports, he said.

Merrill Lynch reports earnings on April 17.

The optimism in the market held its own in the face of negative headlines on Friday.

Emerging markets saw outflows of $177 million during the week ended Wednesday, according to data compiled by EPFR Global.

The loss represented the third week in a row of outflows from emerging markets bond funds.

Also, market watchers entered Friday's session with their eyes toward the Bureau of Labor Statistics, which released disappointing news of a loss of 80,000 jobs in the United States. The U.S. unemployment rate also jumped to 5.1% from 4.8%.

"That's about it," a trader said about the news that traveled around the trading desk on Friday.

Despite the sour data, "the market feels all right," he said.

"Our world is OK, it seems all else equal [the market] wanted to close stronger," he said.

In the primary market, the week was highlighted by OAO Gazprom's pricing of a $1.5 billion bond and closed with only rumors that Venezuela may offer $1.7 billion in local-currency bonds in mid-April, a market source said.

Depending on the success of that issue, another $1.5 billion may follow, the source added.

Meanwhile in trading, the new Gazprom bonds due 2018 have improved 4.3 points since pricing on Wednesday. The bonds were spotted on Friday at 104.3 bid, 104.6 offered.

On a mixed day in stocks, volatility fell 0.76 to 22.45, according to the VIX index. The index is a commonly used gauge of market volatility.

With Treasuries up, emerging markets widened by 7 basis points to 295 bps, according to JPMorgan's EMBI+. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging markets debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns was wider by 7 bps with a spread of 321 bps.

The diversified index has a less strict liquidity rule for inclusion.

LatAm ends week going up

Latin America posted modest gains to end a strong week.

Argentina's rebound led the high-betas to better levels, but Venezuela was left behind, a strategist said.

In Venezuela, president Hugo Chavez threw the net of nationalization over the Venezuelan cement industry.

Compensation will be paid to the affected firms, but cement exports will not be allowed during a housing crisis, Chavez said on Venezuelan television.

Mexico's Cemex SAB and Switzerland's Holcim Ltd. have large interests in cement made in Venezuela, the BBC reported.

The 9¼% Venezuelan government bonds due 2027 fell by 0.6 point to 94.75 bid, 96 offered.

Also in Brazil, the highly traded 11% Brazilian sovereigns due 2040 gained 0.25 point to 134.75 bid, 134.85 offered.

Argentina farmers back to work

Fresh fruits and vegetables began to appear on store shelves in Buenos Aires as the suspension of the farm strike in Argentina was in its first day on Friday.

Most cities expect that food supplies will reach normal levels during the weekend, the Buenos Aires Herald reported.

However, a complete supply of beef is not anticipated to arrive until midweek, the report said.

The 8.28% Argentine discount bonds due 2033 was better by 0.3 point to 85.7 bid, 87 offered.

"Argentina made a nice rebound," a strategist said.

Emerging Europe feeling better, trading thin

Emerging Europe was firmer with an improved tone, although success was only measured in terms of the light volumes.

"The day never really started," a trader said as the London markets waited to see the U.S. nonfarm labor figures.

After the data was release "we had 25 minutes of activity," he said, but the tone was upbeat.

"That feel-good factor is what's dominating the true market," he said despite the negative news.

In Russia, Gazprom and Germany's Siemens AG agreed to broaden their cooperation in the energy and oil industry, according to a Gazprom press release.

Joint ventures may also include "further interaction in the oil and gas sector: innovative development, automation, information technologies, telemechanics and telecommunications; power generation; compressor station equipment; offshore oil and gas field development technologies; building and installation safety systems; energy saving and ecology; new medical technologies; project financing," the press release said.

Also, president Vladimir Putin expressed his relief that NATO will not expand into Ukraine or Georgia. Russia had argued against the two former Soviet states joining the alliance.

Georgia hopes to be included in NATO for service in Iraq.

Although the U.S. backed plan to place missile defenses in Eastern Europe was approved, Putin said: "What is positive in today's dialogue is that our concerns about ensuring our own security ... have been heard," according to the BBC.

The Russian sovereigns due 2030 were better by 0.375 point to 115.25 bid, 115.375 offered.

Meanwhile in Ukraine, anti-NATO protests celebrated the counsel's rejection of the country's membership bid.

The industrialized eastern half of Ukraine showed less support for the alliance than the agrarian west, the Itar-Tass News Agency reported.

Turkey, E.U. ministers meet over trial

Representatives from Turkey and the European Union met on Friday to discuss the implications of the constitutionality of the ruling AK Party, according to the Turkish Daily News.

"It's a delicate moment we have to monitor," an ambassador of an E.U. country said in the report on the condition of anonymity.

"You know our position to support Turkey with regard to its E.U. membership. It's a very typical Turkish situation, to be honest; I am not surprised [with the court's decision to accept to hear the case]. We'll see what will happen," the ambassador added.

"We saw a little bounce of activity in Turkey, but pretty thin ... It's fading," a trader said during a quiet Friday session.

The Turkish sovereign bonds due 2030 added 0.625 point to 150.5 bid, 150.75 offered.

"It was already overvalued anyway, it was ripe for a sell-off," a strategist said.

Asian prices, sentiment up

Asian credits improved as the market sentiment was running high despite poor economic data from the United States.

In the Philippines, the country's refineries failed to meet goals for the incorporation of alternative fuels, the department of energy said, according to the Manila Times.

"We only expect two to three plants to be put up this year. Because of this, our ethanol supply locally will not be sufficient and we may have to import ethanol," energy utilization management bureau director Mario Marasigan said in the report.

The intent of the program is to reduce the country's oil expenditures to $8 billion from $8.8 billion.

The Philippine sovereigns due 2030 gained 0.25 point to 131.625 bid, 132 offered.

In Indonesia, as expected, Bank Indonesia left its one-month policy interest rate at 8%, according to a market source.

Tightening would not help what it sees as supply side pressures, the source said.

The rates will likely remain static throughout 2008, the source said.

The Indonesian government bonds due 2017 were spotted flat at 103.5 bid, 104.25 offered.

Also in Asia, India passed a three-year high for inflation on rising commodity prices.

Wholesale prices reached 7%, the highest growth since 2004.

The government is expected to take action to curb prices, including announcing a maximum level for certain commodities.

The rupee was seen trading at 39.84 to the dollar.

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