Emerging markets slide; Argentina holds; Primary quiets down

By Aaron Hochman-Zimmerman

New York, June 20 - Emerging markets were on the retreat amid a sour day in the broader market on Friday.

"It's been hell," a syndicate desk official said at the end of the session.

In trading, risk was reeled in, but Argentina saw some buying at its bargain basement levels.

Meanwhile, the primary quieted down after a busy week, especially in emerging Europe.

"It is still the same problem, too much product coming to the market," a market source said about the primary.

Over the last round of issuance, coupons and spreads have been very generous, he said.

"You really have to pay up," he said, in order to complete deals, "this is crazy."

Other deals wait in the primary as Latin America looks to follow emerging Europe, but a syndicate official said yields will probably not need to be as high.

"It's mostly confined to Europe," he said.

In the broader market, selling in equities pushed volatility up by 1.29 to 22.87, according to the VIX index. The index is a common gauge of market volatility.

Emerging Europe slides into weekend

Emerging Europe saw some selling going into the weekend as falling equities and climbing oil paved the way lower.

In Russia, April exports of crude oil dropped 7.3%, which brought the total drop in exports for the first four months of 2008 to 4.5%, the RIA Novosti News Agency reported.

Still, export prices were up 14.5% in April, the report said.

The Russian government bonds due 2030 slipped 0.2 point to 113.5 bid, 113.75 offered.

In corporates, VTB Bank traded up to 100.5 bid from its pricing at par with a spread of mid-swaps plus 295 basis points.

"That one I like," the trader said, "the spread is not too bad."

Elsewhere in Ukraine, the parliament remained blocked and speaker Arseny Yatsenyuk closed the session early on Friday, according to the Itar-Tass News Agency.

The Yulia Timoshenko bloc has besieged the podium and will not let up until the opposition relents to a runoff examination of proposals to lift the privileges and immunities of parliament ministers.

Other contested items spell out the patterns of the imperative mandate, or the right of a political party or bloc to terminate the term of parliamentary powers of a deputy elected on its party ticket.

"The chances that this parliamentary crisis will dispel of its own are rather slim," Yatsenyuk said in the report.

In Turkey, Mustafa Koc of the prominent Turkish Industrialists' and Businessmen's Association condemned politicians for damaging the country and the economy with the fight to remove the ruling AK Party.

"It seems we are all trying pull in a different direction," he said, according to the Turkish Daily News.

Koc said that most have a desire to see the country progress from the ranks of emerging market nations, but politicians on all sides have been stricken by a "cognitive eclipse."

The Turkish sovereigns due 2030 fell another 0.5 point to 144 bid, 144.5 offered.

Weak market day hurts LatAm

Latin American issues were sinking on Friday as investors across the markets sold off ahead of the weekend.

In Venezuela, bonds were off slightly on an otherwise dismal day of trading.

Although, there are still rumors of a buyback, a trader said.

Elsewhere, president Hugo Chavez threatened to cut off oil and investments from the European parliament over its new anti-immigration measures.

The parliament enacted a rule that requires undocumented immigrants entering the European Union to be detained for up to 18 months and barred from E.U. countries for the following five years.

The measure takes affect in two years.

Chavez also called on the Organization of American States and the African Union to denounce the move.

The 9¼% Venezuelan government bonds due 2027 fell 0.15 point to 93.95 bid.

"He talks too much," a syndicate official said, adding that Chavez is unlikely to fully make good on his threats.

In Mexico, the central bank raised interest rates by 25 bps to 7.75%.

Some were expecting no hike at all believing that increases in consumer price controls made the increase unnecessary.

Nasty words in Argentina

In Argentina, cabinet chief Alberto Fernandez compared the farmer's tactics to "what Nazis used to do," during an interview with Radio 10 in Buenos Aires, according to the Buenos Aires Herald.

Farm leaders dismissed Fernandez's comments.

"The cabinet chief's statements are just nonsense," said Pedro Apaolaza, the head of the Carbap farm lobby, adding that former president Nestor Kirchner may be behind the antagonistic rhetoric.

"This is part of Nestor Kirchner's strategy of fostering hatred, and nothing can be built on hatred," he said.

The latest round of demonstrations was scheduled to end Friday night.

The 8.28% Argentine discount bonds due 2033 added 0.4 point to 78 bid.

Asia prices down, inflation up

Asian issues succumbed to the harsh market environment on Friday.

Oil prices were back up after investors began to feel that gas hikes in China will have less of an effect on the market than was originally expected.

Still, the $136-per-barrel oil prices left inflation on center stage.

In the Philippines, the central bank said its most recent 25 bps hike of the overnight borrowing and lending rates to 5.25% and 7.25%, respectively, is enough to stave off inflation.

"We did [the] 25 bps adjustment precisely to ensure that inflation expectations remain anchored and that it is within the striking distance of [central bank] projection," central bank deputy governor Diwa Guinigundo said, according to the Manila Times.

The bank still expects an inflation rate of 7% to 9% in 2008 and a 4% to 6% rate in 2009.

The peso was seen trading at 44.02 to the dollar.

The Philippine sovereign bonds due 2030 fell 0.375 point to 124.625 bid.

In Indonesia, the price of Indonesian crude is likely to reach $120 per barrel in 2008 or $10 per barrel higher than originally forecast, the National Development Planning Board said, according to the Jakarta Post.

"The main problem is the expectation that oil consumption will increase significantly especially in non-OPEC countries as well as weakening production in non-OPEC countries," said the board's director of macro planning, Bambang Prijambodo.

The Indonesian sovereigns due 2017 were quoted at 97.25 bid.

In Vietnam, the government will allow increased exports of rice by another 500,000 tons in order to capitalize on high commodity prices. Total exports in 2008 should now hit 4.5 million tons.

"The move perhaps could even help the global prices calm down a bit," said Jonathan Pincus, economist at the United Nations Development Program, according to the BBC.

Inflation high in India

In India, inflation gauged by the wholesale price index hit 11% on June 7, setting a 13-year high.

The figures prompted more calls for interest rate increases.

"Naturally we'll have to look at stronger measures on the demand side as well as the monetary side," finance minister Palaniappan Chidambaram told reporters.

The rupee was seen trading at 42.85 to the dollar.

Also, in a joint project with the Russian military, the BrahMos Aerospace joint defense contractor will test a supersonic air-to-ground cruise missile with an expected range of 180 miles, RIA Novosti reported.

For upcoming flight tests, the missile will be launched from its expected platform, the Sukhoi built, Su-30 Flanker fighter.

India is licensed to produce 140 Su-30s by 2014 and is expected to buy up to 1,000 BrahMos missiles.

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