Emerging markets flail with equities, data; Turkey debt slammed; Primary waits for next week

By Aaron Hochman-Zimmerman

New York, July 1 - Emerging markets rode the rollercoaster rails on Tuesday as investors were willing to jump on any piece of good news, a syndicate official said.

There was little that looked like good news coming from Turkey, which led the losers in trading, as political fights in court and arrests surrounding a suspected coup plot dragged its benchmark sovereigns due 2030 down by 1.75 points.

The primary market was quiet once again as the conventional wisdom leaned toward waiting until after the Independence Day holiday in the United States to place deals.

Meanwhile, equities' wild ride ended with volatility lower by 0.3 to 23.65, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets widened by 2 basis points to a spread of 295 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will accept to hold assets in emerging markets debt.

Small bump from U.S. in emerging Europe

In what was in certain ways a repeat of Monday, emerging Europe opened weaker hoping for help from the United States.

"The U.S. is looking OK," a syndicate official said, as positive manufacturing numbers kept the United States above water during Europe's afternoon hours.

The higher-than-expected June manufacturing data were not enough to keep U.S. equities consistent throughout the day, but the syndicate official described them as "a bright spot on the horizon."

Meanwhile in Russia, non-Russian executives of the joint British-Russian energy firm TNK-BP may be forced to leave the country, the BBC reported.

Chief executive officer Robert Dudley and others may not have their visas renewed to stay in Russia.

The report suggests that Russia's state-run oil companies OAO Rosneft and OAO Gazprom are angling to take over some of TNK-BP's business.

Gazprom's five-year CDS widened by 10 bps to 234 bps bid.

The Russian government bonds due 2030 fell 0.25 point to 112 bid, while the five-year CDS widened by 2 bps to 110 bps bid.

Elsewhere in Georgia, after recent marketplace bombings, the unrecognized breakaway government of Abkhazia announced that it will close the border with Georgia.

Arrests, trials smash Turkey

In Turkey, on the day chief prosecutor Abdurraham Yalcinkaya presented evidence to the constitutional court that prime minister Recep Tayyip Erdogan's AK Party is anti-secular and unconstitutional, 24 were arrested for allegedly plotting a coup, reports said.

Two prominent retired military officers and a well-known journalist were among the 24.

Stocks and the lira fell, while yields jumped on the news of the political intrigue.

The police made no comments about the arrests, but comments about a trial to disband a political party have come frequently from the European Union.

E.U. enlargement commissioner Olli Rehn has warned Turkey that the sort of issue before the constitutional court should be decided by voters not judges.

"It's all getting a bit messy over there, isn't it?" a syndicate official asked.

The lira was seen trading at 1.241 to the dollar.

The Turkish sovereigns due 2030 sank 1.75 points to 138.75 bid.

LatAm slides wider

Latin America traded wider as equities provided schizophrenic leadership throughout Tuesday.

Still, spreads returned to within 5 bps to 10 bps of their open, a syndicate official said.

"I'm astounded how the Dow managed to erase an entire day's loses," he said, amazed that investors were willing to take on so much risk just because "news is not as bad as expected."

"Oil is still up, gold is still up ... The news is just bad," he said.

Colombia's peso dealt with greater volatility, he said, after the currency fell on last week's announcement that the central bank will not intervene to support it.

The peso was seen trading at 1,871 to the dollar.

Mercosur leaders meet

In Argentina, leaders from the Mercosur nations met to discuss economic policy as well as the E.U. ruling, which would allow illegal immigrants to be detained for up to 18 months.

Many of the European Union's immigrant workers are from South America, and the heads of state feel that the new policy would treat them unfairly.

The rule would take effect in 2010.

The group also discussed food prices and the short supply of commodities.

Argentine president Cristina Kirchner, who is pressing her legislature for higher export tariffs, blamed wealth distribution problems.

Brazil's president Luiz Inacio Lula da Silva argued against tariffs and in favor of higher production.

The highly traded 11% Brazilian bonds due 2040 gave up 0.35 point to 131.9 bid.

The 8.28% Argentine discount bond due 2033 saw "more of the same," a syndicate official said, but was pounded for 2.5 points to 73.75 bid.

Elsewhere, oil's near-record price was again no help to Venezuela, the official said.

Light sweet crude traded over $143 per barrel but eased off into the afternoon.

The 9¼% Venezuelan sovereigns due 2027 were lower by 1.5 points to 92.5 bid.

Pipeline works through kinks

The difficult market conditions have significantly slowed the primary after a rush of benchmark deals made it to market.

On Monday, Singapore-based microchip testing and packaging firm, Stats ChipPAC Ltd. postponed its expected $1 billion two-part offering of senior notes. Credit Suisse and Deutsche Bank were joint bookrunners.

Proceeds, along with proceeds from a new credit facility, were to have been used to fund a dividend to Temasek Holdings shareholders and to refinance debt.

Meanwhile, in light of a week shortened by Independence Day in the United States and focused on payroll data, Russia's OAO Severstal will launch and price during the week of July 7, a source familiar with the deal said.

No amount or maturity has been set for the benchmark deal, which is being managed by ABN Amro, BNP Paribas and Citigroup.

Brazil's Camil Alimentos will also wait for next week for better market conditions for its $150 million bonds.

Still, new deals were in the preparation phase in Asia.

The Philippines' Banco de Oro announced plans to offer a $150 million bond in order to refinance existing debt, according to a market source.

The deal may be upsized to $200 million.

Banco de Oro is a Manila, Philippines-based commercial and retail bank.

Also from the Philippines, SM Investments Corp. asked UBS to lead an upcoming bond issue.

The specifications of the offer have not been finalized, but the proceeds will be used to refinance existing debt.

SM Investments is a Manila, Philippines-based holding company with positions in retail and finance.

Asia's ups and downs

Asian trading was "kind of all over the place," a trader said.

The market opened "with a strong ISM print," he said about the Institute for Supply Management's report on U.S. exports.

Then we saw the market fade and finally rally into the close, he said.

Still, the reaction for Asian credit was muted with Hong Kong closed to celebrate its reunification with mainland China.

Meanwhile in Indonesia, a battle with inflation rages, but "overnight you had a slightly better-than-expected inflation print," the trader said.

"You started to see the market stabilize in Indonesia," he said, whereas over the past few days the government's cuts to fuel subsidies forced up the price of food, which pushed the inflation rate beyond 11%, the Jakarta Post reported.

Many expect that the inflation figures will pressure Bank Indonesia to raise interest rates for the third consecutive month in July, the trader said.

The rupiah was seen trading at 9,175.75 to the dollar.

The Indonesian government bonds due 2017 added 0.5 point to 95 bid, 95.75 offered.

In the Philippines, as a result of the announcement by the central bank that the consumer price index for June may fall between 10.4% and 11.2%, the peso fell beyond the PHP 45 per dollar mark, according to the Manila Times.

The peso was seen trading at 45.14 to the dollar.

The Philippine sovereign bonds due 2030 slid 0.375 point to 121.125 bid, 121.625 offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.