Selling hits EM, primary mostly quiet as equity markets plunge; market players eye flows

By Rebecca Melvin

New York, Feb. 5 – Emerging markets credit saw mostly pockets of selling early on Monday, but later trading action dried up amid a steep sell off in U.S. stocks. The primary market remained quiet against a backdrop of rising rates and weaker global stocks that turned into a free fall for stocks in the United States.

The session was also marked by sharp swings in the indexes. “I think people were surprised by the swinging around. First, they were down 2%, then 4%, then 2%,”a New York-based market source said. “When they are moving like that, traders just pull their bids.”

“[The Latin America market] didn’t do much. There wasn’t much trading,” the market source said, adding that therefore it was difficult to know how things moved or how much further it will go.

The sentiment echoed that of a second market source, this one based in London, who said, “It feels like the days won’t get easier going forward.”

During Monday’s session the Dow Jones industrial average skidded down 1,175.21 points, or 4.6%, to 24,345.75, the largest single-day move since August 2011. The S&P 500 stock index fell 113.19 points, or 4.1%, to 2,648.94, and the CBOE Volatility index surged 117% to 37.32, a one-day percentage rise record.

Meanwhile the Nikkei stock index was poised to open down 8%, indicated that Tuesday was getting off to a negative start. With Asian markets also expected to sell off, there will be an effect on flows, a market source said.

“People will be watching the EPFR fund figures that come out on Thursday,” the source said.

A reading of the MSCI Emerging Markets index on Monday showed it down 4.97%, but that did not reflect Monday’s trading action.

“That reflects Asia stuff that was reacting to Friday’s move,” a market source said.

The broader markets sold off steeply on Friday amid inflation worries as the closely-watched U.S. non-farm payrolls report for January showed a better-than-expected increase. The Dow fell 665.75, or 2.5% on Friday.

“Tricky day,” a London-based trader said, pointing to “relentless” selling in ETF and random accounts in the usual suspects. But there was stability in other areas including Saudi Arabia, which was broadly unchanged. Many sovereigns felt offered, including Oman, but that curve still has an overhang of shorts remaining in the mid-duration notes.

In the primary market, the Central & Eastern Europe, Middle East and Africa region was quiet, with a handful of deals on roadshow that were expected to price later in the week subject to market conditions.

Credit Bank of Moscow has an offering of dollar-denominated five-year notes potentially pricing on Tuesday, and Nostrum Oil & Gas plc is roadshowing a dollar-denominated offering of seven-year notes through Wednesday. Russia’s Lukoil is also rumored to be bringing a deal this quarter.

In the Middle East, First Abu Dhabi Bank was marketing a possible five-year, dollar-denominated Islamic bond on Monday with potential pricing on Tuesday.

In Latin America, CSN Resources SA had started fixed-income investor meetings for an offering of new notes tied primarily to its tender of 2019 and 2020 notes, which have a combined outstanding amount of $1.95 billion.

Based in Sao Paulo, CSN is the largest integrated steelmaker in Brazil.

Also on tap for the upcoming week are monetary policy decisions expected in Australia, Russia, India, Brazil, Poland, Romania, the United Kingdom, New Zealand, Serbia, Peru and the Philippines.

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