CEEMEA buyers emerge as Turkey tries to soothe investors; Argentina better; Petrobras up

By Rebecca Melvin

New York, Aug. 16 – There were mostly buyers of debt in the Central & Eastern Europe, Middle East and Africa region on Thursday as Turkey’s finance minister, Berat Albayrak, told investors that the government would support the banking sector if necessary but that the banks were strong enough to weather recent volatility.

Albayrak held a call with about 5,000 investors starting at 10 p.m. ET. The new finance minister, who is President Recep Tayyip Erdogan’s son-in-law, also said there had been no major flow out of deposits and that the country had no plans to seek help from the International Monetary Fund.

There were “generally buyers today,” a London-based trader, focused on the Middle East and Africa, said when asked about the market’s response to Albayrak. “Spreads are doing OK and the lira is 5.73 area.”

The lira’s level represented an improvement of about 3% on the day and was its third straight gain since the currency hit a record low of 7.24 to the U.S. dollar on Monday.

Elsewhere, emerging markets currencies and bonds were also better, with Argentina an outperformer as its currency pulled back from a new low set against the U.S. dollar on Wednesday. On Thursday, the Argentine peso improved to 29.73 per dollar from a low of 30.50 on Wednesday.

There was “a positive tone for EM overall on the back of the Turkey recovery,” a New York-based market source said. “Argentina was outperforming the rest of space today, but seeing buying activity across the board. I think the catalyst here is that we are now in the clear from negative news for the time being. Last week we had Argentina Notebook news, and then Turkey. But after Turkey began to recover the rest of EM followed through,” the source said.

Argentina’s central bank on Thursday said that it raised reserve requirements by 3% to 31% for the country’s largest banks. The move will absorb about 60 billion pesos, or $2.01 billion in liquidity from the market. Earlier this week, the central bank said it would speed up a plan to reduce outstanding Lebac short-term debt. It also lowered the interest rate offered on short-term notes to 45.04% in a Tuesday auction when it sold 201.7 billion pesos in Lebacs.

Also earlier this week, the central bank raised its benchmark interest rate to 45% from 40%, and on Wednesday it sold $781 million in reserves after the peso hit 30.50 per U.S. dollar.

The IMF praised Argentina’s move to unwind the short-term debt. But this could pressure both the currency and inflation if market players turn their Lebac notes into cash.

Argentina’s 7 1/8% notes due 2117, or the century bond, jumped about two points on Thursday to 81.30 bid, 83½ offered at the end of the session.

Argentina’s long-dated 2048 notes with a 6 7/8% coupon also had a big price pop. Those notes were seen last up 1.3 points, or nearly 2% at 72.95.

Its shorter dated notes were also up, with the 4 5/8% notes due 2023 last at 84, or up 1.75 points, while the medium term 5 7/8% notes due 2028 were up 1.1 point at 76.35.

In addition to the improvement in the currencies of Argentina and Turkey, the Chinese yuan, Brazilian real and Mexican peso were better on the day. Besides positive comments by Turkey’s finance minister, the market was also cheered by positive headlines regarding trade including the U.S.-China trade conflict and renegotiation of the North America Free Trade Agreement.

China and the United States said that they will hold trade talks between lower level officials in the United States next week before another round of U.S. tariffs are slated to go into effect.

The U.S.-China trade conflict has led to escalating tariffs, and $34 billion in goods targeted by each country are in place, with the United States scheduled to impose another $16 billion on Aug. 23. China’s yuan recovered 1% to 6.87 per U.S. dollar on Thursday.

Regarding NAFTA, U.S. Trade Representative Robert Lighthizer said on Thursday as he met with his counterpart from Mexico during the latest round of high-level talk between the United States and Mexico and that a breakthrough may be forthcoming in possibly days.

“I’m hopeful that in the next several days we’ll have a breakthrough,” Lighthizer told U.S. President Donald Trump during a cabinet meeting on Thursday.

Even so Trump told Lighthizer that if he could not make the right deal, no deal should be made.

Mexico’s Economy Minister Ildefonso Guajardo said that there was still work to be done and that both sides needed to show flexibility.

Oil also improved on Thursday after a drop on Thursday. Brazil’s Petroleo Brasileiro SA bonds jumped. The Petrobras 7¼% notes due 2044 gained a point to trade at about 94 from 93 on Wednesday. And the Petrobras 7 3/8% notes due 2027 retreated from its intraday highs around 102.5 but still ended better at 100.6 from 99.9 to 100.3 on Wednesday.

© 2015 Prospect News.
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