EM flat, tracking U.S; Venezuela dips after big jump; Gabon talks benchmark debut at 8¼%

By Aaron Hochman-Zimmerman

New York, Dec. 4 - Emerging markets continued on an even keel and in step with the markets in the United States during Tuesday's session.

"Everything is driven by the U.S. macro picture right now," a trader said.

"What is the true health of the U.S. consumer ... what is the true health of the U.S housing market?" a trader asked.

Investors have had little to grasp onto to gauge the direction of the market and are anxiously awaiting U.S. payroll figures on Friday and the results of the Federal Reserve Board meeting on Dec. 11, the trader said.

"Fifty [basis points] or 25 [bps] is the question of the month," he said.

In trading, prices were largely flat to slightly lower, but it was Venezuela leading the losers with a 1.75 point correction to its 9.25% bonds due 2027 after Monday's post-referendum leap.

The primary showed more life than it has in recent sessions as the Republic of Gabon's benchmark-sized dollar debut was talked in the area of 8¼%.

Market watchers also have their eyes on dropping oil prices.

At its meeting in Abu Dhabi, the Organization of Petroleum Exporting Countries (OPEC) suggested it may increase oil production by approximately 500,000 barrels per day to 31 million barrels per day.

Many experts have said that what OPEC calls a "gesture" would have little effect on the price of oil. The high but recently falling prices are more linked to dollar weakness than production volume, a trader said.

Many of the OPEC members agreed, saying that the market is already well supplied.

Light sweet crude was seen trading at $88 per barrel.

Volatility was almost flat as it gained 0.18 to close at 23.79, according to the VIX index. The index is the standard measure of market volatility.

Emerging markets widened out by 5 bps to a spread of 257 bps, according to JP Morgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors demand to hold money in emerging markets debt.

Emerging Europe flat, watching headlines

Emerging Europe is still "very quiet" according to a trader specializing in the sector.

Traders mostly watch external market drivers, he said.

The spread between "Libor and the T-bill is at an all-time high," he said.

The price of oil is an important factor, but the trader does not place much importance on a possible OPEC production hike, saying the true driver of the price is the low dollar.

"The dollar is the only thing I see," he said.

Russia's future is widely expected to remain under the influence of president Vladimir Putin, even after his term as president expires in March.

Economist Vladimir Osakovsky told the BBC that federal influence in Russian business has been increasing, but not comprehensively.

Under president Boris Yeltsin, Russian businessmen rose almost unchecked and exercised a great deal of power in terms of economic and even political policy.

Under Putin, "strategic industries" such as energy and defense have come under government control, but other sectors are allowed to exist in a largely free market, Osakovsky said.

In trading Wednesday, the Russian sovereign bonds due 2030 edged up by 0.05 to a bid of 114.

Monday's announcement by the central bank in Turkey that inflation for the month of November grew by 1.95% rather than 1.6% had little effect on Turkey's bonds, the trader said.

The Turkish bonds due 2030 were spotted lower by 0.25 at a bid of 157.5.

In South Africa, mine workers were on a one-day strike Tuesday to protest safety conditions in the mines. The National Union of Mineworkers claimed 40,000 joined in protests in Johannesburg.

This year 200 miners have been killed while 199 were killed in 2006, reported the BBC.

AngloGold Ashanti Ltd., Gold Fields Ltd. and Harmony Gold Mining Co. Ltd. have mines which were affected by the strike.

Local deals price, Gabon talks in primary

The revived primary seems poised to price a new benchmark sovereign on Wednesday.

The Republic of Gabon released talk in the 8¼% area for its debut benchmark-sized dollar-denominated 10-year bond (BB-/BB-).

Citigroup and JP Morgan will act as bookrunners for the deal.

A roadshow ended on Tuesday.

"That's not bad," a syndicate desk official said about the price talk.

In recent sessions, investors have held out more hope for local-currency deals.

Israel's Oil Refineries Ltd. announced it priced a total of NIS 1.8 billion in three debenture issues.

The refiner priced a NIS 473 million seven-year, six-month index-linked debenture at an annual interest of 4.8% and a NIS 843 million five-year, six-month index-linked debenture at 4.6%.

It also priced a NIS 500 million four-year, six-month non-linked debenture at 6.5%.

Oil Refineries released a plan to invest $1.1 billion into the company over the next five years.

The company will provide greater funding to "reorganization, upgrading the refining capabilities, investment in environmental protection, safety, improving infrastructure, improving efficiency by combining natural gas, turning the headquarters into a global headquarters and penetrating new markets in the energy and petrochemical spaces," the release said.

The deal was three times oversubcribed.

The company is a Haifa, Israel-based oil refiner.

On Monday, Brazil's Banco Cruzeiro do Sul SA priced a $30 million 30-month note (Ba1) at 99.45 with a coupon of 7.75% to yield 7.5%.

BCP Securities was the bookrunner for the deal, which cam in line with talk.

Banco Cruzeiro is a Sao Paulo, Brazil-based commercial and retail lender.

Low volumes in LatAm, Venezuela backs off

Trading in Latin America maintained the status quo on Tuesday while Venezuela lost approximately half the gains it made Monday after investors appreciated the weekend's referendum defeat for president Hugo Chavez.

In Venezuela, what was less surprising than Chavez's loss in a referendum on Sunday was the grace he showed in defeat, a market source said.

Chavez did not take to insulting the opposition, but rather challenged his opponents to a democratic debate.

Chavez does plan to resubmit his failed reforms, which would increase his power over the central bank and oil industry as well as doing away with term limits.

The Venezuelan 9.25% sovereign due 2027 lost 1.75 to trade with a bid of 99.75. It had risen 3.25 in trading Monday.

Argentina reported that tax revenue rose 33.5% to 18.41 billion pesos during the month of November. The revenues were ahead of expectations, according to a report in the Buenos Aires Herald.

Brazil's highly watched 11% notes due 2040 were up about 0.2 to trade at a bid of 134.5.

Also, the central bank of the Dominican Republic released a report which covers the first three quarters of 2007.

The data was called "encouraging" by a market source, but not all of the market sectors have shown growth.

The strongest performer was communications which grew by 17.2%. The growth came mostly thanks to a cellular phone boom.

"Inexplicably," the source said, construction fell by 2.3% and free export zones receded by 11.2%.

Tourism was up slightly as well at 1.5%, the source added.

Asia slides lower

The Asian region, with the exception of a moderate loss in the Philippines, was flat to lower as investors looked to the United States to set the tone for the market.

In the Philippines, the central bank asked the government to step up its domestic borrowing program as dollar inflows are projected to remain high into 2008, the Manila Times reported.

The Filipino sovereign bonds due 2030 were off by 1.125 to trade at a bid of 133.25.

Indonesia's benchmark bonds due 2017 slipped 0.375 to 103.625 bid.

Pakistan's opposition leaders and former prime ministers Benazir Bhutto and Nawaz Sharif have agreed to issue a series of demands to the government which must be met in order, otherwise their parties will boycott the Jan. 8 elections and lead protests against the vote.

The list has not yet been finalized, but is expected to include items regarding the electoral committee and caretaker government.

The Pakistani bonds due 2017 lost 0.5 to close at a bid of 87.5.

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