Emerging markets jump on equity rally; Argentina gains amid demonstrations; Primary market crawls

By Aaron Hochman-Zimmerman

New York, July 16 - Emerging markets were feeling healthy again if only for a strong performance by financial stocks in the United States.

Sinking oil prices also spurred the 276-point rally of the Dow Jones Industrial Average on a day that began without conviction as urban consumer CPI jumped 1% in June, according to the U.S. Bureau of Labor Statistics.

Still, the emerging market secondary closed with a positive tone as even Argentina was able to add 0.75 point to its benchmark discount bonds due 2033 as demonstrations went on throughout the country over the hotly contested farm export tax.

However, trading of emerging European credit in London did not have the benefit of the afternoon's rally and volatility was on the minds of investors.

"Again it's volatility, which has been the key theme," he said, adding that nothing in the foreseeable future has the force to change the current pattern.

The volatility that investors are fighting makes long-term positions too risky, he said.

"Get in and out ... don't be a hero," he advised.

Meanwhile, in the United States, a trader called the day's market results "a big positive."

The positive day in equities slashed at volatility, which had been creeping toward 30.00. The VIX index was knocked lower by 3.44 on Wednesday to end at 25.10. The index is a commonly used yardstick of market volatility.

Emerging Europe firms, Russia upgraded

Emerging Europe's session traded on very choppy seas on Wednesday, a trader said.

"It was a little wider in the morning and tightened up," he said.

"Equities are driving a lot of it," he added.

"Generally Russia is a bit tighter," he said as Moody's Investors Service boosted its sovereign rating to Baa1 from Baa2.

The Russian government bonds due 2030 were spotted at 112.75 bid, 112.875 offered.

Also in Russian corporates, one of the country's top oil producers, OAO Tatneft, announced plans to search for and develop oil fields in Libya and Syria.

The company plans to drill six exploratory wells in Libya and four in Syria, it said in a statement, according to the RIA Novosti News Agency.

Elsewhere in emerging Europe, Turkey's credits have largely weathered the raging political storm the country is facing, a trader said.

"Turkey is a bit tighter ... It's been a bit healthy, really," he said.

Still, Sinan Aygun, the president of the Ankara Chamber of Trade, was obliged to defend himself after being released from police custody after his arrest in connection with the suspected Ergenekon organization coup.

"I always acted within the limits of democracy and laws. I believe that all claims about me will be clarified during the judicial process and I will be acquitted," he said.

Prime minister Recep Tayyip Erdogan criticized the opposition party, the Republican People's Party (CHP), while at a meeting of his own Justice and Development Party (AKP).

"History records the partisanship of the representatives of the main opposition. Acting as the advocate of an illegal organization could only be the business of a mentality which has a weak belief in democratic rule of law once the judicial process goes on and is likely to destroy democracy," Erdogan said.

The Turkish sovereign bonds due 2030 were quoted at 144 bid.

LatAm up on equity rally

Latin America tightened on Wednesday as a U.S. equity rally spread a better tone across the emerging market sectors.

"The stock market is doing much better, obviously, and that's carrying over," a strategist said. "Spreads are a bit tighter."

"It's not necessarily rosy, but it looks better," he said about the session.

In Argentina, demonstrators on both sides filled the streets of Buenos Aires in order to influence Wednesday's vote on the farm goods export tax bill.

"Either way the market is going to improve," the strategist said about the upcoming vote.

A loss for the government will likely spark a rally for the credit, he said.

If the bill passes, trading will likely remain around the same level as much of the downside has already been priced in, he said.

The 8.28% Argentine discount bonds due 2033 added 0.75 point to 73 bid, 74 offered.

Elsewhere, Venezuela was not hurt by another major drop in the price of oil.

Rather, the credit was helped by the general positive tone splashed onto the emerging markets from the United States.

Light sweet crude traded down as low as $132 per barrel, but the 9¼% Venezuelan government bonds due 2027 added 0.5 point to 91.5 bid, 91.75 offered.

Also, Brazil's 7 1/8% sovereigns were seen unchanged at 109.7 bid, 110.2 offered.

Asia eases higher

Asia traded better on Wednesday as "there's been quite a turnaround in sentiment," a trader said.

Still, "people are nervous about book earnings," he said, and therefore, "The benchmark indices tightened, but didn't do as well as you would have thought."

If the next round of earnings beats expectations, "I think the trend continues," he said.

In the Philippines, the bureau of internal revenue reported that the slowdown in short-term debt sales in the second quarter has hurt collections, the Manila Times reported.

Revenues fell PHP 61 billion short of the bureau's goal of PHP 230 billion for collections between April and May.

"We were affected by [the treasury bureau's] rejections during the period," internal revenue commissioner Lilian Hefti said in the report.

The Philippine sovereigns due 2030 took on 0.375 point to 122.625 bid.

In Indonesia, the central bank made a report of the country's financial health to president Susilo Bambang Yudhoyono and finance minister Sri Mulyani on Wednesday.

The bank said that the country is improving and is moving beyond the impact of May's cut in fuel subsidies.

Even the once volatile rupiah has held a stable course in the past two months, the bank said.

The rupiah was seen weaker, trading at 9,187.63 to the dollar.

The Indonesian government bonds due 2017 slipped by 0.25 point to 96.75 bid.

Also in Asia, Pakistan's bonds due 2017 were better at 73 bid.

Primary crawling through summer

In the predominantly quiet primary, Malaysia's Quill Capita Trust announced that it has created a 134 million rupiah medium-term note program.

The class A tranche will have an amount of up to 109 million rupiah, while the remaining three tranches will have values between 8 million and 9 million rupiah.

The notes will have a maximum maturity of seven years and will be issued via tender or private placement.

Quill is a Kuala Lumpur, Malaysia-based real estate investment trust.

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