the week ahead
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Sunday July 25, 6:01 pm Eastern Time
WEEKAHEAD-Emerging bonds seen
driven by US markets
NEW YORK, July 25 (Reuters) -- Emerging market debt,
sensitized to the moods of U.S. financial markets, will be closely
watching new testimony from Fed chief Alan Greenspan this week,
analysts said.
Also, the outcome of elections to the constitutional assembly in
Venezuela held Sunday will grab market attention, investors said. President Hugo Chavez has said
the assembly could dissolve Congress and the Supreme Court.
Analysts fully expect Chavez-backed candidates to sweep the elections, which are seen as a vote on
entrenched graft and cronyism. First partial results are due out Sunday evening at around 8 p.m.
local time (2000 EDT/0000 GMT Monday).
There is a ''high level of uncertainty in the market regarding the political outlook in several distressed
emerging market countries, leading investors to again question the commitment by the authorities and
their willingness to service obligations in the future,'' said Jose Cerritelli at the Provident Group in a
research note Friday.
Argentina recently swung regional markets after comments by one of its presidential candidates
raised fears that it might seek forgiveness of some of its $100 billion foreign debt. Those concerns
were laid to rest by the current administration, and the candidate himself, but the flap has put
markets on edge.
Market watchers will also keep a close eye on the second leg of key testimony by Federal Reserve
Chairman Greenspan. Greenspan will speak before the Senate committee Wednesday after
addressing the House Banking Committee this past Thursday.
Market watchers will look for more confirmation of Greenspan's remarks that the U.S. central bank
will remain vigilant against inflation. His comments last week were seen as having an unexpectedly
hawkish bent to them.
Some investors believe the U.S. could see another 50-basis point increase in the federal fund rates
this year, thus erasing the 75-basis point drop in the key interest rate last fall. The Fed last raised the
key Fed funds target on June 30 by 25 basis points to 5.0 percent.
For emerging markets, the key is how U.S. Treasuries respond to any Fed statements.
''If U.S. Treasuries break this level, then we may see some selling in emerging markets. But if
Treasuries stay in a range, emerging markets will hold,'' said Dan Peirce, head of emerging markets
research at BancBoston Robertson Stephens.
In addition, investors will also be looking for an agreement between the International Monetary Fund
and Ecuador. Many analysts said an announcement could come over the next few days.
Ecuador has been negotiating for a $400 million loan from the IMF that will pave the way for
restructuring other external debt with the Paris Club of government creditors.
Meanwhile, several Asian equity markets have sold off in the last two weeks, particularly in Hong
Kong.
BancBoston's Peirce said any further weakness in Asian equities could hurt U.S. markets and in turn
pressure emerging market bonds.
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