BofA Calls Out Aggressive Swaps Traders as Mexico Growth Slows

4/8/16 Bloomberg

bank of americaTo Bank of America Corp., traders speculating on the direction of interest rates in Mexico may be underestimating the worsening outlook for the economy.

That’s why Ezequiel Aguirre, a strategist at the Charlotte, North Carolina-based bank, is telling clients to bet against them in the swaps market. He says the central bank will only raise borrowing costs by a quarter-point by year-end, half the increase predicted by traders.

Just last week, Mexico cut its growth forecast for 2017 and announced plans to slash spending by an estimated 175 billion pesos ($9.79 billion) after manufacturing exports slowed and lower oil prices crimped revenue. The central bank, led by Governor Agustin Carstens, unexpectedly lifted the key rate by 0.5 percentage point to 3.75 percent in February as part of coordinated government moves aimed at shoring up the peso. The currency has rebounded 6.5 percent since then, easing concern that a weak peso will fan inflation in Latin America’s second-biggest economy.

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Mexican economic growth hits five-month high in January

3/30/16 Reuters

mexican pesosMexico’s economy grew by 0.6 percent in January from December in seasonally adjusted terms, the fastest pace in five months, figures from the national statistics agency showed on Tuesday.

Growth was driven by a pickup in industrial activity, which advanced by 1.2 percent from the previous month, while the service sector expanded by 0.2 percent, the figures showed.

Compared with the same month a year earlier, Latin America’s second biggest economy grew by 2.3 percent, in unadjusted terms. That was a tenth of a point faster than the same month in 2015.

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Mexican central bank holds rates steady, cites peso rally

3/18/16 Reuters

banco de mexicoMexico’s central bank held borrowing costs steady on Friday, noting that measures taken by financial authorities had helped spur a peso rally.

The Banco de Mexico left its key rate at 3.75 percent, as expected by all 15 analysts surveyed by Reuters this week. In February, the central bank surprised markets with a rate hike aimed at supporting the battered Mexican currency.

The peso has gained about 9 percent since the central bank announced its half-percentage-point hike on Feb. 17 and intervened directly in the foreign exchange market for the first time since 2009.

The central bank said actions by financial authorities had “broken a negative trend in the price of the national currency, which had displayed an overreaction to an adverse external environment” early this year.

A global rally in riskier assets had also helped lift the peso against the U.S. dollar, the central bank said.

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Mexico central bank seen holding steady after peso rally

3/18/16 Reuters

Mexican pesoMexico’s central bank is expected to hold borrowing costs steady on Friday after a rally in the peso dampened concerns that currency weakness will fan inflation higher.

All 15 analysts surveyed this week by Reuters said they expect the central bank to hold its key lending rate at 3.75 percent following a surprise hike in February that was aimed at supporting the battered peso.

The Mexican currency has rallied about 9 percent since the central bank delivered its half-percentage-point hike on Feb. 17 and intervened directly in the foreign exchange market for the first time since the 2009 financial crisis.

A global rally in riskier assets has helped lift the peso against the U.S. dollar. A statement from the U.S. Federal Reserve on Wednesday suggested it will likely take longer to raise rates than some had recently thought.

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Mexico Central Bank Cuts Growth Forecast as U.S. Industry Stalls

3/3/16 Bloomberg 

Mexico’s central bank cut its 2016 growth forecast for the third time, saying slower U.S. industrial activity will hurt demand for the nation’s goods.

Gross domestic product will increase 2 percent to 3 percent this year, compared with the previous estimate of 2.5 percent to 3.5 percent, the bank said in its quarterly inflation report published Thursday on its website. Inflation will quicken to slightly above the 3 percent target in the second and third quarters before ending 2016 near 3 percent, policy makers said.

The central bank, led by Governor Agustin Carstens, surprised investors on Feb. 17 by raising the nation’s key interest rate half a point to 3.75 percent and introducing discretionary dollar sales in an effort to head off a rise in inflation expectations stemming from a weak peso. Since the measures were announced, the peso has appreciated the most among major currencies from a record low as economists expect the benchmark rate to rise even further this year.

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pesos

Mexico Peso Tumbles After Government Signals Spending Cuts Loom

2/09/16 Bloomberg

Mexican pesoMexico’s peso fell to a record low after the government signaled more spending cuts, further damping the outlook for Latin America’s second-biggest economy.

The peso dropped 0.7 percent to 18.8029 per dollar as of 10 a.m. in Mexico City, the most among 16 major currencies tracked by Bloomberg. Its 8.5 percent slide since the end of December marks the worst start to any year since the 1993 redenomination.

Mexico has been caught up in a global currency rout as oil plunges and concerns over the health of the global economy deepen. The plunge in crude, which has already spurred a decline in public spending after revenue from state-owned Petroleos Mexicanos tumbled, also means that Mexico needs to prepare itself for preventative spending cuts for next year, Finance Minister Luis Videgaray said Monday in a radio interview. The oil company, known as Pemex, also needs to reduce spending, Videgaray told Radio Formula.

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A Mexican Standoff: Banxico vs. The Fed

8/6/15 Forbes
5504964078_df874cacb5_zBanxico, the Mexican central bank, is widely expected to raise interest rates alongside the Federal Reserve in the upcoming hiking cycle to avoid further weakness in the Peso (MXN).  There was even speculation that Banxico would preemptively hike during last week’s policy meeting. Policymakers ended up keep rates unchanged at an all-time low of 3.0%, but the central bank did take steps to buoy MXN.

The central bank increased the amount of dollars to be auctioned daily from $52 million to $200 million. They also reduced the amount MXN has to weaken for the central bank to sell an additional $200 million from 1.5% to 1%. MXN reacted immediately to the announcement, jumping 1.2% against USD, which is a notable move for the world’s most traded EM currency.

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