Daily digest market movers: Mexican Peso gives way to US Dollar buyers, unable to reach nine-year high
- Banxico’s Mejia commented that they have a long way to go on the disinflationary path, though he acknowledged the stickiness of services inflation. He stresses that the balance of risks for inflation is less adverse.
- Mexican economic data revealed during the week:
- Industrial production in January rose 0.4% MoM as expected, and it gained from -0.7% in December’s contraction. In the twelve months to January, production increased by 2.9%, above estimates, smashing December’s 0% reading.
- US Retail Sales in February came in at 0.6% MoM, below estimates of 0.8%, though improved from a -1.1% January contraction.
- The Producer Price Index (PPI) exceeded forecasts of 1.1% and rose by 1.6% YoY in February. Excluding volatile items, the so-called core PPI expanded by 2% YoY, unchanged, though a tick higher than the estimated 1.9%.
- Initial Jobless Claims for the week ending March 9 rose by 209K, missed estimates of 218K and stood below the previous week's reading of 218K.
- Thursday’s data added to the release of the latest Consumer Price Index (CPI) report in the United States, cementing the Federal Reserve’s case for being patient about cutting interest rates. Unless data proves the disinflationary process is sustainably trending toward the 2% goal, they will stick to the “higher for longer” mantra. The next Fed meeting is scheduled for March 19-20 next week.
- Banxico’s private analyst poll projections for February were updated. They expect inflation at 4.10%, core CPI at 4.06%, and the economy to grow by 2.40%, unchanged from January. Regarding monetary policy, they see Banxico lowering rates to 9.50% and the USD/MXN exchange rate at 18.31, down from 18.50.
- During Banxico’s quarterly report, policymakers acknowledged the progress on inflation and urged caution against premature interest rate cuts. Governor Victoria Rodriguez Ceja said adjustments would be gradual, while Deputy Governors Galia Borja and Jonathan Heath called for prudence. The latter specifically warned against the risks of an early rate cut.
- Banxico updated its economic growth projections for 2024 from 3.0% to 2.8% YoY and maintained 1.5% for 2025. The slowdown is blamed on higher interest rates at 11.25%, which sparked a shift from three of Banxico’s five governors, who are eyeing the first rate cut at the March 21 meeting.
- A Reuters poll showed investors estimate the Fed to be the first central bank to cut rates in June.
- Meanwhile, 52 of 108 economists expect the Fed to cut rates by 75 basis points in 2024, with 26 saying 100 bps.
- A Reuters poll sees the Mexican Peso depreciating 7% to 18.24 in 12 months from 16.96 on Monday, according to the median of 20 FX strategists polled between March 1-4. The forecast ranged from 15.50 to 19.00.
- A Reuters poll shows 15 analysts estimate that inflation will slow down in February, corroborating bets that Banxico could cut rates as soon as the March 21 meeting.
- The CME FedWatch Tool shows traders decreased their bets for a 25-basis-point rate cut in June, down from 72% at the beginning of the week to 60%.
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