MEXICO: Growth Pressures Mount as Tariffs Weigh on Manufacturing Sector
Nov-21 14:47
- Today’s weak final Q3 GDP and September activity data will reinforce Banxico’s concerns about the weak growth backdrop and likely further cement expectations for another 25bp rate cut on Dec 18.
- The weakness was centred in the secondary sector, where output fell by 1.5% q/q last quarter on the back of a 3.3% drop in construction activity and 1.3% q/q fall in manufacturing. In remarks crossing the wires just now, President Sheinbaum said that this reflects the impact of falling US demand and tariffs. Elsewhere, service sector activity edged up by a modest 0.2% q/q, while primary activities rebounded by 3.5% q/q.
- September activity data suggest that the weakness in industry continued into quarter-end, with output down a further 0.35% m/m. The service sector also ended the quarter on a weak footing (-0.49% m/m), boding poorly for activity in the final quarter of the year.
- As noted, most Banxico board members expect weak activity to help bring inflation back into target by Q3 2026, although there is mounting caution about the persistence of core CPI pressures. Next week’s bi-weekly CPI data are expected to show core inflation holding around 4.3% in H1 Nov, while Banxico’s QIR on Wednesday will be watched for any further upward revisions to inflation forecasts.
- Against this backdrop and amid the risk-off move earlier in the session today, USDMXN has pierced resistance at the 50-day EMA, currently at 18.4644. A clear break above this average would undermine a bear theme and expose resistance at 18.7706, the Nov 5 high.
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SEK: Risk In EURSEK Remains Tilted To The Downside
Oct-22 14:40
- Risk in EURSEK remains tilted to the downside, with spot hovering just above support at 10.9036, the Sep 15 low. Clearance of this level would expose the April 4 low at 10.7941. Spot is on track for a sixth consecutive close lower, currently -0.25% today.
- It’s been another session with relatively few domestic catalysts. Riksbank Deputy Governor Jansson noted that it is reasonable to look through the upcoming temporary reduction in food VAT. However, the Board will “monitor how households' and companies' expectations and behaviour are affected, so that fluctuations in inflation that are temporary to begin with do not become more permanent."
- This isn’t a surprising view to hold. We continue to believe that the policy rate will remain at 1.75% for some to come, with the risk of a hike to 2.00% somewhat greater than the risk of another cut.
- Today’s SEK strength comes despite a fairly subdued session for European equity futures. This week’s SEK outperformance may therefore reflect increased sympathy for domestically-focused narratives (i.e growth tailwinds from accommodative monetary policy and an expansionary 2026 budget).
GILT AUCTION PREVIEW: CORRECTION: Auction Size
Oct-22 14:35
The DMO has announced a GBP3.75bln, not GBP4.75bln auction size for the new 4.125% Mar-33 Gilt next Wednesday.
US STOCKS: Extending Lows
Oct-22 14:30
- Stocks extending session lows in the last couple minutes, SPX eminis and Nasdaq leading the decline with Consumer Discretionary, Communication Services and IT sector shares underperforming.
- DJIA down 124.3 points (-0.26%) at 46,803.25
- S&P E-Mini Future down 18.75 points (-0.28%) at 6,756.25
- Nasdaq down 139.5 points (-0.6%) at 22,820.28
