EM LATAM CREDIT: Sovereign Support for Pemex
Petroleos Mexicanos (PEMEX; B3neg/BBB/B+)
• Mexico’s finance minister Edgar Amador referred to government aid to state oil company Pemex as a “transitory situation” April 30, 2025. To us this seems precarious, almost like a warning.
• Based on statements by President Claudia Sheinbaum, Energy Minister Luz Gonzalez and Pemex officials, the government will likely support Pemex obligations in the short run, like the USD6.4bn debt due for the rest of 2025 and payments to suppliers. The government paid suppliers MXN152bn (USD7.8bn) in 1Q2025. We wonder about the USD18.7bn of debt coming due in 2026.
• The Pemex 2030 plan from February 2025 announced investment plans including MXN220bn for oil exploration, MXN238bn for gas exploration, MXN20bn for petrochemicals and MXN8bn for fertilizer. Security measures will be improved to prevent fuel theft. Pemex will work with the government on supplier / bond payments. Pemex will rehabilitate six refineries for MXN105bn.
• Mexico needs to maintain financial flexibility to be able to make all those investments so assuming or guaranteeing USD100bn of Pemex debt is not desirable. The structure of these investments is planned as public/private partnerships so being able to attract capital is critical and a default or restructuring would also not be desirable.
• Government guarantee of Pemex debt has been prohibited by law while being categorized as a “productive enterprise”. Now that the company’s status has been changed to a “public state enterprise” maybe it is possible but still not desirable or likely.
• Sheinbaum recently declared an 18 point “Plan Mexico” which consists of making the country energy and food independent, building out infrastructure with public works projects, increasing housing, domestic auto and consumer goods production, increasing employment and the minimum wage among other things.
• What is likely in our view is a muddle through until some of these investments start paying off such as getting oil production to move back upward from about 1.6mn bpd to the stated goal of 1.8mn bpd and to improve refinery utilization, especially at the USD19bn Dos Bocas refinery.
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US OUTLOOK/OPINION: Mfg Prices Paid Suggest Core Goods Caution Needed [2/2]
- When it comes to core goods more broadly, we’re mindful here of the rapid increase in reported manufactured input costs per various business surveys.
- The ISM manufacturing survey for March followed cues from the regional Fed surveys with its 69.4 prices paid reading at its highest since Jun 2022 (and +14.5pts since President Trump’s inauguration in January).
- Separately, the MNI Chicago PMI prices paid component only retreated 0.4pts in March having in February seen its sharpest monthly increase since July 1957 for its highest level since August 2022.
- Fed Governor Kugler, when speaking on Mar 25, called an apparent end of goods price disinflation as an "unhelpful" development as this category that "has often kept a lid on total inflation and also affects inflation expectations... I am paying close attention to the acceleration of price increases and higher inflation expectations, especially given the recent bout of inflation in the past two years".
- It followed Fed Chair Powell at the Mar 19 FOMC press conference, who whilst sounding fairly optimistic on the inflation outlook, interestingly specifically noted that recent inflation readings now showed more goods-driven inflation ("we have had two very strong goods inflation readings in the last two months which is very unexpected", noting that tariffs likely played a factor).
US OUTLOOK/OPINION: Analysts Eye Slight Moderation In Core Goods [1/2]
- Analysts perhaps surprisingly look for a moderation in core goods inflation to circa 0.1% M/M after February saw a modest upside surprise with 0.22% M/M (0.16% expected) following 0.28% in Jan (strongest since May 2023).
- February’s strength was helped by used cars prices rising 0.9% M/M - a category expected to fall moderately in March - whilst core goods ex used cars increased 0.12% M/M.
- Core goods ex used cars prices increased a rounded 0.1% M/M in three of the six months up to February, already a reasonable ‘acceleration’ from the near flat readings averaged in both 2024 (with 7 of 12 months seeing declines on an unrounded basis) and pre-pandemic.
- Around 20% of US apparel imports are from China, with analysts expecting a moderation to 0.3% M/M after 0.6% M/M. It’s a noisy category and so should be taken with caution but we’ll nevertheless watch it closely.
USDCAD TECHS: Trend Structure Remains Bearish
- RES 4: 1.4452/4543 High Mar 13 / 4 and a bull trigger
- RES 3: 1.4415 High Apr 1
- RES 2: 1.4302 50-day EMA
- RES 1: 1.4248 High Apr 8
- PRICE: 1.4212 @ 16:33 BST Apr 8
- SUP 1: 1.4028 Low Apr 3 and the bear trigger
- SUP 2: 1.3986 Low Dec 2 ‘24
- SUP 3: 1.3944 61.8% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 4: 1.3894 Low Nov 11 ‘24
USDCAD has recovered from last week’s low. For now, the move higher appears corrective. The sell-off last week confirmed a resumption of the medium-term bear cycle that started Feb 3. Price has traded through a key support at 1.4151, the Feb 14 low, and this signals scope for an extension towards 1.3944, a Fibonacci retracement. On the upside, key short-term resistance is seen at 1.4302, the 50-day EMA.
