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Barclays Hold On To MXN Longs Into Election

MEXICO
  • Barclays expect a limited reaction in local assets, which have largely faded the elections. They hold on to their MXN longs into the event and expect TIIE to continue to trade closely to US rates.
  • Barclays expect Morena will win this Sunday’s election, with a divided Congress. They expect a limited move in USDMXN in this case, where the MXN could outperform its peers by roughly 1% on the open as lingering uncertainty is priced out, mainly unwinding this week's underperformance. The peso should then continue trading to global factors. They see two low probability risk events. If Morena wins a majority in Congress, this could trigger a 3-4% underperformance in the MXN, although it may not last long. In contrast, an opposition win would be a positive surprise for the peso.
  • Rates should continue to trade to monetary policy and the Fed, in their view. Rates markets have reacted even less to the upcoming elections. The TIIE curve has been largely driven by Banxico, local inflation and US data. Barclays think this will continue to be the case, regardless of the outcome. Similar to FX, Barclays don't see a big move in TIIE versus US rates following the local election.
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