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Barclays: No Change To The “End Of Cycle” View

MEXICO
  • The majority of board members signaled that the terminal has likely been reached, in the absence of additional inflation shocks, while at the same time signaling that rates could remain restrictive for some time.
  • Barclays think that the market will continue to price in a chance of a last rate hike in May, in line with the Fed pricing. Whether Banxico delivers such a hike is not likely to change the “end of cycle” narrative, in their view. A hold in May could be perceived as dovish versus market expectations, and rates could rally with the confirmation of peaking policy rates.
  • On the other hand, a hike is already partially priced in, and the market is likely to remain focused on the prospects and timing for the next cutting cycle, a discussion that is likely to gain traction as US recession concerns increase. The latter would also set a high bar for a hawkish Fed surprise, with financial stability concerns taking center stage.
  • Barclays expect the belly of the curve to outperform in this environment, as the short end is already pricing cuts this year, and the market could price them further out if Banxico ramps up its “higher for longer” rhetoric. Barclays see little implications for the MXN, as carry should remain supportive even under a Banxico hold, and they expect price action to be driven more by US data going forward.
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