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MEXICO: Banorte Believe New Elements Favouring Steeper Local Curve

MEXICO
  • According to Banorte, Banxico’s dovish tone and the adjustment in the MoF’s auction calendar (there will be higher debt issuance at floating vs fixed rates, although at a slower pace vs. 2Q24) bring new elements to resume strategies that favour a steeper local curve. 
  • Banorte also believe the market is pricing in an aggressive expectation for possible Fed cuts this year given their anticipation of just a 25bp cut in December. Moreover, following last week’s presidential debate, the case for a Republican administration is strengthening and consider this could bring implications for US trade, migration, and the fiscal outlook that result in higher rates.
  • For the FX market, Banorte’s view implies a stronger dollar in the short term, partly supported by the correction they expect in the Fed’s pricing. Their focus in the coming days will be on this Friday’s employment report. 
  • The currency has narrowed its weekly trading range, and the implied volatility curve has stabilised, while speculative positioning has sharply reduced net longs. In the short term, Banorte suggest taking advantage of levels below USD/MXN 18.00 for tactical USD purchases.
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