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Pressure on Equities Prompts USDMXN Squeeze, Banxico Minutes Due

MEXICO
  • The negative reaction in equity indices following the FOMC minutes last night sparked a decent squeeze in USDMXN. Higher US yields exacerbated the 1.5% bounce from the lows that saw the pair reach 20.76 highs overnight. The pair has since pared some gains to 20.60 and the short-term technical outlook remains bearish.
  • Citi published the results of their biweekly analysts’ survey in email:
    • Mexico analysts lower 2021 CPI est. to 7.45% from 7.66% with the 2022 year-end estimate held steady at 4.16%. Additionally, the survey sees another rate hike in February, but only of a magnitude of 25bps. Results are the median forecast of about 30 analysts.
  • Today we will see the central bank minutes from the December meeting. As a reminder, Banxico hiked rates by 50bps in a 4-1 decision. The minutes may shed light on whether the board foresees a similar rate hike as likely in February. Particularly interesting will be the views of Deputy Governor Esquivel as despite him being the sole dissenter, this also represented the first time he has voted for a rate hike in the tightening cycle. Of note, this was also the final meeting with Alejandro Díaz de León at the helm.
  • December CPI will be released tomorrow, where current estimates expect the annual reading to print 7.43%.
  • Mexico’s plan to halt crude exports by 2023 could curb the size of its giant oil hedge and help boost longer-dated prices. (Bloomberg)
    • Each year, Mexico participates in one of the biggest and most secretive deals in the oil market, locking in prices of its net exports. The trade effectively makes the Mexican finance ministry one of the biggest sellers of oil contracts for 12 months ahead.
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