Two Reasons Why The Mexican Peso Appreciated in 2017

The devaluationary spiral of the peso began with the fall in oil prices in mid-2014. At the time, the depreciation was easy to explain in terms of the deterioration of the balance of trade. With Mexico being a net oil-exporting country, the fall of oil prices meant a fall in the country’s foreign currency revenue. This situation explains the depreciation of the peso of mid-2014 and all of 2015.
In 2016 the situation gets complicated The victory of the Brexit referendum in June 2016 deteriorated expectations of the Mexican economy’s performance, lowering the price of the peso against the dollar.
Things got worse for the Mexican peso in November 2016, when Donald trump was elected as President of the United States. At the time, the pessimism that took hold of investors and speculation lead to a depreciated Mexican peso. As we explained in another article, the peso depreciated 14% in only three days after Trump’s victory.
Banxico reacted without success… With this scenario, the Bank of Mexico (Banxico) begun a series of efforts to try to defend the peso by raising the benchmark interest rate in 2016. The following graph shows the price of the peso against the dollar on the left axis; on the right it shows the reference interest rate of Banxico. Banxico practically doubled its reference rate between July 2016 and July 2017.

This post was published at Ludwig von Mises Institute on November 6, 2017.

Bank of Mexico: Bread Today, Hunger Tomorrow

In April 2017, the Bank of Mexico transferred an unprecedented figure to the federal government: 321,653 billion Mexican pesos from its operating surplus. How much is this figure? It is equivalent to 1.7% of Mexico’s GDP – 25% of Guatemala’s GDP – and to 22% of the total revenue budget of the Mexican government.
What is Banxico’s Operating Surplus?
Essentially all of Banxico’s profits are a result of the appreciation in the value of the bank’s foreign exchange reserves in pesos. At the beginning of 2016, the Bank of Mexico’s dollar reserve was of 176,736 billion dollars. By the end of 2016, the bank had almost the same amount in reserves. However, in January the peso was trading at 17.35 to the dollar, and in December at 20.62 a dollar.

This post was published at Ludwig von Mises Institute on Sept 5, 2017.

How Did Things Get This Bad This Fast for Oil Giant, Pemex?

A slew of reasons. But one stands out, and it’s not the price of oil.
One of the biggest surprises awaiting seasoned travelers to Mexico these days is the daily sight of privately branded gasoline stations. For the past eight decades Mexican drivers had only one choice of filling station: state-owned oil behemoth Petrleos de Mexico (A. K. A. Pemex). Now they have six.
Of the first five private companies to open operations in the sector, three were Mexican (Hidrosina, La Gas, and Oxxo Gas) and two were US-based (Gulf and Petro-7). From 2018, foreign operators will even be allowed to sell imported gasoline from the gas stations they operate. It will be the first time since Mexico’s oil industry was nationalized, in 1938, that non-Mexican gasoline will be legally sold from non-Mexican gas stations.
This massive increase in competition is yet another big blow for an already debilitated Pemex and its myriad partners, for whom the retail business is (or at least was) a vital source of funds and profits, generating roughly 730 billion pesos ($36 billion) of revenues a year. Debt-burdened Pemex needs every peso it can get its hands on.

This post was published at Wolf Street on Aug 27, 2017.

Mexican Peso Tumbles As Trump Repeats Border Wall, NAFTA Threats

We are in the NAFTA (worst trade deal ever made) renegotiation process with Mexico & Canada. Both being very difficult, may have to terminate?
— Donald J. Trump (@realDonaldTrump) August 27, 2017

While much of Trump’s Sunday tweets have focused on the government response to the devastation resulting from the historic Texas and Houston flooding as Tropical Storm Harvey is expected to unleash as much as 40 inches of rain, the US president managed to sneak in a few threats to his North American neighbors, reiterating what he has periodically said, most recently last week, that the U. S. may cancel the North American Free Trade Agreement.
Trump also said that “with Mexico being one of the highest crime Nations in the world, we must have THE WALL. Mexico will pay for it through reimbursement/other.”

This post was published at Zero Hedge on Aug 27, 2017.

SocGen: “It’s All About A Total Eclipse Of The Currency Sun Today…”

According to SocGen’s currency strategist Kit Juckes one main reason why Bitcoin and cryptos in general are doing so well today is because “it’s a feature of the low-inflation era that very few governments or central bankers want a strong currency.” As has been extensively observed over the past decade, “strong currencies depress inflation, at least temporarily, and if their impact on competitiveness is exaggerated, it’s still enough to make them take the blame for jobs being lost to other cheaper-currency producers.”
As Juckes then poetically summarizes, “once upon a time all this was offset by a sense that a strong currency was a sign of national virility, but such superstition is pass. It’s all about a total eclipse of the sun, today.”
Of course, the problem with no-one wanting a strong currency, “is that someone has to lose out. This year, the winner in the FX stakes, (or loser, in a topsy-turvy world where a strong currency is no kind of blessing) is the Mexican peso, reflecting two of the main underlying themes in markets: Trump deflation and the strong current of cash flowing towards emerging markets.” Meanwhile, the strength of the Zloty and Koruna “reflects the fact that the real winners from the European economic recovery aren’t in the euro area but are countries held back by European policies. SEK and NOK both still look like winners.”
So with the general U. S. population fascinated with the first full solar eclipse in 99 years…

This post was published at Zero Hedge on Aug 21, 2017.

Two of Mexico’s Biggest Bugbears Surge Again

Footloose hot money that has flooded Mexico can quickly dry up.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. After several consecutive months of predominantly positive developments, including the governing Institutional Revolutionary Party’s recent electoral victory in its key state, Estado de Mexico, the outlook for Mexico’s economy is no longer negative; it’s stable. That’s according to rating agencies, Fitch and Standard’s & Poor.
It’s a remarkable turnaround for a country that began the year in the most ominous fashion, with a crumbling currency, surging inflation and a popular revolt against gasoline price hikes.
But the peso, after plumbing to new depths of 22 pesos to the dollar on January 19, has clawed its way back to 17.8 pesos to the dollar – a 22% surge in just seven months.
Despite its fortifying currency, Mexico’s historic bugbear of inflation continues to grow. Consumer prices, as measured by the national consumer price index, soared 6.44% in July compared to a year ago. It was the sharpest annual inflation rate increase since December 2008. It has now accelerated for the thirteenth month in a row.

This post was published at Wolf Street by Don Quijones ‘ Aug 11, 2017.

El-Erian Exposes The Upside And Downside Of Liquidity-Driven Markets

Authored by Mohamed El-Erian via Bloomberg.com,
Over the past few months, government bond yields have fallen, the dollar has weakened and financials have underperformed, yet the major stock indexes are at or very near record highs, as persistently supportive liquidity conditions have more than compensated for policy and growth disappointments.
By boosting returns and repressing volatility, ample liquidity is a gift for investors. It makes the investment journey pleasing, comfortable and lengthy. But it is not a destination.
With the exception of buoyant stocks market indexes, it is hard to find many financial markets that have managed to retain their post-U. S. election mood. Specifically:
After climbing to 2.60 percent, the yield on 10-year Treasuries has fallen to below 2.30 percent. The yield differential between U. S. Treasuries and German Bunds has narrowed from more than 220 basis points to just 170 basis points. The widely followed DXY dollar index, which reached a high of 103 on Dec. 28, has depreciated sharply to 94, a level not seen since August of last year. The Mexican peso has appreciated to its strongest level in a year, after falling sharply on fears of U. S. protectionism.

This post was published at Zero Hedge on Jul 21, 2017.

Doug Noland: Yellen on Inflation

This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
Global Markets rallied sharply this week. The DJIA rose 223 points to a record 21,638. The S&P500 gained 1.4% to a new all-time high. The Nasdaq100 (NDX) surged 3.2%, increasing 2017 gains to 20.0%. The Morgan Stanley High Tech Index rose 3.4% (up 24.6% y-t-d), and the Semiconductors surged 4.7% (up 21.8%).
Emerging markets were notably strong. Equities rallied 5.0% in Brazil, 5.5% in Hong Kong, 5.1% in Turkey, 2.5% in Russia, 2.2% in Mexico and 2.1% in India. The Brazilian real gained 3.2%, the Mexican peso 3.0%, the South African rand 2.7% and the Turkish lira 2.3%. Global bond markets also rallied. Yields (local currency) dropped 27 bps in Brazil, 18 bps in South Africa, 16 bps in Turkey and 22 bps in Argentina. Here at home, five-year Treasury yields dropped eight bps (to 1.87%). U. S. corporate Credit also enjoyed solid gains. Across global markets, it appeared that short positions were under pressure.
Markets reacted with elation to Janet Yellen’s Washington testimony – widely perceived as dovish. In particular, the chair’s timely comments on inflation were cheered throughout global securities markets. A headline from the Financial Times: ‘Fed Chair Yellen’s Inflation Concern Buoys Markets.’ And Friday afternoon from Bloomberg: ‘S&P 500 Hits Record as Inflation View Turns Iffy’.

This post was published at Wall Street Examiner by Doug Noland ‘ July 15, 2017.

Faced With Rampant Inflation, Argentines Turn to Barter

Instead of selling his soybeans for devalued pesos, Gustavo Tione exchanged 30 tons of soy for about 8,000 liters of diesel from the state-run oil company. This is just one example of a growing barter economy in Argentina as a 24% inflation rate rapidly erodes the value of the country’s currency.
As Bloomberg reports, the rise of barter is simple economics. Commodities hold their value better than than cash.
So, why bother with fiat currency if you don’t have to?
Barter is the most basic economic transaction. You give me something I want or need. In exchange, I give you something you want or need.
YPF, the Argentine energy company, uses barter to bypass the peso. The company barters with farmers, trading fuel for wheat, soy, and corn, and then sells it on the dollar-based export market for grain. Of course, this scheme will fall apart if the dollar crashes. Nevertheless, it illustrates the power of barter.

This post was published at Schiffgold on JULY 12, 2017.

US Treasury Secretary Mnuchin Still Interested In Ultralong (High Duration) Sovereign Debt As Argentina Sees strong demand for surprise 100-year bond

This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.
US Treasury Secretary Steve ‘The Munchkin’ Mnuchin said on Bloomberg News today that Treasury is still considering issuing ultra-long sovereign debt. This comes on the news that Argentina is issuing a 100 year sovereign bond that is in hot demand. Reuters – Argentina sold $2.75 billion of a hotly demanded 100-year bond in U. S. dollars on Monday, just over a year after emerging from its latest default, according to the government.
The South American country received $9.75 billion in orders for the bond, as investors eyed a yield of 7.9 percent in an otherwise low yielding fixed income market where pension funds need to lock in long-term returns.
Thanks to a stronger-than-expected peso currency, the government has increased its overall 2017 foreign currency bond issuance target to $12.75 billion from its previous plan of issuing $10 billion in international bonds, Finance Minister Luis Caputo told reporters in Buenos Aires.

This post was published at Wall Street Examiner by Anthony B Sanders ‘ June 20, 2017.

Mexican Industrial Production Crashes In April

Delayed blowback from Trump? Mexico’s Industrial Production crashed 4.4% in April – the biggest drop since Oct 2009 – with manufacturing dropping 1.7% after surging 8.5% in March.
This is the 3rd MoM drop in a row (and biggest MoM drop since Nov ’15)…
However, Manufacturing was not the worst of it as Mining plunged 9.6% YoY, Utilities declined 3.0%, and Construction tumbling 6.5%.
Whether it is the recent surge in the peso or fears oif trade wars, this is a somewhat unprecedented and sudden downshift.
SOURCE

This post was published at Zero Hedge on Jun 9, 2017.

Peso Pounded As Political Risk Re-Emerges In Mexico

The Mexican peso tumbled more than 1% this morning, more than every other major emerging-market currency except the South African rand.
Bloomberg reports that traders were anticipating a victory for the opposition Morena party in this weekend’s gubernatorial elections in the state of Mexico, according to Win Thin, Brown Brothers Harriman & Co.’s head of emerging markets in New York.
And the peso is back at one-week lows

This post was published at Zero Hedge on May 30, 2017.

Stocks Jump As Dollar Dumps And Bitcoin Explodes To Record Highs

Just because it made us laugh…
***
As Bloomberg notes, the S&P 500 climbed for the third consecutive session as President Donald Trump’s trip to Saudi Arabia netted deals that lifted defense shares. The euro remains firm having pared gains from Chancellor Angela Merkel’s comment referring to the single currency as ‘too weak.’ The 10-year Treasury yield climbed above 2.25% while gold rose and crude climbed to the highest in a month as Saudi Arabia said all producers agree on extending output cuts. Brazil’s real trimmed losses after the top court suspended its ruling on President Temer, while Mexico’s peso gained as interest rate differentials temporarily overshadow NAFTA concerns.

This post was published at Zero Hedge on May 22, 2017.

Trump Explans Why He Flipped On NAFTA: Canadian, Mexican Leaders Called Me To Renegotiate

In one of the most striking reversals for President Trump to date, as reported earlier, just hours after the White House said the president is contemplating terminating NAFTA before his 100th day, sending the loonie and peso crashing, Trump reversed his position and as Bloomberg put it, made a “huge U-turn” in his NAFTA stance, allowing the trade agreement to continue after he spoke with the presidents of Mexico and Canada about ways to renegotiate the accord.
‘Both conversations were pleasant and productive. President Trump agreed not to terminate Nafta at this time and the leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the Nafta deal to the benefit of all three countries,” the White House said in a statement late Wednesday. Needless to say, currency traders were turmoiling, first watching Mexico’s peso and Canada’s dollar plunged then surge after the White House’s Wednesday night announcement.
As Bloomberg added, Trump’s top advisers had been embroiled in a debate over how aggressively to proceed on reshaping U. S. participation in Nafta, with hard-liners favoring a threatened withdrawal as soon as this week and others advocating for a more measured approach to reopening negotiations with Canada and Mexico.
This morning, it appears that Trump has gotten an earful on his latest stark reversal, and as a result the president took to twitter, tweetsplaining the motives behind his move. This is what he said:
‘I received calls from the President of Mexico and the Prime Minister of Canada asking to renegotiate NAFTA rather than terminate. I agreed’ Trump tweeted, and in a following tweet added “subject to the fact that if we do not reach a fair deal for all, we will then terminate NAFTA.” He concluded: “Relationships are good-deal very possible!’
I received calls from the President of Mexico and the Prime Minister of Canada asking to renegotiate NAFTA rather than terminate. I agreed..
— Donald J. Trump (@realDonaldTrump) April 27, 2017

This post was published at Zero Hedge on Apr 27, 2017.

Trump Changes Mind On NAFTA, Decides Not To Terminate Treaty; Loonie, Peso Soar

President Trump assured a sleepless night for currency traders when in the span of just a few hours, he appeared to change his mind on NAFTA by 180 degrees, and shortly after White House officials disclosed that the president was contemplating an executive order to exit NAFTA, perhaps in days, late on Wednesday Trump told the leaders of Canada and Mexico on Wednesday that he will not terminate the NAFTA treaty at this stage, but will move quickly to begin renegotiating it with them, a White House statement said.
The White House had been considering an executive order exiting NAFTA as early as Trump’s 100th day in office on Saturday, Politico reported n Wednesday, but there was a split among his top advisers over whether to take the step. As Reuters first reported, the White House said Trump spoke by telephone with Mexican President Enrique Pena Nieto and Canadian Prime Minister Justin Trudeau and that he would hold back from a speedy termination of NAFTA, in what was described as a “pleasant and productive” conversation.

This post was published at Zero Hedge on Apr 27, 2017.

Peso Plunges As White House Plans NAFTA Withdrawal Executive Order

The Mexican Peso is tumbling (and Loonie extending yesterday’s timber-tariff-driven losses), as Politico reports, the Trump administration is considering an executive order on withdrawing the U. S. from NAFTA, according to two White House officials.
Politico reports that a draft order has been submitted for the final stages of review and could be unveiled late this week or early next week, the officials said. The effort, which still could change in the coming days as more officials weigh in, would indicate the administration’s intent to withdraw from the sweeping pact by triggering the timeline set forth in the deal.
The approach appears designed to extract better terms with Canada and Mexico, and judging bvy the FX market’s reaction, they agree…

This post was published at Zero Hedge on Apr 26, 2017.

Gold and Silver Best Performing Assets In Q1, 2017

– Gold, silver two of the best performing assets in the first quarter of 2017 with gains of 8% and 14% respectively
– Gold outperforms benchmarks – S&P 500 up 6%, MSCI (All Country World Index) up 6.4% (see tables)
– Nasdaq and German DAX rise 11.8% and 7.6%
– Silver best performing currency in quarter
– Five best performing currencies in Q1 are in order – silver, bitcoin, Mexican peso, Russian ruble and gold
– Gold’s biggest quarterly gain since Q1 16, when rose 16%
– Gold has seen gains in 8 of the last 10 first quarters
– Palladium and platinum gain 17.7% and 5.2% respectively
– Uncertainty over Trump’s economic and foreign policies and geo-political risks from Brexit and elections in the EU lead to safe haven demand for gold and silver bullion

This post was published at Gold Core on April 3, 2017.

Doug Noland Q1: Sure Bets That Weren’t

This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
An intriguing first quarter. The year began with bullish exuberance for the Trump policy agenda. With the GOP finally in control of Washington, there was now little in the way of healthcare reform, tax cuts/reform, infrastructure spending and a full-court press against regulation. As Q1 drew to a close, by most accounts our new Executive Branch is a mess – the old Washington swamp as stinky a morass as ever. And, in spite of it all, the global bull market marched on undeterred. Everyone’s still dancing. From my perspective, there’s confirmation that the risk market rally has been more about rampant global liquidity excess and speculative Market Dynamics than prospects for U. S. policy change.
It’s not as if market developments unfolded as anticipated. Key ‘Trump trades’ stumbled – longs and shorts across various markets. The overly Crowded king dollar faltered, with the Dollar Index down 2.0% during Q1. The Mexican peso reversed course and ended the quarter up 10.6% versus the dollar, at the top of the global currency leaderboard. The Japanese yen – another popular short and a key funding instrument for global carry trades – jumped 5% . China’s renminbi gained 0.84% versus the dollar. WSJ headline: ‘A Soaring Dollar and Falling Yuan: The Sure Bets That Weren’t’

This post was published at Wall Street Examiner by Doug Noland ‘ April 1, 2017.