20180614-法国巴黎银行-Mexico__Banxico_–_forewarned_is_forearmed_8页_384kb

Summary of the Document: Mexico - Banxico and Market Outlook

Core Content

This document provides an analysis of the Mexican central bank (Banxico) policy outlook and market implications for the second half of 2018 and early 2019. It is authored by economists and strategists from BNP Paribas and outlines their current views on interest rates, inflation, and the broader economic and political environment in Mexico.

Main Views

1. Banxico Policy Outlook

• Easing Cycle Delayed: The forecast for the start of Banxico's easing cycle has been moved from Q4 2018 to Q1 2019.
• H2 2018 Less Optimistic: The second half of 2018 is expected to be less positive than previously thought, both internally and externally.
• Expected Rate Hike in June: The authors expect Banxico to raise the policy rate by 25 basis points (bps) at its June 21 policy meeting.
• Rate Cuts to Begin in Q1 2019: A total of 150 bps in rate cuts are forecast for 2019, down from the earlier 200 bps, with the first cut expected in March 2019.

2. Economic and Political Risks

• Protectionist Rhetoric: Increased protectionist sentiment, particularly around NAFTA, is a key concern for the short term.
• FX Pass-Through Risk: A stronger US dollar may increase inflationary pressures, prompting a more cautious monetary stance.
• Congress Elections Impact: The outcome of the Congress elections may lead to market-unfriendly policies, though the baseline scenario assumes no radical changes.
• Political Uncertainty: The authors acknowledge the potential for political uncertainty in H2 2018, especially following the change in government on December 1, 2018.

3. Interest Rate Strategy

• Avoiding MXN Exposure: The authors have reduced their exposure to the Mexican peso and instead focused on interest rate instruments.
• TIIE Strategy: They are positioned to receive 1y1y TIIE due to the high premium in the front end of the curve.
• Tactical Trades: They maintain three relative value trades:
  • TIIE fly (2s5s7s)
  • Receive 5y TIIE against 5y IBR (Mexico)
  • Receive 5y5y TIIE against 5y5y US swaps
• TIIE Premium: The current premium for the 1y1y TIIE is almost 8.20%, which is seen as attractive for positioning.

Key Information

• Inflation Outlook: CPI is expected to reach 3.5% by year-end, but inflationary uncertainties are likely to persist into H2 2018.
• Chart References:
  • Chart 1: Shows the tone of Banxico's policy communications.
  • Chart 2: Compares the policy rate with headline and core CPI.
• Legal Disclaimer:
  • The document is non-independent research and is a marketing communication.
  • It is not investment research and is not subject to the independence requirements under MiFID II.
  • BNPP may have conflicts of interest due to its involvement in investment banking and other services.
  • The information is for professional clients and relevant persons only.
  • No guarantee is given regarding the accuracy or completeness of the information.
  • Indicative prices are not actual transaction terms and may vary significantly.
  • The document may include back-tested performance data, which is for illustrative purposes only.

Conclusion

The authors suggest a more cautious approach to monetary policy due to external and internal uncertainties, including protectionist rhetoric, FX volatility, and political changes. While they expect a rate hike in June 2018, the easing cycle is anticipated to begin in Q1 2019 with a total of 150 bps in cuts. Their interest rate strategy emphasizes the value of TIIE instruments, particularly in the front end of the curve, and they maintain a number of relative value trades. The document is intended for professional use and includes important legal and regulatory disclosures.