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Mexico City (Apro/Fortuna). Uncertainty spreads in Mexican financial markets in the week following the June 2 election. The last day of trading resulted in a daily depreciation of the peso of 2.08%, closing at the level of 18.4540 units per dollar after reaching a high of 18.4610. Operators said that the currency will now move towards 18.60 due to tensions in the Inter Milan auction.
The main index of the Mexican Stock Exchange (BMV) also suffered, falling by 1,499.93 points, or 2.75%, to 52,977.32. The weekly balance in both cases was in the red, with the peso depreciating by 8.10% and the BMV leading index S&P/BMV IPC falling by 3.99%.
Analysts confirm that the statements made by President Andrés Manuel López Obrador on Friday in a morning meeting in support of a series of reforms supported by the new relevant Congress to be formed in September are detrimental to the functions of autonomous organizations and the judiciary, key to the balance of power. “Investor risk aversion has increased in Mexico,” said an analytical director.
López Obrador told media earlier on Friday that justice comes before markets in the face of the cost of proposing 18 controversial constitutional reforms before the end of his term, emboldened by the election results in which his party secured majorities in both houses of Congress.
Jorge Gordillo, director of analysis at CI Banco, stressed that the market is particularly anxious about judicial reform. “The interpretation given by the market is that the reform will go ahead regardless of how asset prices denominated in Mexican pesos react,” Gordillo stressed in an email to clients this week.
The president claimed at the meeting that the negative impact on the peso was not serious and that fluctuations in the exchange rate were normal. The tensions caused the exchange rate to rise to 18.30 per dollar in the first two hours of trading from 17.89 pesos at Thursday’s close, when it also depreciated by more than 2%.
These comments came despite attempts the day before by the candidate-elect and his successor, Claudia Sheinbaum of the Morena party, to calm the situation with more conciliatory speeches to the media about the moves.
Last Tuesday, Finance Minister Rogelio Ramírez de la O did the same to investors after the “fateful” Monday, with the market giving a kind of repudiation of the highly concentrated power that the ruling party will have according to the election results and their implications for constitutional reform.
The local currency has depreciated 8.3% so far this year, while the S&P/BMV IPC index fell 7.7% on Friday, marking its fourth consecutive week of adjustment.
Janneth Quiroz, Roberto Solano and André Maurin of Monex Financial Group believe that although there are some factors that have helped the peso to get some “respite” this week compared to Monday’s volatility, the high uncertainty of what will happen in the coming months will affect the peso’s trend and become a constant in the eyes of investors.
“The market will be watching for any signs from the government of Claudia Sheinbaum. The best thing for her would be to distance herself politically from President López Obrador. She still benefits from the market and can use this to smooth out volatility,” said Gabriela Siller, director of analysis at Banco Base.
The executive branch faces a Sept. 8 deadline to present to the new Congress an economic package for 2025 that must detail targets for reducing the fiscal deficit, which this year is set to be the largest in decades. Sheinbaum will be sworn in as Mexico’s first female president on Oct. 1.
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