Evercore ISI Mexico Mexico- Weekly Economic Perspectives

Transcription

1 Karen Kaiser February 9 th, 18 Carlos del Paso cpaso@evercore.com.mx Highlights of the week Early consumer data of January show signs of a weaker domestic demand. Industrial production in December presented a contraction. However, early data on autoproduction show a recovery in manufacturing driven by exports. The lag in gross fixed investment widened in November. Monthly inflation in January came at.% y/y (Core.% y/y, Non-core 8. y/y). As expected Banco de México, in its last Monetary Policy Meeting, increased the interest rate by bp to 7.%. MXN Exchange Rate %* US 1-Year Yield.8% 1.1 bp* Mexico 1-Year Yield 7.7% 1 bp* Yield Spread bp* *weekly change Consumption (%, y/y, index, 3=1) Real Manufacturing Activity and Auto-Production (trend, index, 8=1) /1 7/1 1/1 7/1 1/17 7/17 1/18 Domestic Car Sales (%, y/y) Walmex Total Sales (%, y/y) Consumer Confidence Index (R) Manufacturing Activity Auto-Production (R) Source: Evercore, INEGI, Walmart Mexico, AMIA. 1/

2 In detail Early consumer data of January show signs of a weaker domestic demand The first data published for January show signs of further deceleration of the domestic demand. Even though Walmex sales increased 8.7% y/y and presented a better outcome than in 17, the number of autos sold (-11.% y/y) and consumer confidence (-.3 points m/m) exhibited a contraction. Using a simple regression model we estimate that the negative indicators outweigh the positive, and expect a slower annual growth rate for consumption in January, than in the previous year. Industrial production in December presented a contraction. However, early data on auto-production show a recovery in manufacturing driven by exports In December, industrial production presented a real growth rate of -.7% y/y generated by a decrease in all of its components except for construction. Manufacturing activity in the last month of 17 decelerated -.1% y/y in real terms. However, January data on produced units of motor vehicles show strong growth (% y/y) driven by exports (9.% y/y) that anticipates a recovery in manufacturing activity in the first month of 18. The lag in fixed net investment widened in November Real gross fixed Investment in November contracted -.% y/y due to a decrease in non residential and residential construction (-.% y/y and -7.% y/y, respectively). The investment in November widened the accumulated real annual gap in investment to -1.8% y/y wrt 1. Auto Exports & Production (%, y/y) Real Gross Fixed Investment (%, y/y) Production Exports 1/11 17/11 Source: Evercore, INEGI, AMIA. /

3 Monthly inflation in January came at.% y/y (Core.% y/y, Non-core 8. y/y) Monthly inflation in January was.3% m/m (our forecast.9% m/m); Core.8% m/m, and Non-core (1.% m/m). Within Core inflation services hiked.% as a result of an increase in the second half of the month in educational an other services. Merchandises showed an inflation of.% m/m driven by food (.9% m/m) and non food (.7% m/m). Although in the second half of January these components presented slower growth, the overall monthly growth exhibited an important increase. Non-core inflation increased 1.% m/m. Agricultural prices grew.3% m/m pushed down by fruits and vegetables (-1.93% m/m) and up by livestock products (1.3%). Energy products continued with a high surge in the second half reaching.% m/m. LP gas and low & high octane Gasoline showed growth rates higher than %. Monthly Inflation (%, y/y) Merchandise Inflation (%, y/y) /1 7/1 1/1 7/1 1/17 7/17 1/18 Headline Core Non Core (R) /1 7/1 1/1 7/1 1/17 7/17 1/18 Merchandise Processed Food Non Food Merchandise Source: Evercore, INEGI. 3/

4 Monetary Policy As expected Banco de México, in its last Monetary Policy Meeting, increased the interest rate by bp to 7.%. We agree with the press release in it s assertion that the balance of risks of inflation are skewed upwards. As the main risk persist the depreciation of the peso as a result of the NAFTA renegotiation talks and the Mexican Electoral Process. However, we also consider as an upside risk the recent surge in volatility in the financial markets that has increased the peso volatility. While we anticipate this as a temporary shock, it could become a risk for inflation if it persists. In the press release Banxico states that in the scenario where the negative shocks to inflation that occurred in 17 do not happen in 18, the inflation should converge to the 3% target in 1Q19. Nonetheless, our estimations anticipate that convergence will take longer. We expect an inflation of.1% y/y by end of 18. MXN Volatility /3/17 1//17 1/7/17 1/9/17 1/11/17 1/1/ Source: Evercore, Bloomberg, INEGI. MXN Volatility VIX Index (R) /

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