MXN: Trade agreement is unambiguously positive for Mexico - TDS

The agreement between Mexico and the U.S. on a modernized trade agreement is unambiguously positive for Mexico, according to Sacha Tihanyi, Deputy Head of Emerging Markets Strategy at TD Securities.

Key Quotes

“While the constructive rhetoric of recent weeks had led the market to price-in more risk of a positive outcome, there remains some uncertainty over Canadian participation and ultimate legislative ratification.”

“We see the most positive outcome for Mexico to include Canadian participation and an effective preservation of the long-standing trilateral trade relationship, even if under a different name.”

“This should ensure increased MXN stability and open the door for Banxico to see lessened upside inflation risks, though it is still too early for outright dovishness.”

“Focus should now turn to what we view as the key Mexico risk going forward, fiscal planning of the incoming government and the impact on Mexico's sovereign risk profile.”

“We however do expect a more constructive macro investment environment for the country, and accordingly for fixed income inflows to improve.”