Andrés Manuel López Obrador (AMLO) has been elected president of Mexico with more than 50% of the votes. According to analysts from TDS, the Mexican peso and rates have traded on the weak side, but as expected, helped by encouraging words from President-elect following his win. They see NAFTA negotiations as the key near-term risk factor for Mexico, though they warn that the immediate fiscal plans of the new Mexican administration and the impact on Mexico’s longer-term fiscal trajectory remains an important non-trade risk factor.
Key Quotes:
“The Morena-led coalition has also recorded very strong showings in the lower house and senate. While votes are still being tallied, the trend does suggest a majority, though the qualified majority is as of yet uncertain.”
“There remains the risk that NAFTA discussions turn acrimonious, as the U.S. side has shown little interest in backing down from demands that both Canada and Mexico find unworkable (including the sunshine clause and minimum wage requirements for auto workers). AMLO will require his representatives at future NAFTA discussions attended by Mexico’s now lame-duck government, and the path forward is clouded by the interim period between the election and December 1, when President-elect Lopez Obrador takes office.”
“The FX and rates reactions appear generally in line with our expectations of a stronger than base case win by the Morena-led coalition, with weakness in both, but not inordinate enough to imply a shift in our view on Banxico or the peso. Mexican markets will in our view be most influenced by broad USD dynamics, and NAFTA developments, which will remain generally unconstructive for MXN in the near term.”
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