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Industrial Production in Mexico Drops

December 12, 2024 (Investorideas.com Newswire) Investorideas.com, a go-to platform for big investing ideas releases market commentary from Quasar Elizundia, Expert Research Strategist at Pepperstone.

"The Mexican peso has registered a marginal decline against the US dollar, with the USD/MXN pair rising by 0.2% during the session. This movement largely reflects disappointing domestic economic data, which has intensified concerns about structural issues in key sectors of the Mexican economy.

Industrial production in October fell by 1.2% month-over-month, significantly worse than expected. The mining and construction sectors stood out with sharp declines: mining contracted by 1.9% monthly and 6.8% annually, while construction saw a slight monthly increase of 0.5%, but an annual decline of 8.9%. Although the energy, water, and gas sector showed moderate growth of 0.4% monthly and 1.4% annually, its contribution is insufficient to shift the overall outlook.

Manufacturing also showed weakness, with a monthly decline of 1.9%, driven by supply chain disruptions and high production costs. This scenario reinforces concerns about the Mexican economy's capacity to sustain stronger economic development.

In the international context, mixed data from the United States further exacerbates the situation. While jobless claims unexpectedly rose, reflecting increased pressure on the labor market, and the core inflation of the Producer Price Index (PPI) decelerated, the headline PPI exceeded expectations, generating uncertainty about the Federal Reserve's upcoming decisions.

The Fed is expected to announce a 25-basis-point rate cut in its next meeting, but a hawkish stance on future cuts could continue pressuring the Mexican peso. Additionally, the currency's performance will depend on upcoming domestic data, such as private spending and retail sales. Negative data could reintroduce selling pressures, while positive surprises could offer additional relief for the peso.

In conclusion, the Mexican peso faces a challenging environment, influenced by domestic weaknesses and an uncertain global dynamic. The combination of disappointing economic data in Mexico and uncertainty surrounding US monetary policy highlights the need for a cautious approach to the USD/MXN."

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