Latam Daily: Weak Mexican Investment and Consumption, U.S. Imports Surge

• Mexico: Sixth straight fixed investment decline; private consumption contraction deepens 

Markets are trading with a relatively negative tone as recent optimism is checked somewhat by a lack of positive developments on the international trade front while we look ahead to the Fed’s decision tomorrow afternoon. Ford halting guidance, yesterday, due to tariffs is also a headwind for sentiment, while European markets took a hit from Germany’s Merz failing a confirmation vote in Parliament before being confirmed in a second vote just a moment ago. It was an otherwise quiet overnight session where U.K. markets reopened from holidays. The release of final PMIs in Europe with small revisions higher for the Eurozone and the UK had limited impact on sentiment. U.S. equities are about 0.5% weaker in early trading, in line with losses in the Eurozone while U.K. stocks trade flat. Japanese equities gained ~1% despite reports that trade negotiations with the U.S. are not going all that well. Bear steepening in EGBs and antipodean rates stands in contrast to twist steepening USTs and gilts. Oil is bouncing back 3.5% today as the market starts to call the bottom for prices while iron ore and copper are roughly 1% firmer. Currencies are mixed against the USD, as the JPY leads on a ~1% gain while the MXN and BRL lag on 0.2% and 0.5% declines, respectively.

U.S. international trade data for March published this morning showed an (expected) surge in imports as domestic buyers rushed ahead of tariffs. Total U.S. imports jumped 32.2% y/y in March (+71% y/y from the Eurozone) to complete a 25.5% spike for the quarter. U.S. imports from Mexico surged 15.4% y/y following a relatively muted gain in February of 3.5% where leap-year base effects likely softened the headline figure. Recall that on March 4^th the White House imposed 25% tariffs on Canada and Mexico before narrowing their imposition to non-USMCA compliant goods from March 7^th. In the lead-up to a possible end to USMCA exemptions or another tariffs wave, firms ramped up imports from Mexico and Canada, although U.S. imports from the latter ‘only’ rose 4.2% (slower than February’s 4.6% rise). As for China, tariffs imposed in the year to March seemed to have already weighed on U.S. imports from the country, with a decline of 1.9% y/y in the month after a 0.8% drop in February that followed a 16.3% jump in January.

The Latam day ahead is quiet outside of the release of the minutes to last week’s BanRep rate decision. As our team in Colombia anticipated, officials in the country voted for a 25bps rate cut with the backing of macroeconomic fundamentals, namely inflation resuming its downtrend in headline terms while core inflation continues its deceleration. In the minutes, we’ll be looking for whether dovish board members floated the possibility of a larger rate cut (as they had voted for a 50bps move in the March decision) and gauge the chance that BanRep may cut again at the late-June announcement—for which markets are pricing in a 25bps move, followed by about an 80% chance of a cut in late-July. The current terminal rate implied by markets is in the 8.00-8.25% range. 

—Juan Manuel Herrera

MEXICO: SIXTH STRAIGHT FIXED INVESTMENT DECLINE

In February, gross fixed investment marked a sixth consecutive month of declines, falling by 7.8% y/y (-7.0% previously). Within the components, machinery and equipment slowed to -10.4% y/y from -3.2%; specifically, the domestic subcomponent decreased by -3.2% (-3.4% previously), and the imported component dropped by -15.1% (-3.0% previously). Construction remained weak, falling -5.2% (-10.4% previously), marking seven consecutive months of contraction. Within construction, non-residential investment declined by -18.0% (-16.8% previously), while residential investment rebounded by +14.1% (-1.8% previously). On a seasonally adjusted monthly comparison, gross fixed investment showed a slight increase of +0.1% m/m (-1.6% previously), with construction rising 1.7% m/m, while machinery and equipment fell by -1.1%. Looking ahead, we believe that both internal and external uncertainty and volatility will lead to greater risk aversion, potentially resulting in a year of continued declines in investment.

PRIVATE CONSUMPTION CONTRACTION DEEPENS

Private consumption deepened its annual decline in February, falling from -1.3% to -1.9%, marking three consecutive months of contraction. Breaking it down, domestic goods fell by -0.5% (-1.0% previously), although there was a rebound in durable goods (10.0%) and a slight increase in semi-durable goods (+0.5%), which offset the decline in non-durable goods (-2.2%). Meanwhile, services moderated to 0.3% (1.5% previously). On the other hand, imported goods dropped by -9.2%, extending their downward trend to four consecutive months. On a seasonally adjusted monthly basis, private consumption rebounded by 1.2% (from -0.3% previously), driven by a recovery across all three components: imported goods rose by 2.7% (0.0% previously), domestic goods increased by 2.1% (-0.3% previously), and services edged up by 0.3% (0.1% previously). We believe the rebounds in February and March may reflect anticipatory behavior by economic agents considering a potential economic slowdown and weaker job creation, which could weigh on consumption going forward.

—Rodolfo Mitchell, Brian Pérez & Miguel Saldaña