FXstreet.com (Barcelona) - Nomura Strategists Benito Berber,
Charles St-Arnaud and Jens Nordvig comment that they have closed
their short CANMXN position for a small gain because of their short
term bearish view on MXN.
With respect to Canada, they remain bearish on CAD. Indeed, with
Canadian oil continuing to sell at a discount of more than $50 a
barrel relative to Brent, costing the economy about C$2.5bn per
month (1.6% of GDP per year) in lost revenues, they remain bearish
on CAD and will be exploring other ways to express their view.
In the very short term they have turned bearish MXN. However, in
the medium term we retain their constructive view on Mexico and
believe MXN will trade at 12.00 by the end of 2014. Recent
developments indicate that MXN appreciation could hit some
turbulence in the short term including the following:
Firstly, yesterday, the Mexican government postponed sending the
energy proposal (that would open up the oil/gas sector to
international private investment) to congress until 2H 2013 instead
of submitting it in February. The passage of the energy bill should
generate an increase of US$10-20bn in investment (most of it from
foreign companies, in our view) in the next five years. The passage
of the energy bill is one of the cornerstones of their bullish MXN
medium term view.
Secondly, while they continue to be optimistic about the reform
agenda, with both energy and fiscal proposals passed by year-end,
they believe the delay of the energy bill discussion will have a
short negative impact on the market.
They feel that the long-MXN position is heavily crowded. The net
long-peso position of non-commercials (as a percentage of all
long-peso positions) is near historic highs at 82% in the Chicago
futures market. While it is very difficult to assess how crowded
the position is in the spot and forward markets, the information
from the Chicago‟s IMM is important as it is very close to historic
Finally, they expect growth data in Mexico to disappoint in the
coming months. The economy is decelerating sharply after expanding
at around 4.6% y-o-y since 2009. However, the monthly GDP growth
for September 2012 (the latest GDP data released) was surprisingly
low at 1.3%.
However, they write, "our medium-term view, particularly if the
reforms are passed, is for potential GDP to start expanding in 2014
from 3.0% to possibly 4.5%. In addition, our medium-term outlook
for the manufacturing sector remains particularly constructive on
the back of cost advantages with respect to China and the come-back
of the manufacturing sector in the US.
"However, in the short term we believe economic indicators will
disappoint in line with a weak start for growth numbers in the US
(our US Economics team revised its 1Q 2013 GDP forecast to 0.5%
from 0.6% q-o-q annualized). 1Q 2013 looks set to be the worst
quarter of the year for Mexican GDP, with growth numbers between
1.0% and 2.0% y-o-y. This would surely have an impact on the
market, particularly in the absence of good news with respect to
imminent passage of the reforms."