Mexico\u2019s year-on-year gross domestic product growth was 0.1% in the first quarter. This was below the expected 0.8%.<\/p>\n
The result points to slower economic growth compared with forecasts. The figures compare actual performance with the market expectation for 1Q.<\/p>\n
The first quarter growth of 0.1% was a significant shock, falling well below the 0.8% we all expected. This data immediately weakens the case for the Mexican Peso, which has been propped up by high interest rates and a stable growth story. We anticipate the popular carry trade will begin to unwind, putting sustained upward pressure on the USD\/MXN exchange rate.<\/p>\n
This dismal growth figure puts Mexico’s central bank, Banxico, in a difficult position with its policy rate currently at 9.75%. The market was pricing in potential rate cuts for the third quarter, but we now see a strong possibility of a cut as early as the next meeting in June. We believe traders should position for a dovish pivot by looking at interest rate swaps that would benefit from lower rates.<\/p>\n
The outlook for Mexican equities has also soured considerably, as slowing economic activity directly translates to lower corporate earnings. This domestic weakness is compounded by recent reports showing a slowdown in the US manufacturing sector, which is a primary consumer of Mexican industrial exports. We feel that buying put options on the iShares MSCI Mexico ETF (EWW) is a straightforward way to position for a potential market downturn.<\/p>\n
Such a large economic data miss will almost certainly increase market turbulence over the coming weeks. Implied volatility on Peso options has already jumped from around 12% to over 15% since the number was released, a level we haven’t seen since the uncertainty of early 2025. This environment suggests that long volatility strategies, such as purchasing straddles, could be profitable as we anticipate wider price swings.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Mexico\u2019s year-on-year GDP grew 0.1% in Q1, missing the 0.8% forecast, signaling slower growth.<\/p>\n","protected":false},"author":103,"featured_media":17022,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-49153","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t