New RBNZ Governor Anna Breman Aims to Restore Stability After Tumultuous Years 
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data 
BOJ’s Kazuo Ueda Signals Potential Interest Rate Hike as Economic Outlook Improves 
Gold Prices Fall Amid Rate Jitters; Copper Steady as China Stimulus Eyed 
European Stocks Rally on Chinese Growth and Mining Merger Speculation 
Singapore Maintains Steady Monetary Outlook as Positive Output Gap Persists into 2025 
2025 Market Outlook: Key January Events to Watch 
Fed Rate Cut Odds Rise as December Decision Looks Increasingly Divided 
Goldman Predicts 50% Odds of 10% U.S. Tariff on Copper by Q1 Close 
Bank of America Posts Strong Q4 2024 Results, Shares Rise 
Energy Sector Outlook 2025: AI's Role and Market Dynamics 
Mexico's Undervalued Equity Market Offers Long-Term Investment Potential 
U.S. Treasury Yields Expected to Decline Amid Cooling Economic Pressures 
Kazakhstan Central Bank Holds Interest Rate at 18% as Inflation Pressures Persist 
UBS Projects Mixed Market Outlook for 2025 Amid Trump Policy Uncertainty 
We also stay long BRL and short MXN, both of which have shown more resilience to external conditions. Reform optimism continues to support BRL, and Brazil- watchers (as well as FinMin Guedes) have shifted their focus to tax reform and the continuation of the privatization process.
Furthermore, the BCB has resumed its easing cycle, supporting the equity and bond markets even though this has also lowered the BRL's implied 3m yield to 5% (from about 5.50% in June).
MXN, on the other hand, continues to rely on its high carry, particularly given the poor outlook for its equity market as growth has stalled and manufacturing showing signs of contraction. Bond portfolio flows have also continued to stall since January (refer above chart). The market’s prospects for Banxico to ease policy rates have increased with the expectation of Fed’s cut (against our economic team’s call for the first cut in 1Q20); the TIIE rates market prices 50bp of cuts within 6m. In the event that Banxico were to cut rates (not our economic team base case) we believe that it would not meaningfully affect MXN, at least for the first cut, which is why we keep our RKO = 20.20 structure.
First, Banxico has taken a very cautious approach to the monetary policy given the multiple macro risks facing the economy (Pemex, the administration’s fiscal stance, high foreign ownership of bonds) as well as the fact that inflation expectations remain above their 3% target. (Median expectations for 12m ahead core inflation stayed at 3.49% in July).
We, therefore, suspect that it would be mindful of its potential impact on MXN, as well as financial conditions, and hold off cutting rates if MXN were to weaken.
Second, other central banks globally have already pre-empted Banxico and eased policy rates. The BCB is the latest such example in the region. Relative monetary policy rate differentials to other EMs matter insofar as EM investors are still likely to position in one of the highest carry-to-vol currencies. We, therefore, find it unlikely that those investors who are long MXN for carry would unwind their positions for this reason alone. Courtesy: JPM
