Moody's lowers Mexico's credit rating over public finance concerns
The sovereign debt rating was placed at 'Baa3', now just one step away from losing Investment Grade. The outlook was changed to "stable."
Markets and Stocks
Following the initial market optimism over a possible peace deal, the statement by Iran's Supreme Leader Mojtaba Khamenei, indicating that his country would not be willing to accept US conditions on the nuclear issue, is triggering broad retreats in stock futures, particularly in the United States. In addition, markets are digesting Nvidia's results with some lukewarmness, as attention shifts toward the prospects for the year's major technology IPOs. International oil prices are rising, with Brent surpassing $107 per barrel — an elevated level, though still far from the highs seen at the moments of greatest tension. Investors are once again focusing on the inflationary impact and the possibility of higher interest rates for longer. As such, the 10-year Treasury yield rebounds to 4.62%. On currencies, the peso-dollar exchange rate maintains some underlying pressure given the conflict context and Moody's downgrade of Mexico's sovereign debt. F
Key points
Mexico's retail sales grow just 0.1% monthly.
President Trump considers the US to be in the "final stages" of negotiations with Iran.
The Eurozone's economic slowdown deepens in May.
The UK PMI falls to 48.5 in May due to the war in Iran and political uncertainty.
OECD economies grow moderately by 0.4% in the first quarter.
Citi survey shows adjustments to Mexico's 2026 GDP growth and inflation expectations.
US initial jobless claims remained practically unchanged last week at 209,000.
Later, the US manufacturing and services PMIs are published (7:45am), as well as the minutes of Banxico's last monetary policy meeting (9am).
For the rest of the day, the interbank exchange rate (pesos per dollar) could trade between $17.25–$17.40 spot.
What you need to know about the economy and markets
Moody's Ratings downgraded Mexico's credit rating to 'Baa3' from 'Baa2' and changed the outlook from negative to stable. This is the last rung within Investment Grade, and Moody's first downgrade since July 2022. The decision reflects concerns over fiscal deterioration, expected low economic growth, limited tax collection, and the recurring cost of financial support to Pemex. The implicit message is that Mexico remains considered solvent by institutional investors, though with less buffer against fiscal or economic shocks.
Our Take
The downgrade does not imply an immediate crisis or loss of financing access, but it does raise the risk perception and increase pressure on future borrowing costs. The downgrade does not imply a loss of Investment Grade, but it narrows the margin to a minimum level — any additional fiscal deterioration or external shock the agency deems non-transitory could trigger that threshold. Going forward, markets will watch three critical variables: the ability to reduce the public deficit, the financial management of Pemex, and the recovery of economic growth. Given that the announcement was widely expected, the reaction in global financial markets was limited.
In March 2026, Mexico's real retail trade revenues increased 0.1% monthly, following the decline observed the prior month. On an annual basis, retail sales grew 2.4%, while employed personnel advanced 0.5% and real wages 7.4%. By segment, growth stood out in internet sales (21.4% annually), health products (11.0%), and household appliances (11.1%), while supermarkets and department stores retreated -1.2% annually.
Our Take
Retail sales showed a slight recovery in March, though growth remains moderate and heterogeneous across segments. The dynamism of e-commerce and some specific goods contrasts with weakness in traditional consumption formats, suggesting still-cautious domestic demand. Taken together, consumption maintains some resilience, though the economic environment and the deceleration in activity continue to limit a stronger impulse in household spending.
Following a volley of threats from both sides, Iran announced on Wednesday that it is analyzing a new US proposal delivered through Pakistan's mediation, after Donald Trump stated that negotiations are in their final stages. However, Iran's Supreme Leader Mojtaba Khamenei has issued a directive prohibiting the export of enriched uranium. With this decision, the ayatollah defies one of President Trump's demands and could complicate the peace negotiations between both countries.
Our Take
Over the past few weeks, talks to end the war with Iran have shown little progress, while Tehran blockades the Strait of Hormuz and Washington blockades Iranian ports. Nevertheless, the possibility of a deal helps international oil prices retreat slightly at times.
The Eurozone's preliminary composite PMI fell to 47.5 points in May 2026, from 48.8 in April — marking its lowest level in 31 months and signaling a deeper contraction in economic activity. The deterioration was led by the services sector, whose PMI fell to 46.4 — a 63-month low — while the manufacturing PMI remained in moderate expansion at 51.4 points. Additionally, input costs increased at the fastest pace in three and a half years, in a context of greater energy pressures and supply chain disruptions.
Our Take
The PMIs reflect a meaningful deterioration in Eurozone economic activity, particularly in services, where the rise in the cost of living and energy prices is beginning to more clearly affect demand. At the same time, inflationary pressures continue to intensify, complicating the ECB's outlook by combining slower growth with elevated inflation. Taken together, the environment points toward a scenario closer to stagflation, where geopolitical risks continue to affect both activity and prices.
The UK private sector economy recorded its first decline in output in more than a year, as the Iran crisis and the growing rebellion against Prime Minister Keir Starmer weighed on services activity. S&P Global's composite PMI fell to 48.5 in May from 52.6 points the prior month.
Our Take
The last time the UK private sector contracted was in April 2025, when President Trump's tariffs affected orders from abroad. Now, domestic political turmoil is undermining confidence, just as the Middle East crisis is pushing up commodity prices.
According to the OECD, the world's most developed economies grew 0.4% in the first quarter of the year compared to the last quarter of 2025 — a moderate and uneven expansion across advanced economies. The United States maintained relatively solid growth while Europe continued with weak performance but avoided contraction. The organization highlighted that the Middle East conflict and rising energy costs are beginning to affect global activity and raise risks for the rest of 2026.
Our Take
The report suggests a global environment of reduced economic dynamism and greater inflationary uncertainty, which complicates the room for maneuver for central banks. The combination of moderate growth, energy pressures, and geopolitical tensions increases the risk of stagflation episodes, particularly in Europe and energy-importing economies.
The latest Citi survey registers additional deterioration in Mexico's economic expectations. On growth, the median GDP projection for 2026 fell to 1.1% from 1.2% in the prior survey. For 2027 the median holds at 1.8%. On inflation, the 2026 year-end expectation fell marginally to 4.30% from 4.35%, with the core component stable at 4.20%. The most significant data point in the survey is on monetary policy, where for the first time in the cycle, the majority consensus does not anticipate any movement in the benchmark rate for the rest of 2026 or in 2027, with the median anchored at 6.50% for both year-ends. Among the seven participants who do expect movement, positions are split between three hikes and four cuts, reflecting unusual uncertainty about the direction of monetary policy.
Our Take
The survey confirms a marginal but persistent deterioration in macroeconomic expectations, reflecting an environment of low dynamism and still-relevant inflationary pressures. In the case of monetary policy, the survey consensus normally debates the timing of the next cut; today the debate has shifted to whether the next move is a cut or a hike.
US initial jobless claims barely changed last week, indicating that layoffs remain moderate despite recent headcount reduction announcements. Claims fell by 3,000 to 209,000 in the week ending May 16. The median forecast from a Bloomberg survey of economists had pointed to 210,000 claims. Continuing claims — an indicator of the number of people receiving benefits — rose slightly to 1.78 million the prior week.
Our Take
Claims have remained moderate despite high-profile companies such as Meta, Starbucks, LinkedIn, and Walmart announcing workforce reductions, indicating that the labor market remains in the "few hires, few layoffs" state that has prevailed in recent months.
Corporate News
Nvidia reports record revenues of $81.6 billion in Q1 2026, but shares retreat as expectations were already priced in. The company projected revenues of $91 billion for the second quarter. It also announced a share buyback program of $80 billion and raised its dividend.
Our Take
The negative stock reaction despite results that beat estimates clearly illustrates the valuation risk facing the AI semiconductor sector: when the market has already priced in perfection, anything short of an extraordinary surprise disappoints. For Mexican portfolios with SIC exposure to the US technology sector, the relevant data point is not the quarter reported but the guidance: $91 billion in Q2 2026 confirms that the AI infrastructure investment cycle continues. That is positive for electronic manufacturing companies with suppliers in Nvidia's supply chain, including some with plants in northern Mexico.
SpaceX files IPO prospectus with ~$2 trillion valuation, targeting Nasdaq in June. SpaceX, Elon Musk's aerospace and artificial intelligence company, filed its initial public offering prospectus on Wednesday with plans to debut on Nasdaq in June. The company is seeking to raise $75 billion, which would place it at a valuation of approximately $2 trillion — the largest IPO in history if completed. The prospectus reveals significant losses in its artificial intelligence division, absorbed by Starlink revenues and government contracts.
Our Take
An IPO of this magnitude has implications for global liquidity: the price discovery process and capital allocation toward SpaceX in June could generate rotation away from other risk assets, including emerging markets. For the Mexican investor, SpaceX also represents a relevant indirect exposure: Starlink already operates with hundreds of thousands of users in Mexico, in rural and semi-urban areas where traditional telecommunications infrastructure is limited.
Samsung Electronics avoids strike with provisional wage agreement; shares rise 6% in Seoul. The company reached a tentative wage agreement with one of its main unions on Wednesday, avoiding an 18-day strike that would have disrupted AI chip production in South Korea. The arrangement, mediated by the Korean Ministry of Labor, still requires ratification by union members. Samsung shares rose between 6% and 7% in Thursday's Asian session.
Our Take
The agreement relieves one of the most concrete supply risks in the AI chip market in the short term. Samsung is the main manufacturer of HBM memory that powers Nvidia's processors and other ecosystem players; a prolonged strike would have further strained an already tight supply chain. For Mexico, the relevance is indirect but not trivial: electronics assembly plants in Jalisco, Nuevo León, and Baja California depend on chips and memory whose price and availability are linked to Samsung's production. Labor stability in South Korea is, in that sense, good news for the electronics maquiladora sector.
Walmart reports Q1 2026 results; focus on signal about the American consumer amid tariff inflation. Walmart will present its first-quarter 2026 results today. Analyst consensus anticipates revenues of approximately $167 billion and guidance that will reflect the impact of tariffs on the supply chain and margins. The company has been the most cited reference among analysts regarding how the Trump government's tariff measures are being passed through to the end consumer.
Our Take
Walmart is the most representative thermometer of the middle- and low-income US consumer, and in this context of energy and tariff inflation, its guidance on margins and consumer behavior will have an impact throughout the retail chain. The report is relevant amid signs of accelerating inflation and a cautious consumer in the United States.
The to-do list
Attend to the US May flash PMIs at 7:45am — they are the first hard data of the month on US economic activity.
Review exposure to Mexican sovereign fixed income and Pemex/CFE debt in light of Moody's downgrade.
Today the Mexican football final begins with the first leg between Pumas and Cruz Azul — take the opportunity to enjoy it with family or friends.
It's Thursday — get ahead of as much as possible before Friday and close the week without accumulated pending matters.
Tonight, after the match, a short stretching or yoga session helps close the day calmly after so much information.
Today's quote…
"Do not seek for things to happen as you wish, but wish for the things that happen to be as they are, and you will find a quiet and happy life."
— Epictetus
Monitor
Bolsas / Exchanges
S&P 500
7,424
-0.40%
Nasdaq
29,230
-0.60%
Dow Jones
49,950
-0.30%
IPyC
68,819
-0.10%
Monedas / FX (Foreign Exchange)
USD/MXN
17.3548
0.30%
EUR/MXN
20.127
0.00%
EUR/USD
1.1597
-0.30%
Índice DXY
99.3
0.20%
Tasas / Exchange Rates
Treasury 2 años
4.10
6.2bp
Treasury 10 años
4.61
4.1bp
TIIE 3 meses
6.52
2.0bp
M Bono 10 años
9.34
0.0bp
Commodities / Commodity Markets
Petróleo (Brent)
107.01
1.90%
Oro
4,503
-0.90%
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