Mexico inflation reaches 3.42% in first half of September
Mexico’s consumer prices rose 0.33% in the first half of September, bringing annual inflation to 3.42%. Core inflation eased to 3.79% year over year, although services inflation remained above 4%.
Key points
Banxico is expected to hold its policy rate at 6.50% today
Mexico’s economy surprises to the upside in July
Washington and Beijing have agreed to extend their trade truce by two months.
German business sentiment improves in September
Diesel becomes the global economy’s “kryptonite”
For the rest of the day, the interbank exchange rate (Mexican pesos per U.S. dollar) could trade between $17.44 and $17.60 spot
The Trump-Xi Jinping summit will be the main catalyst for markets today, with trade, artificial intelligence, technology and Taiwan on the agenda. Meanwhile, markets are facing a renewed global bond selloff amid concerns that the war with Iran could prolong inflationary pressures and that the strength of the U.S. economy could force the Fed to continue raising interest rates. The U.S. 30-year Treasury yield reached 5.44%, its highest level since 2004; the 10-year yield briefly climbed to 5.14% and currently stands at 5.10%, while markets raised to 64% the probability of at least a 25-basis-point Fed hike next month. Risk-off sentiment is also weighing on equities, with Nasdaq futures down 0.9% and S&P 500 futures off 0.5%. Meanwhile, Brent crude is trading above $105 per barrel following fresh threats from Iran to expand the war into the Indian Ocean if the U.S. or Israel launches further attacks.
Monitor
Bolsas / Exchanges
S&P 500
7,733
-0.50%
Nasdaq
30,475
-0.90%
Dow Jones
51,727
-0.30%
IPyC
64,564
0.40%
Monedas / FX (Foreign Exchange
USD/MXN
17.5489
0.20%
EUR/MXN
19.9632
0.10%
EUR/USD
1.1373
-0.10%
Índice DXY
101.28
0.20%
Tasas / Exchange Rates
Treasury 2 años
4.85
-4.5 bp
Treasury 10 años
5.10
-1.0 bp
TIIE 3 meses
6.68
10.0 bp
M Bono 10 años
9.36
-0.6 bp
Commodities / Commodity Markets
Petróleo (Brent)
105.30
2.20%
Oro
4,281
-0.10%
What you need to know about the economy and markets
Inflation in Mexico rose 0.33% during the first half of September, slightly above expectations, bringing the annual rate to 3.42% from 3.26% in the previous two-week period. Core inflation eased to 3.79% year over year, with prices rising 0.17% during the first two weeks of the month, while non-core inflation accelerated to 2.17% annually, driven by higher fruit and vegetable prices.
Our Take
The biweekly increase was driven mainly by agricultural prices and the seasonal back-to-school effect, leaving the outlook for Banxico largely unchanged. The moderation in core inflation supports keeping the policy rate at 6.50%; however, persistent services inflation, currently at 4.33%, warrants a prolonged pause before considering additional rate cuts.
Banco de México is expected to leave its overnight rate unchanged at 6.50% at today’s meeting (1pm). The Fed’s recent rate hike, higher oil prices and geopolitical uncertainty reinforce the case for a cautious approach. In addition, the Board indicated in August that maintaining the policy rate at its current level would be appropriate.
Our Take
The decision would confirm that Banxico will prioritize price stability over economic weakness. The narrower rate differential with the United States and upside inflation risks would limit the scope for monetary policy easing over the coming months.
Mexico’s economic activity, as measured by the IGAE, rebounded 0.8% month over month in July and grew 3.3% year over year, exceeding the IOAE point estimates. The increase was driven by services, which rose 1.2% on the month, and industry, which expanded 0.5%; in contrast, primary activities fell 1.1%.
Our Take
The result points to a stronger-than-expected start to the third quarter, supported mainly by trade, transportation and other services. However, cumulative growth between January and July remains at 1.5%, while manufacturing output is still down 0.7%, meaning the rebound improves the near-term outlook but does not yet confirm a broad-based acceleration in the economy.
Washington and Beijing agreed to extend the trade truce that was set to expire on November 10 through January 10. The agreement keeps new U.S. tariffs and Chinese restrictions on exports of rare earths and critical minerals suspended, as both governments seek to make progress toward a broader agreement.
Our Take
The extension reduces the immediate risk of another tariff escalation and provides greater certainty for global supply chains. However, it only postpones structural disagreements over trade, technology and security, meaning the relief for markets could prove temporary if negotiations fail to produce concrete progress.
Germany’s business climate improved in September, according to the Ifo index, which rose to 89.9 points from 88.8 in August, marking its fifth consecutive increase and reaching its highest level in more than a year. The improvement was led by manufacturing, services and trade, while construction was virtually unchanged.
Our Take
The report confirms that the German economy continues to recover and that momentum is beginning to broaden across sectors. However, weak industrial orders, difficulties in the automotive sector and caution in trade amid renewed inflationary pressures suggest the recovery will remain gradual and vulnerable.
U.S. Energy Secretary Chris Wright told oil industry executives to prepare for potential restrictions on diesel exports, amid an increasingly intense debate within the Trump administration over the approach, as the White House considers measures to contain record fuel prices.
Our Take
Diesel represents a more direct shock to the economy than higher crude prices because it immediately raises transportation, agricultural and goods-distribution costs. A potential ban on diesel exports would have significant implications and could even have the counterintuitive effect of pushing gasoline prices higher if U.S. refiners cut production.
Corporate News
MGM Resorts shares fell as much as 10% in premarket trading after media mogul Barry Diller abandoned plans to acquire the remainder of the casino operator.
Schneider Electric agreed to acquire Shelly Group, a Bulgarian smart-home device maker, in a deal that values the company at approximately €1.2 billion ($1.4 billion), excluding debt.
H&M shares fell 3.7% in Stockholm even after the Swedish fashion retailer reported third-quarter earnings above expectations, supported by stronger margins and U.S. tariff refunds that helped offset modest sales growth.
The “To-Do List”
Follow remarks from several Fed officials today: John Williams, Tom Barkin, Beth Hammack and Christopher Paulson.
Watch for any additional signals on potential U.S. restrictions on diesel exports.
Today’s routine: 3 rounds of 40 seconds of jumping jacks, 15 bicycle crunches per side and 12 knee push-ups; rest 20 seconds between exercises. Approximate duration: 7 minutes.
Remember that today marks another anniversary of the 1982 opening of the National Museum of Popular Cultures in Mexico City.
Quote of the Day…
“Talking and talking is always better than fighting and fighting”...Winston Churchill
Alejandra Marcos amarcos@kapital.com
James Salazar jsalazars@kapital.com
Rodrigo Ventre Ruiz rventre@kapital.com
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