The Day at a Glance | November 26 2024

The Top

• HR Ratings affirmed the sovereign credit rating at BBB+ but revised the outlook from stable to negative.

• In Mexico, external accounts remain solid, with a limited current account deficit.

• Donald Trump announced that one of the first executive orders he will sign is a 25% tariff on all goods from Mexico and Canada, as well as the closure of borders.

• Later today, the Federal Reserve’s monetary policy minutes will be released. We expect greater clarity regarding its monetary stance for next year.

• A leading inflation indicator for Japan’s services sector stood near 3% in October, according to official data released Tuesday, providing further evidence that conditions are aligning for another short-term interest rate hike by the Bank of Japan.

• Oil prices rose on Tuesday, stabilizing after dropping more than $2 per barrel in the previous session on reports of a potential ceasefire between Israel and Lebanon’s Hezbollah.

Economic Environment

HR Ratings affirmed the sovereign credit rating at BBB+ but revised the outlook from stable to negative. The change reflects a deterioration in economic growth expectations for 2024 and 2025, along with slower-than-expected fiscal deficit reduction for 2025 compared to the Finance Ministry’s official estimates. This would increase pressure on debt as a percentage of GDP. The weaker growth outlook is attributed to the negative performance seen inindustrial production in the past year and potential trade tensions with the US due to its upcoming administration change. HR estimates GDP growth at 1.4% for 2024 and 1.1% for 2025, well below the economic package’s forecasts of 2.1% and 2.3%, respectively. Slower growth and a higher exchange rate depreciation are expected to push the Historical Balance of Public Sector Borrowing Requirements (HBPSBR), the broadest measure of the country’s net debt, to 52.24% of GDP, up from HR’s previous estimate of 50.76%. By 2025, the HBPSBR could rise to 54.0%, surpassing both HR’s earlier forecast of 52.33% and the Finance Ministry’s estimate of 51.4%. Two rating agencies have revised their outlooks to negative after the economic package was unveiled; and it’s possible that other agencies will follow suit.

In Mexico, external accounts remain strong, with a limited current account deficit. In 3Q24, the current account (trade and services balance + remittances + external transfers) posted a $733 million surplus, down from $1,218 million a year earlier, according to the Central Bank of Mexico´s data. As a percentage of GDP, the surplus was equivalent to 0.2%, compared to 0.3% in 3Q23. For the first nine months of 2024, the current account deficit stood at -1.3% of GDP, unchanged from the same period last year. Within the current account from January to September 2024, the trade deficit was -$11,046 million (-0.8% of GDP), while the services deficit reached -$7,316 million (-0.5% of GDP). Meanwhile, remittances amounted to $47,868 million (3.4% of GDP), and were almost fully offset by a deficit in external transfers worth -$48,073 million (-3.4% of GDP). Thus, the current account deficit for the first nine months of 2024 is entirely explained by the trade and services balances. For 2024, we estimate a current account deficit close to -0.5% of GDP.

Markets and Companies

Futures for main US equity indices are trading with mixed figures. Investors are digesting Donald Trump’s statements about the potential implementation of tariffs on imports from Mexico and Canada, though this may be part of the president’s negotiation strategy to pressure both countries on migration issues. On the other hand, the market responded positively to the appointment of Scott Bessent as Treasury Secretary, given his extensive experience in the financial sector. Today, the Federal Reserve’s meeting minutes are set to be released, while trading activity is expected to slow later this week due to the Thanksgiving holiday in the US. In Europe and Asia, equity markets logged negative figures. 

US Treasury yields are rising as markets await the release of the Fed’s latest monetary policy minutes. The 2-year note is trading at 4.25%, while the 10-year note stands at 4.28%.

In commodities, oil prices are climbing as the market assesses the possibility of a ceasefire in the Middle East.

In Mexico, IPC futures are trading higher.

Regarding the peso-dollar exchange rate, the peso is trading at 20.53 after closing at 20.28 yesterday. On Tuesday afternoon, the peso briefly weakened to as much as 20.70 in reaction to news about possible tariffs on Mexican imports to the US.

Corporate News

• Abercrombie & Fitch reported better-than-expected sales and earnings and also raised its guidance for the year.

• Best Buy shares were down pre-market after posting quarterly results that fell short of expectations.

• Kohl’s shares dropped about 17% due to a weak quarterly report.

• Rivian announced it received conditional approval from the US government for a credit worth approximately $6.6 billion to build an electric vehicle plant in Georgia and boost its production capacity.