| | |  Business News | July 2009 
Mexico’s Peso, Stocks Fall as Calderon’s Party Loses Election
 Valerie Rota - Bloomberg
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July 06, 2009
| | A woman wears a T-shirt and cap reading "Vote Void" during a protest at the Angel de la Independencia square in Mexico City. The ruling National Action Party (PAN) of Mexico admitted defeat in the country's legislative elections. (AFP/Ronaldo Schemidt) | |
Mexico’s peso fell to the lowest in two weeks and stocks dropped after President Felipe Calderon’s party lost congressional seats in midterm elections, adding to concern the government will struggle to implement tax increases that economists say are needed to narrow a budget gap.
The peso weakened 0.3 percent to 13.2725 per U.S. dollar at 10:50 a.m. New York time, from 13.2307 on July 3. It touched 13.3755, the weakest since June 23. Mexico’s Bolsa, the nation’s benchmark stock index, tumbled 1.3 percent to 23,727.33, the lowest since June 25.
Calderon’s National Action Party, or PAN, took 27.9 percent of the votes in the July 5 election to renew all 500 lower house seats while the opposition Institutional Revolutionary Party, or PRI, won 36.6 percent of the vote, according to 97.9 percent of all votes counted by the Federal Electoral Institute. The PAN currently has 41 percent of lower house seats.
“This is not a market-friendly result,” said Jaime Ascencio, a fixed-income strategist at Actinver SA, Mexico’s biggest independent money manager, in Mexico City. “This result makes it very likely that Mexico’s credit rating will be cut.”
Standard & Poor’s cut the outlook on Mexico’s BBB+ rated foreign debt, the third-lowest investment grade rating, to negative in May, and cited concerns the government may “not adequately address lack of flexibility in its fiscal policy” after the midterm congressional elections.
The PAN’s 206 lower house seats in the current Congress make it the biggest party in that chamber. The opposition Party of the Democratic Revolution, or PRD, is the second largest with 123 seats and the PRI has 104 seats.
‘Negative’
PRI’s victory will be “negative” for the markets because of the potential for legislative gridlock, UBS AG said.
“Congressional dynamics are set to make for the passing of a reform agenda that much harder,” analysts led by Tomas Lajous wrote in a note. “The results are negative for markets, but only marginally.”
Alfa SAB, the world’s largest maker of aluminum engine heads and blocks, and Grupo Modelo SAB, the nation’s largest beer brewer, led declines on the Bolsa index.
Calderon’s setback comes as the economy heads for its worst recession since 1995 because the slump in the U.S. is curbing demand for exports and trimming flows from remittances, foreign direct investment and tourism. Mexico’s economy will contract 5.5 percent this year, according to the government.
That contraction has swelled the budget deficit and exposed the government’s dependence on oil income. The Finance Ministry is projecting the public sector deficit may grow to 3 percent of gross domestic product this year form 2.1 percent in 2008.
The government collects 37 percent of its revenue from oil, whose production dropped 6.5 percent in May from a year earlier after falling 9.2 percent in 2008.
Further Weakening
Today’s peso drop extended a slide last week fueled by concern surging unemployment in the U.S. will delay an economic recovery. Mexico sends 80 percent of its exports to the U.S.
The peso may continue to weaken, said Win Thin, senior currency strategist at Brown Brothers Harriman & Co.
“The fundamentals and the politics are all lining up against the peso now, especially with the U.S. data being weak,” said Thin, who is based in New York.
Yields on Mexico’s 10 percent bond due December 2024 fell two basis points, or 0.02 percentage point, to 8.41 percent. The bond’s price rose 0.21 centavo to 113.68 centavos per peso, according to Banco Santander SA.
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1(at)bloomberg.net
Mexico Election Results Are ‘Negative” for Markets, UBS Says
Catarina Saraiva - Bloomberg
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July 06, 2009
The Institutional Revolutionary Party’s victory over President Felipe Calderon’s National Action Party in Mexico’s midterm elections will be “negative” for the markets because of the potential for legislative gridlock, UBS AG said.
Calderon’s National Action Party, or PAN, took 27.9 percent of the votes in yesterday’s election for all 500 lower house seats while the opposition PRI, won 36.6 percent of the vote, according to 96.9 percent of all votes counted by the Federal Electoral Institute. The PAN currently has 41 percent of lower house seats.
“Congressional dynamics are set to make for the passing of a reform agenda that much harder,” analysts led by Tomas Lajous wrote in a note. “The results are negative for markets, but only marginally.”
Mexico’s Bolsa index dropped 1.1 percent today, while the peso weakened 0.5 percent to 13.2910 per U.S. dollar.
To contact the reporter on this story: Catarina Saraiva in New York at Asaraiva5(at)bloomberg.net. |
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