TRADEIDEAWeholdtheviewthatdespitethehigherpoliticaluncertaintyinMexico,marketshavealreadypricedinanadversescenariointheshortterm.WehavebeenseeingpremiumsacrosslocalinterestratesandtheMXN,inparticular.WearealsoseeinglooseglobalfinancialconditionsandlowUSrates,whichsupportlowerratesglobally.Additionally,ourEMportfolioflowsmodelhasbeenpointingtoanimprovementinflows.Thatsaid,wearecomfortablereceivingratesinthelong-endoftheTIIEcurvethrough5yand10ytenorsandholdingalongMXNpositionagainsttheEUR.EMECONOMICSKEYMESSAGESMexicosaidonFridaythe2019extraordinarysupportforPemexwillbeUSD4.7bn–mostofwhichwasalreadyannounced.Weseethisasastepintherightdirectionandbelievethatthemulti-annualtaxreliefwasamuch-neededstructuralmeasure.Yet,owingtoourhighexpectationswethinkthepackagedoesnotoffersubstantialrelief.Weareconcernedaboutpolicymeasuresconsistentlybeingreactiveandendingshortofwhatisneeded.Hence,wedonotthinkthemeasureswilllifttheveilofuncertaintyoverthestate-ownedcompany.Inourview,marketshavealreadypricedinanadversescenariointheshortterm.Wearecomfortablereceivingratesinthelong-endoftheTIIEcurvethrough5yand10ytenorsandholdingalongMXNpositionagainsttheEUR.FLASH|LATAM15February2019Ontherighttrackbutatoddswithexpectations,wethink.OurexpectationsforthegovernmentsupportforailingPemexwerehigh.Wewerehopingformoreboldermeasures,evenifitmeantadversefiscalimplications.Themeasuresannouncedtodayaddjust12%moreaidintheformoftaxrelief(reliefsworthMXN11bnwereannouncedon28January).Moreover,uncertaintystillremainsontheestimationofUSD1.6bninextrarevenuesfromcurbingfueltheft.Mindtheriskapotentialfeedbackloopemergingfromtimidgovernmentmeasures.Today’sannouncementmaybeinterpretedasathirditeration(theprevioustwobeingthe2019budgetandthe28Januarytaxrelief)inlessthanthreemonthstotakePemexoutofthewoodsintermsofshortandmedium-termpressuresandalignitwiththegovernment’snewstrategyfortheenergysector.Byfallingshortoneverymeasure,thegovernmentrunstheriskofbeingperceivedasbehindtheevents.Italsocomplicatesthetaskof...
