CEO Executive Summary

U.S.-Mexico Relations hit yet another low in early April after President Trump ordered up to 4,000 National Guard troops to the U.S. southern border. Mexican politicians and citizens uniformly rejected this militarization of the border, with President Peña Nieto roundly denouncing the move, and the rhetoric coming out of the White House, in a nationwide address. This created an inauspicious context for the NAFTA talks, which picked up in intensity in early April. Nevertheless, the three ministers overseeing the negotiations have expressed a renewed sense of optimism, supported in part by apparent U.S. concessions on auto rules of origin in an effort to lay the groundwork for an agreement in principle by the end of the month. Still, an agreement in principle could be a far cry from a completed agreement. Given the number and depth of the disagreements remaining on the table, a May agreement is apt to add up either to relatively small modifications to NAFTA (including a new auto accord), or the promise of a larger deal with many months of hard negotiations still to come. Either way, we are still a long way from knowing whether any deal that can be negotiated will be acceptable to President Trump, whose domestic political fortunes appear to be worsening.

Formal campaigning for the Mexican presidency began on March 30, with all four contenders promising to fight corruption, guarantee security, and stand up to the Trump Administration. Heading into the first presidential debate on April 22, the leftist candidate Andrés Manuel López Obrador (AMLO) holds a 13 point lead in the Oraculus poll of polls, although the Federal Electoral Tribunal’s April 9 decision to permit a second independent candidate to run for president is apt to pull some votes from AMLO. As private sector concerns about a possible AMLO victory on July 1 grow, the candidate published an open letter to investors laying out what he will and won’t do as president to show that he is no threat to them. The letter was widely criticized for its lack of detail, evidence that most investors still do not trust AMLO.

Meanwhile, the Mexican economy continued to plug along with falling inflation and a volatile currency backstopped on the downside by the carry trade. In the energy sector, Pemex was the big winner in round 3.1 of the petroleum auctions even as the country’s proven reserves continue to fall. The country’s new public-private telecom network, the Red Compartida, began operations bringing mobile service to previously unserved areas of the country, and the now 18% completed Mexico City airport project raised $1.6 billion in new Mexican capital, almost half coming from pension funds, as the Peña Nieto administration pushes to advance the project as far as possible before the end of the “sexeño.”

Full Newsletter: Monarch News – April 2018