By Carla Mozee
Mexico's currency gained ground Friday following the central
bank's decision to hold the key interest rate steady, with benign
inflation and soft growth giving monetary policy makers room leave
the rate unchanged.
At the same time, Mexican stocks fought off losses to finish
higher, leaving the main equity index up by 2.2% for the week.
Mexico's currency traded at 12.552 pesos per U.S. dollar
compared with Thursday's level at 12.592 pesos.
The IPC equity index rose 39 points, or 0.1%, to 32,814.62,
though gains were capped in part by a 0.5% loss in shares of market
heavyweight America Movil (AMX).
Also, lower were finance stocks. Grupo Financiero Banorte led
overall decliners for a second consecutive session, down 1.7%.
Grupo Financiero Inbursa shares lost 0.1% and Banco Compartamos
gave up 0.3%.
Earlier Friday, the Bank of Mexico left the key rate at 4.5%, a
move that was widely expected by market players.
"No market surprise right now is better than a market surprise,"
said Matthew Beem, a Miami-based senior investment strategist at
Vector Global WMG, in a phone interview.
"It's good to hold [the rate] given the fact that Mexico is tied
to the U.S....the services sector in the U.S. is not recovering at
the same rate as the industrial sector, and the services sector is
where Mexico gets a lot of its remittances from."
U.S. economic conditions are important because Mexico sends
about 80% of its goods the U.S. Mexico's economy contracted sharply
last year, by 6.5%. It grew by 4.3% in the first quarter of this
year.
If Banxico were to raise rates at this time, "that would
probably impact the Mexican peso in a way that they wouldn't want,"
Beem added. "The Mexican government would probably like it be a
little bit above 13."
Consumer prices in Mexico have been easing, aided in part by
strengthening in the peso. Inflation on an annual basis in May fell
to 3.92%, down from 4.27% in April. The peso is up more than 4%
this year against the greenback.
The bank has said it expects inflation to reach up to 5.25% by
the end of this year before moving toward its 3% target in
2011.
Meanwhile, consumer spending remains on weak footing in Mexico.
The country's statistics agency on Friday said April retail sales
fell 1.1% from March. They fell 0.1% from the year-ago period.
Mexican stocks find "relief"
Mexican stocks, as measured by the IPC, had enjoyed a run of
seven straight sessions of wins through Thursday. The index posted
gains of more than 6% during that period.
With the IPC highly sensitive to moves in the U.S. stock market,
Beem at Vector Global WMG said the recent winning streak appeared
largely tied to a bounce in the S&P 500 Index (SPX) from its
late-May through early-June lows.
But the IPC's stretch of gains was also aided by relief among
investors that Spain appears on track to able to successfully
manage its debt troubles, he said. Earlier this week, Spain sold
nearly 3.5 billion euros in bonds on strong demand.
As well, Mexico's largest banks for the most part are either
Spanish-owned or American-owned, noted Beem, who cited ownership by
Citigroup (C), and Banco Santander (STD) and BBVA (BBVA) from
Spain, of units in Mexico as examples.
Banco Santander and BBVA may be rated the two strongest banks
among major European banks when the European Union in coming weeks
publishes the results of so-called "stress tests" on banks.
"Mexico had a lot on the line in terms of what was going on in
Spain...and it looks like the Spanish crisis is going to be
contained to regional banks," said Beem. "It's a huge relief for
the financial sector in Mexico."
Elsewhere, Brazil's Bovespa stock index finished Friday session
down 0.2% at 64,437. Chile's IPSA rose 0.9% to 4,121.72, reaching
another record closing high.
Argentina's Merval gained 0.3% to close at 2,320.36.
For the week, the Bovespa rose 1.3% and the IPSA gained 3.8%.
The Merval picked up 1.7% on a weekly basis.