LatinNews Daily - 04 June 2024

*Mexico’s peso has dropped against the US dollar following the 2 June elections, which saw the public elect Claudia Sheinbaum as the country’s new president, as well as a new federal congress, several state governors, and over 19,000 local positions. The peso sunk to M$17.70/US$1 yesterday, a drop of some 4.3% and its weakest rate since November 2023, as markets reacted to the possibility that the ruling left-wing Movimiento Regeneración Nacional (Morena) had secured a supermajority in both chambers of congress, which would allow it to pass constitutional reforms, such as those overhauling the judiciary and electoral system, without opposition support. The peso continued to weaken today (4 June), reaching M$18.05/US$1 at the time of writing. While Sheinbaum’s victory had been widely expected, the extent of Morena’s dominance in congress surpassed expectations. On social media, Gabriela Siller, head of economic analysis at Mexican private bank Banco Base, attributed the market reaction to fears that Morena could make changes to the constitution “that might damage the business climate in Mexico”. Siller stated it would take time to regain market trust and stability, noting that much will depend on what President Andrés Manuel López Obrador does in the final months of his government and what President-elect Sheinbaum says. In a statement released yesterday, international credit ratings agency Fitch Ratings pointed to a wide fiscal deficit of above 5% of GDP and continued support for indebted state-run oil company Pemex as the key challenges facing the Sheinbaum administration. However, it noted that Mexico would continue to benefit from “robust macroeconomic institutions and stability” and “a structural ‘nearshoring’ trend”.