Being Specific About Dollar Specifics

Last week, IHS Markit reported that sentiment in Mexico’s factory sector had slipped again during December 2020. The organization’s manufacturing PMI had declined for the second straight month, having peaked recently back in October. Even then, the index hadn’t yet come close to crossing the magic 50 dividing line. The best it had managed during this global rebound was a mere 43.6.

This sentiment data correlates closely enough to the Mexican government’s statistics. According to that country’s INEGI, the agency responsible for tabulating and publishing data for Mexico’s economic accounts, Industrial Production has yet to push back even with February. For the month of November 2020 (the latest figures release today), total output in the sector remains 3.4% below where it had been nine months before.

More importantly, though, industrial activity was a whopping 7.2% less than it had been in May 2018 almost three years before. The economic struggles ongoing in Mexico have less to do with COVID than most people might imagine. 

And it’s not like Mexican industry had suffered continuously throughout the last decade. On the contrary, it had managed to eek out some sustained “prosperity” (relatively speaking) up until Euro$ #4 turned the industrial base into a constant source of drag and weakness. In GDP, there hadn’t so much as been a single year-over-year negative until 2019. In fact, the year-over-year decline in IP in November 2020 (-3.4%) would’ve been the second worst since 2009, behind only October 2019.

Given these facts, it really isn’t much of a wonder how the national currency, the peso, has remained weaker throughout the final three-quarters of 2020 than it had been starting off the global recession beginning March. Even with the contributions from the recent explosiveness (relatively speaking) in risk-taking due to vaccine-aphoria, and the presumably game-changing opportunities of ending the pandemic, MXN remains significantly below where it had been when this latest disruption (GFC2) all started.

Consequently, there’s absolutely no dollar crash evident in Mexico. Instead, the economic struggle evident south of the American border fits with the much more careful tread of dollar to peso unlike the mainstream narrative of the US currency’s fiery collapse.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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