The markets continue to bypass the loud noise in the news.
Global investor focus continues to point to the medium term and news of Democrats’ control of the US Senate intensified positive sentiment; it is difficult to expect a major adjustment in the markets in the following weeks. In Mexico, the variables maintain a mirror behavior with the foreign variables, which does not represent good news for the local rate curve.
The last few days have been hectic. As I said, the best news was the result of the election in the two Senate seats that were contested in Georgia, which were won by the Democratic Party. This implies that the Democrats will occupy the White House, and will have a majority in the House of Representatives, as well as in the Senate, although in the latter case a ridiculous majority.
Investors took the result very positively. A greater focus on the attack on the pandemic and greater support with fiscal resources are anticipated in issues such as investment in infrastructure and towards the labor market. Likewise, greater aggressiveness is anticipated to try to focus public policy on environmental issues and those related to global warming. For now there are only mentions of tax increases that would not be of great magnitude and that would hardly truncate the recovery.
However, the most prominent notes were perhaps adverse. The effervescence that was experienced in the middle of last week with the taking of the Capitol, and the political crisis that is experienced in the closing of the administration of President Trump, attracted much attention. Europe saw the realization of Brexit and the first week of this new stage. In the world in general, the issue of vaccination has not reduced confinement measures or the continuation of the spread of infections by Covid-19.
On the other hand, it seems clear that market participants consider these issues to have a defined duration and assume that in the medium term there will be greater fiscal stimulus and a solid recovery. That is why we have seen so many events pass by without causing a major correction in the stock markets, nor have we seen relevant trend changes.
Perhaps the only novelty is that, as part of the reactions to a more optimistic scenario, long-term interest rates have had significant upward movements, mainly in the United States. The 10-year Treasury bond rate increased its yields just last week from 0.93 percent to 1.14 percent. Investors discount stronger growth, higher pressure on inflation and higher-than-expected debt.
This steepening of the curve (that short-term rates do not move and long-term rates rise) seems to be one of the major characteristics throughout the year in the markets. Especially if the Fed will not move until the end of 2023. We anticipate higher levels for the long terms derived from an environment that will not lead to many corrections in the first half of the year; In other words, we do not see an increase in revenues that could generate a strong correction in the markets, especially in the first semester.
Regarding financial variables in Mexico, think that they maintain a mirror behavior with respect to global markets. For this reason, we have seen the local stock rally strongly. In several segments, the multiples of the Mexican stock market still look attractive or below their averages. If the preference of investors continues to send flows to emerging markets and lagging segments, it is not surprising that the local stock market confirms levels above 46 thousand points. The same could be said of the exchange rate. The weakening trend of the dollar against most currencies persists. The levels of the price of the dollar seem to affirm around 20 pesos, more if this appetite for such high risk continues.
For its part, the reaction of rates in Mexico has also been congruent with rate movements abroad. The long-term curve, especially for nominal rates, rose during the past week.
The agents are waiting for Joe Biden; the discount is very clear in that sense. There is no investor who considers that stimuli will be withdrawn, on the contrary, it seems that they will be strengthened in an environment of loose monetary policy; as well as combating the immediate effects of the pandemic. If the US government is very active in this regard, it is difficult to think that the medium-term horizon that investors envision will change and therefore it is difficult to expect strong corrections, for now.