LatAm: MXN no reasons to hike; BRL free fall

Banxico is expected to remain on hold next Monday as the Fed delays its lift-off and the global and local economic outlook actually points to easier monetary conditions. Further MXN weakness versus the USD is expected in the months to come in line with the view of weakness across emerging markets.

"We have extensively argued that Banxico will probably not follow the path implied by the TIIE curve, particularly now that FX price action has not been driven by short-term interest rate differential and it has stabilized below 17.00", says Barclays.

The inaction of the government continues taking its toll on Brazilian assets. Any meaningful change is not expected in the following week and as such, risk premia is anticipated to remain elevated until there is more clarity on how the fiscal situation is going to be addressed. Not only has the government struggled on cutting spending, but revenues continue falling as economic activity collapses. 

"Next week, we anticipate a further deterioration in employment with the unemployment rate reaching 7.9%. Finally, we expect IPCA-15 inflation at 0.40% m/m, which implies a y/y reading of 9.6%", added Barclays.