MXN: Constructive rates market

MXN is expected to remain on the sidelines as the recent risk rally is likely to continue this week, with downside risks for the peso if US data come better than expected. The rates market has shown resilience to recent volatility episodes, and the outlook is more constructive. Inflation remains under control, FX pass-through has declined in recent years and remained subdued recently, and a moderate deceleration in economic activity is keeping inflationary pressures in check. 

"These facts, combined with expectations of a Fed hike moving further into the future, will induce Banxico to hold its rates; as such, we have moved our call for a hike to June 2016. Against this backdrop, we like 10y rates and recommend buying MBono Dec-24, as term premia should remain in check, and we keep our 6m TIIE swap receiver", notes Barclays.

This week is light on data. On Monday, August industrial production will be released. A reduction of 0.3% m/m is expected due to the contraction in US manufacturing (+0.2% m/m). This reading would confirm the expectation of a deceleration in economic activity in Q3.