MXN: Oil reform implementation and FX commission in focus

September 30 will be a very important day for MXN. First, the results of the first tender for extraction in shallow water should be announced. Although this is the second tender (the first was in exploration), this one should be a better gauge on how successfully the energy reform is being implemented and on the appetite of participants given the gloomy outlook for commodity prices. It is expect to have at least 2 out of 5 blocks assigned. The best guess would be that 3 or more successful block bids will be welcomed by market participants, while less could adversely affect some Mexican assets as some of the benefits of the energy reform, already priced in market prices could be less palpable in the near term.

Second, the FX commission will announce the amount and parameters of its passive FX interventions, for which no changes are expected. The commission will refrain from making any change mainly because of four reasons: 

1) MXN is far from cheap, and depreciation has been in line with its EM peers; 2) there are no signs of stress in the FX market; 3) FX pass-through has been limited, and it has decreased over time; and 4) the FX commission would want to save some bullets in case things get worse. 

"We expect further MXN weakness ahead but an outperformance relative to its LatAm peers. High uncertainty in global markets coupled with a continued deterioration in the outlook for Brazil should weigh on MXN for the weeks ahead", says Barclays.