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Mexican Peso and Stocks Rebound While Oil Price War Remains

By Jeroen Posma | Tue, 03/10/2020 - 13:49

The morning after the Dow Jones Industrial Average had its worst day since 2008, falling more than 2,000 points, accompanied by the biggest oil price crash since 1991, the  main US index opened 800 points higher. After markets in Asia and Europe staged a recovery on Tuesday, the Dow Jones Industrial Average opened  3.3 percent higher, the S&P 500 was up 2.9 percent and the Nasdaq rose by 2.7 percent. By late morning these initial gains partially evaporated as the underlying impact of the coronavirus and the implications of oil at US$33 per barrel remain unchanged. To ease the pain of to the American economy, President Trump announced that he will unveil “dramatic” measures including a payroll tax cut, financial support for workers who do not receive paid sick leave and more stimulus to support  sectors such as tourism, where cruise lines, airlines and hotels are particularly affected.

 

Mexico’s stock exchange also recorded a 1 percent gain in morning trading, despite the absence of support measures from the Mexican government. The Mexican Peso also recovered from yesterday’s close of MX$21.17 per dollar to trade at MX$20.84 per dollar at the end of this morning. Meanwhile, Saudi Aramco announced its objective of bringing 12.3MMb/d to market in April, which is 300Mb/dbeyond the company’s sustained capacity and more than 2.6MMb/dmore than its oil production level of recent months. Russia’s announcement to also boost production is a strong indication that the oil price war is here to stay.

 

Mexico’s President Lopez Obrador made the rescue of PEMEX the cornerstone of his administration, a project that becomes increasingly challenging as financial pressure on the company is mounting and the rating downgrades are rapidly becoming a real threat. Cutting costs, refocusing on the most profitable fields, new oil discoveries and inviting or at least protecting international investment in the oil industry could mitigate that risk, but the government has yet to set a clear direction in which to maneuver PEMEX and its public finances through these turbulent times.

 

Jeroen Posma Jeroen Posma Managing Director