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Cablegate: Mexican Markets Dip On Civil Disobedience

VZCZCXRO8219
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #4266/01 2141352
ZNR UUUUU ZZH
P 021352Z AUG 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 2473
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MEXICO 004266

SIPDIS

SENSITIVE

SIPDIS

FOR WHA/MEX AND EB/IFD/OMA
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/ARUDMAN
TREASURY FOR IA - DAVID BECKWORTH

E.O. 12958: N/A
TAGS: ECON EFIN MX
SUBJECT: MEXICAN MARKETS DIP ON CIVIL DISOBEDIENCE


Sensitive but unclassified, entire text

1. (SBU) Summary: On Sunday July 30, 2006 Andres Manuel Lopez
Obrador (AMLO) again summoned thousands of followers in a
"peaceful meeting" in the Zocalo to demand that the electoral
tribunal recounts ballots. As part of the protest, AMLO's
supporters camped along Paseo de la Reforma, the avenue that
serves the Mexican stock exchange, the U.S. Embassy,
financial groups, and the city's primary hotel district. AMLO
said camps will remain until the electoral tribunal reaches a
decision in the case. Reacting to the political uncertainty
-- and a number of domestic and international factors --
Mexico's financial markets were volatile on July 31 and
August 1. The IPC, the stock market's main indicator, fell
1.4% to 19,973.20 and the peso depreciated 1.5% to 11.02
pesos to the dollar from July 28. End Summary.

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-------------------------------
VOLATILITY IN FINANCIAL MARKETS
-------------------------------

2.(SBU) Mexico's stock market and peso fell on July 31 and
August 1 in part because of the political uncertainty
generated by the protests by AMLO supporters. The IPC has
fallen 1.4% or 279.13 points to 19,973.20 and the peso
depreciated 1.5% to 11.02 pesos to the dollar since July 28.
On August 1, the yield on the bond due in December 2015 rose
7 basis points to 8.52%. The price, which moves inversely to
the yield, fell 0.44 peso cents to 96.64 pesos, the biggest
decline since July 17. Analysts expect caution from local
investors during the coming days. A low demand is expected
for August 1 CETES and the 20-year bond auctions. The recent
volatility is also the result of high oil prices, uncertainty
regarding U.S. monetary policy, and a possible economic
slowdown in the U.S., which would reduce demand for Mexican
exports.

--------------------------------------------
PROTESTS CAUSE ECONOMIC LOSSES TO BUSINESSES
--------------------------------------------

3. (SBU) The business sector calculates losses of USD 39.8
million during the first two days of protests in Mexico City
which saw 16 camps installed on Mexico City's main avenue.
Mexico City Trade Chamber (Canaco), the National Tourist
Chamber (CNET), and the Mexican Employers Confederation
(Coparmex) warned the authorities that the protests could
cause the closure of 45,000 businesses and the loss of 2
million jobs. Hotel businessmen, led by Gordon Viberg,
chairman of CNET, are considering filing injunctions against
local authorities to demand payment for damages. On August
2, the private sector will announce the legal measures it
will adopt to offset the situation and urge local authorities
to respect the law. Lorenzo Ysasi, chairman of the Mexico
City Trade Chamber said that protesters' camps are damaging
33,000 local businesses, 7,000 tourist businesses, and 4,500
services providers. Canaco calculates that daily losses total
USD 13.7 million.

-------------
SOUND ECONOMY
-------------

4. (SBU) In spite of electoral noise in Mexico, economic
activity has been strong this year, and consumer products in
general have benefited as a result. The Bank of Mexico (BOM)
reiterated in its quarterly inflation report that consumer
prices this year will increase between 3% and 3.5%, within
its target range of 2% to 4%. In a separate statement, the
BOM raised its forecast for real GDP to a range of 4% to 4.5%
from a 3.5% to 4% in April. This is the second increase in
the bank's economic growth estimate this year. Alejandro
Werner, the Finance Secretariat's chief economist, told the
press that the Mexican economy will likely grow around 4% in
2006. For Manuel Ramos Francia, BOM's chief economist, "the
growth is balanced between industry and services, which is a
good base for growth in a horizon that includes 2007." For
some analysts, the peso is set to appreciate to 10.60 pesos
to the dollar if Felipe Calderon is confirmed as president by
the electoral tribunal.


Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity


MEXICO 00004266 002 OF 002


GARZA

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