Mexico’s Manufacturing Activity Leaps to a 1-Year High in June 2017

Mexican (EWW) manufacturing activity rebounded in June 2017 after a rough start to the year, resulting from the protectionist stance by the US (QQQ). Mexico’s manufacturing PMI increased to 52.3 in June, compared to 51.2 in May.

The operating conditions in the manufacturing sector in June showed the strongest improvement over 2016. The chart below shows Mexico’s manufacturing activity over the last year.

Improved manufacturing activity in June 2017
Mexico’s new orders, employment, and output showed faster improvement in June 2017 over 2016. Its manufacturing production rose for the second consecutive month in June, with the sharpest expansion since October 2016.

The improved client demand, the rise in inventories, and new product launches helped the overall increase in the country’s manufacturing PMI in June.

New orders
New order volumes increased significantly in June 2017 since May 2016. The improvement in domestic demand primarily drove the rise in new work orders in June 2017.

The underlying demand for Mexican products in the domestic market showed improvement, supported by increased investment spending in June. However, export order volumes expanded at a weaker pace in June than in the previous three months.

Employment and price pressures
Employment rose in June 2017, maintaining its upward trend since August 2014 and resulting from improved output in 2017. Price pressures remained low as input prices rose at the slowest rate since 2015. As a result, product prices declined in June after peaking in May.

Expectations
The country’s business optimism grew stronger in June 2017 compared to its five-year low seen at the beginning of 2017. The manufacturing sector in México is expecting improved exports and capital investments along with new marketing initiatives in June, according to the latest Markit report.

The Mexican peso has gained against the US dollar (UUP) so far in 2017, as the anti-trade sentiment eased in the US (SPY). This trend resulted in improved business confidence in the Mexican market in 2017.

The iShares MSCI México Capped ETF (EWW), which tracks Mexican equities, gained ~4% in June. Currently, Mexican markets seem to be benefiting from the improved economic activity in the US (IVV) in 2017.

Source: Market Realist

By: Mary Sadler