Mexico’s industrial output fell by 1.3% year on year in March. This was above forecasts of a 1.5% fall.
The result points to a slightly smaller decline than expected. No further breakdown was provided in the update.
The recent industrial output data, while negative, was better than we feared, suggesting the downturn might be finding a floor. This slight upside surprise could provide short-term support for the Mexican peso, which has been under pressure. We should consider short-dated call options on the MXN, or put options on the USD/MXN pair, to capitalize on any immediate positive sentiment.
This data point comes after US durable goods orders for April unexpectedly rose by 0.7%, a positive signal for Mexican manufacturers who rely heavily on US demand. We remember the sharp industrial slowdown throughout the second half of 2025 was directly linked to weakening US consumption. This latest sync-up of better-than-expected data on both sides of the border could stabilize the outlook for Mexico’s industrial sector.
The Bank of Mexico will likely view this report as a reason to continue its cautious approach to cutting interest rates. With inflation holding steady at around 4.4% last month, this stronger output number removes the urgency for a more aggressive rate cut in their next meeting. This suggests that receiving fixed payments on short-term TIIE swaps could be a favorable position, as the market may have priced in a faster easing cycle.
For equities, this could boost sentiment for stocks in the IPC index that are sensitive to the domestic economy. We are seeing implied volatility on IPC options decrease slightly, making it cheaper to buy call options on the index to position for a potential relief rally. This is especially true when considering foreign direct investment in manufacturing hit a record $45 billion in 2025, showing the long-term nearshoring trend remains intact despite recent softness.
