Mexico’s Gross Domestic Product (GDP) grew by 0.7% year-on-year in the second quarter, beating expectations that predicted a 0.1% decline. This growth shows that Mexico’s economy was stronger than many had thought during this time. GDP measures the total value of goods and services produced in a specific period and is essential for understanding economic health. Positive GDP growth often means an expanding economy, while negative growth could indicate a downturn. This unexpected growth of 0.7% in the second quarter challenges our recently cautious view on Mexico. Since the market anticipated a small contraction, this positive news will likely lead to a quick reassessment of Mexican assets. We need to adjust our strategies to account for this newfound economic strength. We expect the Mexican Peso to rally. It had weakened to around 18.50 per dollar earlier this month due to recession worries. This strong GDP figure could push it back toward the 17.80 level we saw earlier this year. Traders might consider taking long positions on MXN futures or buying call options on peso-tracking ETFs. For the IPC index, which has been around 54,000 points, we may see it rise. The unexpected nature of this data will likely increase implied volatility, making options strategies more appealing. We are considering buying call options on the index to seize potential short-term gains. This stronger-than-expected economy complicates the outlook for Banxico’s upcoming policy meeting in August. Although inflation remained high at 5.5% in June, this growth data gives the central bank less reason to lower its 11.75% policy rate soon. This uncertainty presents opportunities for trading through straddles or strangles on rate-sensitive stocks. Remember that the peso strengthened notably throughout 2023 due to high interest rates and nearshoring, creating the “super peso” narrative. This GDP reading may reignite that sentiment, but we must stay cautious. Upcoming US manufacturing data will be crucial; any slowdown there could dampen this positive domestic news.

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