Mexican Assets Rally Three Days Ahead of Historic Election

(Bloomberg) -- Mexican stocks and bonds rallied and the peso posted its biggest one-day gain in more than a year amid growing conviction that a victory for Andres Manuel Lopez Obrador will be better received by the market than expected.

The peso climbed 2.2 percent, posting the largest gain since March 2017, while the Mexbol stock index put in its best performance in two weeks and nearly all Mexico USD sovereign bonds rallied.

Left-leaning firebrand Lopez Obrador is set to win a landslide victory in the July 1 election, while control of the Lower House and the Senate remains in the balance. After Lopez Obrador’s rise put assets under pressure through the year, assets are now moving higher as the markets have long priced in his win. His cabinet choice and messaging after the election will likely be well-received by markets, Credit Agricole said in a report today.

"Investors have been growing more comfortable with the potential outcome, and the lack of USD pressure makes this sentiment more pronounced," said Danny Fang, an analyst at BBVA in New York. "There are still political risks in Mexico, but that is probably for a later time."

The market is also being helped by comments from central bank deputy governor Javier Guzman Calafell who told attendees at a Santander event in London that the central bank will be there to respond to emerging circumstances.

"It’s a combination of factors," said Jesus Lopez, an analyst at Banco Base in Monterrey. "It’s the confirmation that Banxico is ready to continue raising its interest rate, together with the increase from last week and a clear increase in the demand for assets in pesos."

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