Mexico's peso slipped on Friday and stocks fell after J.P. Morgan's loan losses hurt confidence that there will be a rebound in consumer credit in the United States, Mexico's top trading partner. The peso slipped 0.32 percent to 12.708 per US dollar while the IPC stock index lost 0.97 percent to 32,410.
J.P. Morgan's large mortgage and credit card businesses have seen rising credit costs in the last year. The bank said it set aside $4.2 billion to cover mortgage losses in the fourth quarter, up $653 million from the same quarter a year, when the global credit crisis deepened. "This makes you think that we are not out of the crisis yet," said Carlos Alonso, a trader at brokerage Interacciones in Mexico City.
Mexico, which sends around 80 percent of its exports to the United States, is depending on a rebound in US consumer demand to recover from a deep local recession. In currency trading, the US dollar rose broadly on Friday after data showed a rise in manufacturing and stable consumer price inflation in the United States. Other emerging market currencies were hurt more than the peso, as news of economic recovery in the United States is seen having a direct benefit for Mexico.
Local bonds pared gains slightly after Mexico's central bank warned it could raise interest rates if new taxes and recent energy price hikes have a bigger impact on inflation than expected. After bidding as low as 7.78 percent, the yield on the government's benchmark 10-year bond bid at 7.80 percent, down 2 basis point from Thursday.
The Mexican central bank left its benchmark interest rate steady at 4.50 percent, saying weak economic growth would dampen the effects of tax increases on inflation. The bank, however, in its policy statement said there was a risk the tax hikes could broadly push consumer prices and inflation higher. "The market was expecting the statement to be a little more soft," said Mario Correa, an economist at Scotiabank in Mexico City. In stock trading, shares in America Movil, Latin America's biggest cell phone provider, fell 1.89 percent to 29.65 pesos while cement maker Cemex shed 1.64 percent to 14.95 pesos.