The Crash of the Mexican Peso is hurting some US Businesses

The Crash of the Mexican Peso is hurting some US Businesses

by, David Frank, Economist

This year, one of the biggest financial stories surrounding the US presidential election was the Mexican peso which became the proxy of sentiment surrounding which candidate was in the lead. It was stronger when Hillary Clinton was in the lead and weaker when Donald Trump was in the lead. Now, there is President-elect Donald Trump.

Mexico’s peso became a gauge of Donald Trump’s prospects in the weeks leading up to the November 8 vote which saw his stunning victory. He has a protectionist platform which can and will adversely affect the Mexican economy. Since he won, the Mexican peso has crashed by about 13 percent.

Over the course of Trump’s campaign to win the White House, he zeroed in on US trade deals including the North Atlantic Free Trade Association (NAFTA) with Mexico and Canada. He argued it was hurting US companies and taking jobs out of the United States.

At the same time that the peso is weakening, it might not be good for US companies as well. This past Monday. The Dallas Federal Reserve released its latest assessment on business activity in Texas. This survey include comments from respondents. One of the respondents pointed a finger at the crashing Mexican peso that could be bad news for his company. “The recent devaluation of the peso will make our products much less competitive in Mexico and much of Latin America. We could see a double-digit decrease in exports to this region,” the respondent said.

As the US Dollar becomes more expensive against the Peso, then goods and services from the United States become more expensive for consumers in Mexico. This means they could buy less American products going forward. In short, a really weak peso against the Dollar is not great news for US companies with international exposure. Especially with a lot of exposure with the Mexican economy.

Last week, Meg Whitman, the chief executive officer with Hewlett Packard spoke to CNBC’s Squawk on the Street on Wednesday. While she did not focus on the Mexican peso she did make comments about the stronger US Dollar. She said that the “the currency headwinds are very real. Because when the dollar is strong, our goods are more expensive overseas. She also said that customers are buying less now and that means that We’ve got to get our cost structure in line.”

Over the last month or so, US firms have been releasing third quarter results. These results have not been terrible with many firms meeting or even beating expectations. However, many US companies with strong exposure to the international markets have reported they were changing outlooks to forward guidance. Profits, even now, were hurt by a stronger US Dollar, especially in emerging markets. If the Dollar continues to edge higher than future profits will be adversely affected as well.

from Bullish University http://ift.tt/2gIUyhG