The vein of nationalism that swayed elections in the U.S. and parts of Europe is now being tested in Latin America’s second-largest economy. The direction of Nafta, energy-sector investment and government spending goals hangs in the balance. Join us July 1 at 6 p.m. from Mexico City for live coverage of the election results, as well as comprehensive analysis of what the outcome means for the people, the economy and Mexico's neighbor to the north.
Markets expect Andres Manuel Lopez Obrador to beat out PAN-led alliance candidate Ricardo Anaya and the ruling PRI party's Jose Antonio Meade. While Lopez Obrador's anti-establishment message won over crowds during his campaign, it raised worries that market-friendly policies at home and economic relationships across the border are at risk if he's elected.
Hello, this is Eric Martin. I cover politics and economics in Mexico City, and I'll be leading Bloomberg's TOPLive blog for Mexico's 2018 national election.
Joining me to contribute reporting and analysis tonight are:
This is literally the biggest election in Mexico's history -- not just because the nation is expected to elect a leftist for the first time in almost five decades, but because a 2014 political reform that, among other things, aligned the nation's electoral calendar means that more than EIGHTEEN THOUSAND positions are in play at the federal, state and local levels, according to Integralia, the consulting firm of former electoral institute head Luis Carlos Ugalde.
Mexicans will elect all 128 Senators, 500 members of the Chamber of Deputies, 8 governors, a mayor for Mexico City, and thousands of local offices.
Ballots boxes at a polling location in the Del Valle borough of Mexico City. Photographer: Alejandro Cegarra/Bloomberg
Polls opened across the country at 8 a.m. local time (9 a.m. in Washington and New York) and close at 6 p.m.
Media and public opinion agencies are barred from releasing exit poll data until the final polls close nationally. That means that we won't be citing specific poll numbers here and expect to get our first exit poll data at about 8 p.m. in the nation's capital, when the last polls close in the western-most part of the country -- the states of Baja California, Baja California Sur and Sonora.
A voter casts a ballot at the Terminal de Autobuses de Pasajeros de Oriente (TAPO) bus station polling location in Mexico City. Photographer: Cesar Rodriguez/Bloomberg
Here are the presidential candidates in the order in which they've been polling:
Leftist Andres Manuel Lopez Obrador, 64, who was mayor of Mexico City from 2000 to 2005, is seeking the presidency for the third time after two previous unsuccessful bids and is the heavy favorite.
Ricardo Anaya, 39, the candidate of an alliance between the conservative National Action Party (PAN) and the social-democratic Party of the Democratic Revolution (PRD), is in a distant second place according to polls.
In third place in the polls is former finance minister Jose Antonio Meade, 49, of the ruling Institutional Revolutionary Party (PRI).
Former Nuevo Leon Governor Jaime Rodriguez, 60, known as "El Bronco," is running as an independent, but is an also-ran.
Bizarrely enough, Andres Manuel Lopez Obrado, known as AMLO, said that he didn't actually vote for himself. Instead, he cast his ballot for Rosario Ibarra de Piedra, a 90-year-old activist of the worker's party who worked tirelessly to try to find her son in the 1970's after he disappeared following his arrest by security forces.
Ricardo Anaya, presidential candidate for the National Action Party (PAN), cast his vote with his family at a polling station in Queretaro, Queretaro state, Mexico.
There have been a lot of reports of exit polls circulating on social media including on the WhatsApp messaging service with wide ranging numbers of dubious origins. Some local sites even have exit polls popping up as advertisements on their page. Following the irregularities during the U.S. Election in 2016, Facebook and others had warned that they were working to stamp out ``fake news.''
The Mexican peso was trading around 19.88/USD as a new week starts in Asia. That represents almost no change from last week's average of 19.93, based on closing prices Monday through Friday.
Nomura's Benito Berber, Mario Castro and David Wagner offered a concise summarization of expectations: markets have already priced in an AMLO victory AND the fact that AMLO will act in a moderate and fiscally responsible manner.
A Morena coalition majority in Congress doesn't appear to be fully priced in by the market. Also, an AMLO defeat is not priced in at the moment, according to Nomura.
A good point of comparison for how the peso may perform today may be the last two elections, back in 2012 and 2006.
In 2012, when Enrique Pena Nieto took the presidency in a widely-expected win against Lopez Obrador, the peso barely budged. It appreciated by a grand total of 0.17 percent. But in the highly-contentious 2006 race, when Lopez Obrador lost to Felipe Calderon by less than a percentage point, the peso spiked 2.2 percent the following day.
Here's what the peso was looking like the day after election day back in 2012:
Jose Antonio Meade, presidential candidate for Institutional Revolutionary Party (PRI), greets voters as he cast his ballot at ESDAI polling location in Mexico City.
Photographer: Eloisa Sanchez/Getty Images South America
One interesting feature of this year's election is that the politicians elected to the Senate and Chamber of Deputies (lower house) for the first time ever can be directly re-elected as a result of the 2014 political reform. Part of the idea behind the change is to make elected officials more responsive to their constituents instead of to party bosses.
In the past, for example, a Senator who wished to remain in federal politics would be dependent on the party to put them forward for a lower-house race at the end of their six-year term, instead of dependent on voters to reelect them to the Senate. This was among the factors that led to the idea of elected officials as "chapulines" -- or grasshoppers, jumping from one job to another.
In about five minutes our partner El Financiero newspaper will publish exit polls for some of the governor races. These figures can help us to see if the polls from the recent weeks are getting or not confirmed by today's surveys.
Bloomberg Opinion columnist Jonathan Bernstein recently spoke with Jennifer Piscopo of Occidental University, an expert in Latin American politics, about the likely effects of the election. She said:
His (Obrador's) party won’t win a two-thirds majority in Congress, which is the threshold for any constitutional reforms. In fact, his party may not even win a majority, and that would stymie his ability for reforms overall. The very real possibility of divided government should assuage fears that AMLO will throw Mexico’s economy dramatically off course.
The first thing to watch among Mexican assets is going to be the peso, which trades 24 hours and may begin reacting as soon as we have any kind of result back.
The next most important thing to keep an eye on will probably be Mexico's 2038 and 2023 bonds that are denominated in Japanese yen -- although there is a very small Korean ETF tracking Mexican stocks that may be moving during Asian hours.
For a full list of the assets to watch as returns roll in, check out:
If Lopez Obrador’s Morena party doesn’t win a majority in both houses of Congress, expect a relief rally for the Mexican peso in the days following the election, according to Wells Fargo.
If Lopez Obrador wins 45% of the July 1 vote and falls short of a congressional majority, peso could strengthen to 19 per dollar in the immediate aftermath, strategist Erik Nelson writes in a note
Lopez Obrador win is already priced in by markets and a surprise loss could spur a rally to around 17.50 per dollar, which is 2017’s low
In the worst-case scenario for the peso, Lopez Obrador wins the presidential election and also secures a majority in both houses of congress, taking the currency to as much as 21 per dollar
I chatted with some of Mexico's top bankers leading up to the vote and found they're arguably some of the most terrified about Lopez Obrador's ascent as a candidate. The leftist has been pretty silent on his plans for the finance industry and that resulted in some of them imagining the worst.
Here are some possible scenarios they're bracing for if he wins:
Reforms affecting what pension funds, known as afores, can invest in
While other candidates do not plan to radically change the country’s energy policy, Lopez Obrador has said he will scale back reforms that have lured in oil majors such as Royal Dutch Shell, Exxon Mobil and Chevron into a domestic industry monopolized by Petroleos Mexicanos for almost eight decades. Lopez Obrador has said that he may suspend new oil auctions, will review contracts already awarded and could temporarily freeze fuel prices -- measures that could reverse efforts by the current government to boost crude production and attract foreign investors.
Cheryl Wilson, a Bloomberg Intelligence government analyst, posits that Mexico's long-term clean-energy goals are still likely safe if Lopez Obrador wins.
"Still, developers Enel, Engie, Acciona and Canadian Solar could see near-term slowdowns in electricity auctions,'' Wilson says
Of the leading utility developers, Acciona may be most exposed, given Mexico projects could represent about 7% of the company's installed capacity, compared with Enel at 2% and Engie at less than 1%.
Markets may dip in the weeks following the election amid concerns his policies will dissuade foreign investment in the energy industry and create a bloated deficit. If Lopez Obrador wins a big majority in congress, things could get much worse. The most pessimistic view, from Exotix Capital strategist Rafael Elias, is that the peso will tumble to as low as 27 per dollar before the next president takes office Dec. 1.
We're starting to get our first exit polls in, and El Financiero is projecting that Claudia Sheinbaum, the Morena candidate, will be the next mayor of Mexico City.
Sheinbaum's win was widely expected, as she has been leading polls. Sheinbaum, a 55-year-old scientist, previously served as head of the Tlalpan neighborhood in southern Mexico City. Candidates from the left or left-led coalitions have controlled the mayor's office in the capital since the 1990s.
Mexico City mayoral candidate Claudia Sheinbaum cast her vote earlier today in Mexico City. Photographer: Bernardo Montoya/AFP/Getty Images
El Financiero has started pushing out exit polls for the governor's races. These will be some of the first indicators of how accurate pre-election voter preference surveys were.
Former Mexican soccer player Cuauhtemoc Blanco is poised to win as governor for Morelos state under Lopez Obrador's Morena party, according to exit polls just released. He played in three World Cups with the national team.
And then around 11pm local, the national electoral institute (INE) will release an estimate of the vote outcome based on the results of ~5% of voting stations.
There are three developments to monitor in deciding whether the next administration would be favorable for financial markets, according to Komal Sri-Kumar, the president and founder of Sri-Kumar Global Strategies:
If AMLO extends an olive branch to private industry groups such as the Mexico Business Council while seeking their support to boost economic growth, expect the peso to appreciate and U.S. equity holders to breathe a sigh of relief.
A decision to reverse energy reforms would be negative for foreign direct investment flows that are considered to be sticky and provide long-term stability to a country’s foreign-exchange resources.
While AMLO is expected to be a tougher negotiator with Trump on Nafta, investors will judge the new government by its willingness to find common ground with the U.S.
The Mexican peso is leading global currency gains ahead of the election results. The peso gained 0.4 percent to 19.8233 per dollar at 7:03 p.m. in New York, leading gains among major currencies hours ahead of expected results in the country’s historic presidential election. Low liquidity conditions may be key driver.
Cuauhtemoc Blanco greeted supporters during Andres Manuel Lopez Obrador's final campaign event at Azteca Stadium on June 27, 2018 in Mexico City. Photographer: Carlos Tischler/Getty Images
Mexico's election impact is reaching as far as Europe. A jump in euro corporate bond supply from Mexican corporates in recent years gives European investors a good reason to follow this election. Mexico's firms have almost EU40b of bonds outstanding, most of them issued by oil group Pemex.
Spreads in euro-denominated bonds from Pemex, building materials group Cemex and car parts maker Nemak have stayed on a widening track this month even as the wider market staged a short-lived post-Italy recovery. Concerns about the potential policies of populist front-runner Andres Manuel Lopez Obrador have been simmering for months but could reach a crescendo around the vote.
Some of the big banks will be hosting conference calls with investors on Monday and/or Tuesday morning to walk people through how to play the election outcome. I'd wager a lot of them will focus on FX.
Morgan Harting, a senior portfolio manager at AllianceBernstein in New York, says the incoming government may pose a risk to markets with promises of higher spending and Nafta renegotiations.
However, he said "it’s also possible that AMLO could turn out to be more market friendly than what’s priced in."
Bloomberg emerging markets reporter Ben Bartenstein points out that the largest exchange-traded fund tracking Mexican stocks is headed for its best month since January amid growing optimism that a win by Obrador will turn out more market-friendly than originally thought. Mexican stocks and bonds advanced and the peso posted its biggest one-day gain in more than a year on Thursday.
