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Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

Stalled-NAFTA-talks-should-ultimately-prove-successful

Stalled NAFTA talks should ultimately prove successful

Jorge Amato

By Jorge Amato

Head - Latin America Investment Strategy

October 30, 2017Posted InInvestments, Equities, Fixed Income and Investment Strategy

After four rounds of talks, the NAFTA negotiations have hit an impasse.

Mexico and Canada have strongly suggested that they will not accept the latest US proposals as they stand. A cool down period has been announced and the parties have agreed to allow for negotiations to extend into 2018 with the fifth round of talks now set for 17 November in Mexico City.

Market angst had also increased as President Trump has publicly spoken about the possibility of the US walking away and terminating the agreement. He recently threatened to give six months’ notice to leave the agreement but not necessarily then pull out, believing this will give the US more leverage.

Moreover, the Mexican and Canadian governments have indicated that they would not continue negotiating under a six-month notice window.

While the long-term economic impact for Mexico is unlikely to be fatal, the short-term consequences of the uncertainty in case of termination are likely to be felt through the exchange rate, consumer and investment confidence, and consequently throughout the economy.

Eventually, an even more competitive exchange rate and reallocation of specific sector resources should pave the way for a strong recovery, but this could take some time.

Our base case (70%) is that NAFTA will ultimately be successfully renegotiated, with the second most likely scenario (20%) is new bilateral agreements. Terminating NAFTA is a lose-lose for all involved, but accepting a bad NAFTA is also a poor option for Mexico and Canada.

It is worth highlighting, however, that NAFTA was not entirely a boon for Mexico. Its impact on the Mexican economy was more crucial via the direct investment poured into Mexico by US companies and the integration of supply chains, particularly in the auto sector and in the northern region of the country. A very broad segment of the Mexican economy would actually see little direct impact if NAFTA was terminated.

Moreover, while the broad economic impact of withdrawing from NAFTA on the US would be limited, it could be most felt in those states such as Texas, Illinois, and Michigan and industries like automotives where the supply chain integration and investment is the largest. Potential negative impacts are likely to play a significant role in our view that a political solution could be reached.

A divide and conquer strategy could also be a real possibility. President Trump has suggested several times that he prefers bilateral over multilateral deals. If NAFTA talks fail completely we would not be surprised to see Canada and Mexico begin bilateral talks in the immediate aftermath. This strategy, however, might not be the preferred route for Canada and Mexico as they would lose some of the leverage they currently have by presenting a united front in current talks, but they might not have a choice

We expect further volatility and potential weakness in the Mexican peso during the negotiation period. But sharp market sell-offs can present tactical opportunities.

We have held a broadly market weight recommendation for tactical exposure to Mexico throughout the year, balancing a constructive macroeconomic and valuation view with the potential risks of NAFTA talks. We maintain our 12-18 month neutral tactical recommendation for equities and external debt and our overweight in local bond markets despite our expectations of additional spot FX volatility and potential weakness. We would consider sharp market sell offs as tactical opportunities to add to equities and external debt.