“When the Mexican peso gets a cold, Laredo sneezes,” Les Norton, head of the Downtown Merchants Association says.
Despite the fact that Banxico managed to take MXN shorts out into the alley and execute them earlier this month in an epic “franc moment,” the trend, so to speak, is not your friend here.
Mexico’s currency has taken a dramatic hit from the slump in crude. Like other EM FX pairs, the USDMXN hasn’t been the place to be over the past year (again, recent weakness notwithstanding).
And much like what we’ve seen with the loonie, the FX malaise has real implications for people’s purchasing decisions. Need proof? Look no further than Silvia Guerra’s store in Laredo, Texas which is on the state-side of the Rio Grande. As Bloomberg notes, Guerra sells “dresses and colorful rolls of fabric,” but these days, the collapsing peso means “she’ll be out of business by May.”
As Bloomberg goes on to recount, Silvia is a poster child for the malaise that’s accrued from the collapse in oil prices. “Her husband lost his job leasing drilling equipment for Weatherford [and] their daughter, an administrator for Baker Hughes in San Antonio, was told her position is at risk after more than 700 firings recently at the oil-services company.” Furthermore, “their son, who supervises fracking operations for C&J Energy Services, has seen his paycheck shrink so much he’s looking for side work.”
Earlier this month, Weatherford fired 15% of its workforce or, around 6,000 people. Guerra’s husband was fired after 16 years at the company.
“The news hit us like a bomb,” she said.
“Most of the 115 million people who cross into Texas legally from Mexico every year are on shopping expeditions, and by some estimates are responsible for one of every two retail dollars spent in Laredo,” Bloomberg notes. “They buy everything from jeans to smart phones to toys.”
Well, unless the exchange rate crashes. Then they don’t buy anything.
“Now with the peso, my customers are not coming anymore,” Kush Samtani who owns a 27-year-old electronics shop bemoans.
As Bloomberg goes on to note, around a third of Laredo’s residents live below the poverty line. Per capita income is less than $16K. “What’s different this time is that Laredo is also taking a hit from the bust in the Eagle Ford, one of the fields behind the surge in U.S. oil output in the past half-decade,” Bloomberg adds.
For those who might have missed it, here’s what the situation looks like:
But that’s ok, because Robert Kaplan is on the job.
And he’ll definitley make things right again. Besides, there’s nothing wrong in the first place (i.e. there are no struggling financial institutions, just ask the Dallas Fed, who told Zero Hedge that there’s nothing to worry about when it comes to O&G reserves).
On second thought, you should worry. At least if you’re Silvia Guerra. Because a surging dollar is going to continue to pressure EM. And thanks to Saudi Arabia (and Iran, through no fault of their own), commodity prices are going to remain subdued. As will EM FX. In fact the correlation between EM FX and commodities has intensified:
So good luck Silvia.
“I’m very sad that I have to close my store,” she told Bloomberg.
Tell it to King Salman. And then maybe see if he’ll lend you some gold to cover your bills.
via Zero Hedge http://ift.tt/1Y2PhS2 Tyler Durden