Oil sends 10Y to 4.70%, peso foots the bill: score slips to 42
The Risk On index sums up global risk appetite — with a Mexico focus — in a single 0–100 number. Depending on where it lands, the day falls into one of these four bands:
The Risk On index is a proprietary indicator, designed and maintained by Mauricio Mercenario. It is a market-reading tool, not investment advice.
Good morning!
Crude lights the fuse and the market pays in rates
The ECB did the expected: it left all three rates on hold, deposit at 2.25%, and the reaction was minimal because it was fully priced. Lagarde wasn't the event.
The real engine this morning is crude. WTI jumps +4.35% to 90.61, reviving an inflation scare that had gone quiet. That's the thread tying everything together today.
The peso foots the bill: 17.49
USD/MXN trades at 17.4873, a 0.48% gain that erases part of yesterday's solid close. The peso isn't at fault on its own merits: it's paying the ticket for a less friendly global backdrop.
The rate premium still works in its favor —the Banxico–Fed differential holds at 2.87pp— and that cushion is what prevents an uglier correction. Carry is holding, but it doesn't call the shots when crude owns the narrative.
Structurally the local floor stays firm, with June inflation at 3.37% and Banxico anchored at 6.50%. Today is global beta, not a Mexico story.
The 10Y breaks the 4.64% we flagged yesterday
Yesterday we noted the 10Y at 4.64% was sapping the bounce. Today that level is behind us: the ten-year trades at 4.70% (+0.99%), pushed by crude.
The curve is steepening from the long end —textbook bear-steepening—: the 30Y already pays 5.13% while the 2s10s widens to 0.37pp. The market is demanding more premium for inflation, not growth.
That long-end repricing is kryptonite for carry EM currencies. When Treasuries pay more, the peso's relative appeal compresses.
FOMC six days out with Warsh watching
Looking ahead, the calendar tightens. The July 29 FOMC arrives with the market having erased any 2026 cut and the debate shifting toward whether the next move could be a hike under Kevin Warsh. The July 30 PCE drives the next nail.
Market view: with the ten-year above 4.60% and crude bid, the bias favors the dollar near term, with resistance at 17.5531 as the reference. That's an opinion, not an instruction.
What invalidates it? A pullback in the 10Y below 4.60% with crude cooling returns me to neutral and hands the baton back to carry. Until then, the ceiling calls the tune.
The Risk On score drops from 48 to 42, DEFENSIVE: crude, rising rates and a defensive peso outweigh the carry cushion. It's not panic —VIX at 18.64 confirms it— but a market that prefers to hedge rather than chase risk.
— See you tomorrow for Friday's view.
Index at the time of this note (2026-07-23) — the live value on the homepage may have changed.
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