Multilingual AI-driven EM Outlook
Synopsis:
The Trump trade tariffs for the key Latin American markets of Mexico and Brazil were expected to hit hard, but both countries are feeling some relief after being spared, relative to other major trading partners of the US. Local sentiment across key macro indicators in Mexico and Brazil rose on the day after the announcement, as did local equity markets and currencies.
EMAlpha’s Macro Monitor uses proprietary multilingual AI to detect local language market sentiment in global newsflow. In the charts below we isolate the changing local sentiment for Trade Tariffs, the Economy, Exports and the Stock and Bond Markets for each country.
Fig. 1: Mexico Macro Theme Sentiment Scores: EMAlpha’s Multilingual AI inspected local Mexican news and used Spanish language sentiment analysis to detect sentiment scores for various macro themes. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
Mexico
- Mexico got an exemption from the reciprocal tariffs due to its inclusion in the USMCA trade agreement with the US and Canada and so is only subject to a 25% duty on auto, steel and aluminum exports to the US. Macro sentiment, perhaps anticipating such an outcome, had been improving in the days leading up to the announcement.
- Sentiment on the Trade Tariffs in Mexico improved to -0.11 from -0.46 on the eve of the announcement – our sentiment scoring band ranges from +1 (most positive) to -1 (most negative). With $506 billion of exports to the US in 2024, Mexico is relieved to get preferential treatment and side-step the reciprocal tariffs.
- The macro themes, Exports (+0.4) and Economy +0.44), are both firmly in positive territory post tariffs announcement, despite forecasts for Mexican economic growth that are discouraging. Many forecasters were predicting negative GDP growth from the tariffs directly and from sagging global growth.
- Financial assets got a liberating boost from the so-called “Liberation Day” as the peso added to its gains of 4.5% against the US dollar YTD and further gains could be in the offing if decelerating US growth pushes the USD lower. The Currency sentiment theme leapt firmly into the positive on April 3 from negative territory on the previous day.
- With the MSCI Mexico Index up nearly 9% YTD, improving local Stock Market sentiment could extend the gains if the actual tariffs imposed are better than expected.
Fig. 2: Brazil Macro Theme Sentiment Scores: EMAlpha’s Multilingual AI inspected local Brazilian news and used Portuguese language sentiment analysis to detect sentiment scores for various macro themes. The scores are normalized such that +1.00 signifies extreme optimism and -1.00 signifies extreme pessimism.
Brazil
- Brazil has a trade deficit with the US, so only gets assessed the base tariff of 10% and was spared any reciprocal tariffs. Sentiment for the Trade Tariffs theme rose sharply on the announcement and is near neutral on the sentiment scoring band that ranges from +1 (most positive) to -1 (most negative).
- While Brazil is not directly targeted by the new tariffs, there are indirect consequences that had been dragging down sentiment. The OECD has warned that the Trump tariffs could lead to decelerating global growth and a further slowdown in Brazil’s economy.
- While local sentiment for the Economy is firmly negative, sentiment for Exports, however, is cheery. Brazil exports to the US were $37 billion in 2024 and, with China as Brazil’s largest trading partner and some big tariffs on other trading partners, there is an opportunity for Brazil to expand it’s trade with China and other markets in Asia and Latin America.
- The Stock Market and Bond Market sentiment themes were also buoyed by the announcement and the BRL extended its appreciation to the USD beyond 9% YTD. It could be an encouraging set-up for adding to the MSCI Brazil Index’s YTD gain of 15.6% if the trade tariffs are ultimately not the death-knell of global growth.
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