Q1 2026 was supposed to be the quarter where the Mexico thesis played out cleanly: Banxico easing, peso stability, consumption recovery, and the beginning of the USMCA review process. Instead, the quarter delivered all of those things plus an oil shock that nobody anticipated, creating a market narrative that was far more complex than the simple “bullish on Mexico” framing that dominated January. Here is what actually happened, what it means, and what we are watching as Q2 begins.
Mexico Q1 2026 multi-asset scorecard
| Indicator | Jan 1, 2026 | Mar 28, 2026 | Q1 change |
|---|---|---|---|
| IPC (MXN) | 64,308 | ~64,500 | +0.3% |
| IPC (USD) | ~3,572 | ~3,603 | +0.9% |
| USD/MXN | 18.00 | 17.91 | -0.5% |
| MBono 10Y yield | 9.1% | 9.5% | +40 bps |
| Banxico rate | 7.00% | 6.75% | -25 bps |
| Headline CPI | 3.77% | 4.63% | +86 bps |
| Core CPI | 4.47% | 4.46% | -1 bp |
| Brent crude (USD/bbl) | 72 | 103 | +43.1% |
Source: BMV, Banxico, Trading Economics, EIA. Values as of start and end of Q1 2026. Colors reflect directional impact on equity investors, not raw sign.
The IPC: record high, then retreat
The IPC opened the year at approximately 64,300, carrying momentum from a 30% rally in 2025. January delivered steady gains as foreign flows resumed and Banxico’s February decision approached. February was the headline month: the index hit an all-time high of 72,111 on February 12, driven by broad-based buying across consumer, financial, and industrial names. February closed at approximately 71,400, up 5.6% for the month alone.
IPC Q1 2026: all-time high, then what?
Source: BMV, Trading Economics. Illustrative daily path based on reported levels.
Then the Strait of Hormuz crisis changed everything. Military action on February 28 disrupted global oil supply, and the selloff that followed in March erased most of the year’s gains. The IPC dropped roughly 10% from its February high, falling below 65,000 by late March as Brent crude surged above USD 100 and global risk appetite collapsed. The index ended Q1 near 64,500, a gain of roughly 0.3% for the quarter in peso terms: almost exactly flat after one of the most volatile three-month stretches in recent memory.
In USD terms, the picture was slightly different. The peso appreciated from approximately 18.0 per dollar at year-start to a low of 17.1 in late February, before weakening back to approximately 17.9 by quarter-end as the Hormuz crisis hit. For a dollar-based investor, the Q1 return was roughly 0.5% to 1.0%, effectively flat.
The breadth was telling. Through mid-February, 30 of 35 IPC constituents were in positive territory. By quarter-end, only a handful had held their gains. The names that outperformed through the Hormuz selloff were the defensive plays: WALMEX (resilient consumer spending), Banorte (benefiting from still-high rates), and Megacable (domestic revenue, limited oil exposure). The underperformers were names with international exposure or commodity sensitivity: Grupo Mexico (copper volatility), CEMEX (energy-intensive operations), and Orbia (petrochemical input costs). Industrias Penoles was the outlier on the upside, as gold surged above USD 3,000 per ounce during the Hormuz risk-off trade.
Banxico: from consensus to controversy
The monetary policy story dominated Q1 and evolved dramatically. The quarter began with a clear consensus: Banxico would continue its cautious easing cycle, delivering two to three 25 basis point cuts through 2026. The February 5 decision validated this view, as the board voted unanimously to hold at 7.00%, signaling patience in the face of still-elevated inflation.
The March 26 decision shattered the consensus. The board voted 3-2 to cut to 6.75%, resuming easing despite headline inflation rising to 4.63%. Only 14 of 37 analysts in the Citi survey expected the cut. Governor Victoria Rodriguez, along with Gabriel Cuadra and Omar Mejia, prioritized economic weakness over inflation persistence. Galia Borja and Jonathan Heath dissented, preferring to hold. As we wrote in our analysis of the March decision, the split vote signals a board more divided than the market assumed, and the path from here is genuinely uncertain.
The Banxico rate path is the single most important variable for Mexican equity valuations in 2026. The consensus year-end expectation has shifted from roughly 6.25% (pre-Hormuz) to a range of 6.25% to 6.75%, reflecting uncertainty about whether the board will pause again if inflation remains elevated. The Banxico-Fed spread narrowed to 300 to 325 basis points but remains wide enough to support carry flows.
The peso: two stories in one quarter
The peso told a tale of two halves. In January and February, it was one of the best-performing EM currencies, appreciating from approximately 18.0 to a low of 17.1 per dollar. The drivers were familiar: the wide rate differential, strong remittance flows, and improving sentiment on the Mexico macro story. Non-resident inflows into CETES and MBonos increased steadily, and the peso became a consensus EM long.
The Hormuz crisis reversed the trend. USD/MXN moved from 17.1 to approximately 17.9 in March, briefly touching 18.0 intraday on March 26 (the same day Banxico cut rates). The peso weakness was driven by the global risk-off move, higher oil prices feeding inflation expectations, and uncertainty about Banxico’s rate path. By quarter-end, the peso had round-tripped: approximately 18.0 at start, approximately 17.9 at close, with a 1.0 peso swing in between.
For equity investors, the peso round-trip meant that USD-denominated returns on the IPC were effectively zero. For fixed income investors, the carry trade was still profitable: MBono 10-year yields traded in the 9.0% to 9.5% range all quarter, providing a real yield of approximately 5% even after the inflation spike. The carry more than compensated for the currency volatility.
USMCA: the slow fuse
The USMCA bilateral review launched on March 16, when USTR Jamieson Greer and Secretary of Economy Marcelo Ebrard announced the first round of discussions. The formal Joint Review is scheduled for July 1, 2026, under Article 34.7 of the agreement. If all three parties confirm intent to continue, USMCA extends for an additional 16 years. If any party declines, the agreement enters a sunset period.
The initial discussions focused on reducing dependence on extra-regional imports, strengthening rules of origin, and enhancing North American supply chain resilience. The Hormuz crisis added urgency to the supply chain security agenda: the disruption to Middle Eastern oil shipments reinforced the argument for North American energy self-sufficiency.
The market has priced in a base case of USMCA continuation with targeted modifications, not a fundamental renegotiation. This is broadly correct, in our view, but the bilateral (not trilateral) negotiating structure introduces risk. The U.S. is conducting separate talks with Mexico and Canada, which creates the possibility of asymmetric outcomes. Mexico’s leverage is stronger than Canada’s on manufacturing and labor provisions, given the nearshoring momentum. But the auto rules of origin and energy provisions remain contentious. We expect the USMCA review to be a persistent background risk for Mexican equities through the first half of 2026, with periodic headline-driven volatility that creates opportunities for patient allocators.
The macro backdrop
The broader macro picture in Q1 was mixed. GDP grew 0.8% in full-year 2025, the weakest since the pandemic, though Q4 2025 rebounded at 0.8% quarter-over-quarter after a contraction in Q3. Early 2026 indicators pointed to renewed softness, which was one of the factors that motivated the March rate cut.
Headline inflation rose from 3.77% in mid-January to 4.63% by mid-March, driven by non-core components (energy, seasonal food). Core inflation was essentially flat at 4.46%, providing some comfort to the Banxico majority. The private sector consensus expects headline inflation of approximately 4.0% by Q4 2026 and convergence to the 3.0% target in Q2 2027.
Remittances remained robust, supporting peso demand and consumer spending in key states. Manufacturing PMI data was mixed: the northern states tied to U.S. supply chains held up better than the national average, reinforcing the geographic divergence we discussed in our FDI analysis.
What we are watching in Q2
Five things matter from here. First, whether the Strait of Hormuz crisis resolves or escalates: this is the single largest exogenous variable for inflation, the peso, and Banxico’s rate path. Second, Q1 2026 earnings season, starting in late April: the first reporting cycle that reflects the Hormuz impact on costs. Our Alsea equity research report, the first in The Investment Case publication series, covers one of the most important Q4 2025 earnings stories. Third, Banxico’s May 15 decision: will the board hold at 6.75% or cut again? The inflation data between now and then will determine the answer. Fourth, the USMCA bilateral talks progressing toward the July 1 formal review: headline risk increases as the deadline approaches. Fifth, the IPC’s technical setup: the 72,111 all-time high becomes resistance, and the 64,000 to 65,000 range that held through the March selloff becomes the floor to watch.
The bottom line
Q1 2026 was a quarter of contradictions: a record high and a near-total round-trip, a unanimous pause followed by a controversial cut, peso strength followed by peso weakness, and a carry trade that survived a geopolitical shock. The underlying Mexico thesis remains intact: the rate differential is wide, nearshoring flows are real (if concentrated), and the equity market offers value at roughly 10x to 11x forward earnings. But the thesis now comes with a more complex set of risks than it did in January. The Hormuz crisis added inflation uncertainty, the Banxico split vote added policy uncertainty, and the USMCA review adds trade uncertainty. For patient investors with a multi-quarter horizon, the setup is attractive. For those looking for a clean, low-volatility ride, Q1 served as a reminder that Mexico is still an emerging market, and emerging markets earn their risk premium.