** NAFTA renegotiation talks have taken a turn for the worse says JP Morgan derivatives strategist; recommends buying Dec puts on U.S.-listed iShares MSCI Mexico Capped ETF to position for ‘confluence of potentially highly negative events’
** Mexico’s Economy Minister last week said Canada, Mexico, and the United States were not at a point where they could see common ground needed to conclude the talks
** While the base case scenario favors a positive conclusion of NAFTA, the chances of a ‘worst case’ or no-deal scenario have significantly increased, JPM says
** “As we proceed toward year-end and into 2018, we see greater risk to Mexican equities that may lead to foreign fund outflows if the currency outlook deteriorates,” JPM strategist Shawn Quigg, says in note
** “The political cycle in Mexico is quickly approaching,” says Quigg; “This leaves little time for Mexican authorities to renegotiate before political campaigns officially begin in March”
** Take advantage of implied volatility near multi-year low, says JPM; recommends buying EWW Jan 18 51 strike puts
** On Mon, EWW down 0.9 pct at $51.5. ETF still up just over 17 pct YTD
