The peso opens at 21.60 with appreciation against the dollar

The peso starts the session with an appreciation of 0.22% or 4.8 cents, trading around 21.60 pesos per dollar, gaining ground for the fourth consecutive session and respecting a minimum close to 21.55 pesos overnight.

The appreciation of the peso continues to be driven by expectations of an economic recovery in the United States. It should be noted that during the week economic indicators (PMIs) have been released that show a sustained recovery in manufacturing as of August.

Likewise, the United States government has announced as probable the distribution of a vaccine against Covid19 from November, which could accelerate the recovery process of the service sector.

A few moments ago, the non-farm payroll for August was released in the United States, showing the creation of 1.4 million jobs, slightly above market expectations of 1.3 million.

Since March when the pandemic began, a total loss of 11.48 million job positions has accumulated. With this figure, the unemployment rate decreased to 8.4% from the 10.2% registered the previous month.

Likewise, the underemployment rate, referring to people who would be willing to work longer hours, decreased to 14.2%, which indicates that the recovery of the labor market continues.

On the other hand, Micheal Saunders, a member of the Monetary Policy Committee of the Bank of England (BOE), said that it is likely that the BOE will have to increase its accommodative measures to combat the economic impact of the pandemic.

The foregoing, due to the fact that a period of excess supply greater than initially foreseen is expected.

Saunders mentioned that the BOE still has room to expand its bond purchase program and that the Committee is also evaluating the possibility of adopting interest rates below zero. Notably, the UK showed an annualized quarterly decline in the second quarter of 59.8 percent.

The peso and the stock markets

In the foreign exchange market, the performance of currencies against the dollar is mixed, with moderate gains and losses.

Something similar is observed in the capital market, with a mixed performance in Europe, with losses predominating, where the London FTSE 100 fell 0.06% and the German DAX lost 0.70 percent.

In the United States, the futures market continues to point to losses in the capital market, skewed towards the technology sector.

At the open, the S&P 500 could show a decline close to 0.30%, while the Nasdaq is likely to show a decline of more than 1 percent.

In contrast to the foreign exchange market and the capital market, the commodity market shows a rebound to the losses of previous sessions.

The WTI shows an increase of 0.70% on par with the Brent that advances 0.45%. Industrial and precious metals also show mostly gains, with aluminum advancing 0.70%, copper 1.32% and gold 0.31 percent.

It should be remembered that in previous sessions the falls in the price of raw materials were related to the strengthening of the dollar, something that was no longer observed during the overnight.

Automotive section

Regarding economic indicators, INEGI released the monthly report of the administrative registry of the 21 affiliated companies of the Mexican Association of the Automotive Industry (AMIA).

Car sales in August maintained moderate gains for the fourth consecutive month, reporting 77,092 units from 72,897 units in July, equivalent to a 5.75% monthly increase and a 28.66% annual fall.

On the other hand, production registered a total of 293,462 cars, showing the first monthly decline in three months of 0.50 percent.

Likewise, in annual terms, production showed a fall of 13.15%, after having recovered in July from the impact of the pandemic with an increase of 0.65 percent.

Finally, the export of light vehicles presented a moderation in its growth, registering a total of 257,610 units during July, which represented an advance of 0.59% per month.

At an annual rate, it shows a contraction of 8.59%. In general, the lower annual drop in exports makes it clear that the strength of the automotive sector is mainly due to external demand.

Internal consumption

On the other hand, INEGI resumed the traditional publication of the National Survey on Consumer Confidence (ENCO). In August, the indicator stood at 34.6 points, equivalent to a monthly increase of 0.5 points and an annual fall of 8.7 points.

Inside, there is greater optimism in the component that evaluates the current and expected economic situation of household members, with a monthly increase of 2.0 points.

Indicators of Banxico

Likewise, an advance was observed in the item on the possibility at the present time to make purchases of durable goods of 0.5 points, to settle at 15.7 points, because this component represents the lowest level of the indicator, it is unlikely that it will boost the consumption of durable goods in the following months.

During the session, the exchange rate is expected to trade between 21.43 and 21.75 pesos per dollar. The euro starts the session with a 0.16% depreciation, trading at $ 1.1833 per euro, while the pound depreciates at 0.17% and is trading at $ 1.3259 per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increased by 2.8 basis points, at a rate of 0.66%, while in Mexico the yield on the 10-year M bonds increased by 0.7 basis points, at 6.03%.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 22.50 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.01% and represents the right but not the obligation to buy dollars in the aforementioned level.

On the other hand, the interbank forward for sale is at 21.6254 at 1 month, 22.0077 at 6 months and 22.4900 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco Base