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The peso (19.77 vs dollar), 4T and elections in Mexico

The Mexican peso starts the week with an appreciation of 0.95% or 19.0 cents, with the exchange rate trading close to 19.77 pesos per dollar and reaching a minimum of 19.7429 pesos, a level not seen since May 18.

The Mexican peso is the best performing currency in the broad basket of major crosses, due to a reaction to the June 6 elections, in which the Morena party, led by President Andrés Manuel López Obrador, is expected to achieve little less 50% of the 500 seats in the Chamber of Deputies.

Although it was not a presidential election, the preliminary result of the quick count suggests that the president will have a little more opposition if he seeks more constitutional reforms.

It should be remembered that, in recent months, some bills have been proposed and / or approved that have generated uncertainty in the Mexican markets and that could scare away investment, which had been causing some episodes of upward pressure for the exchange rate. .

In the rest of the financial markets, a session with few changes is observed, due to the fact that no economic indicators were published or relevant news were released.

Investors may maintain a cautious behavior, prior to the publication of inflation in the United States, scheduled for Thursday, June 10.

Inflation and peso

It should be remembered that inflation expectations in the United States and its potential effects on monetary policy have been one of the main sources of volatility in recent months.

In Mexico, inflation for the second half of May will also be published, scheduled for Wednesday, June 9, which could also generate volatility in the exchange rate.

Regarding economic indicators, in Mexico the private consumption indicator for March registered a real monthly increase of 2.79% according to seasonally adjusted figures, averaging a monthly growth of 1.00% in the first three months of the year.

The monthly advance in March was the highest since July 2020, indicating an acceleration in the rate of recovery of domestic demand due to the relaxation of containment measures during March.

At an annual rate, private consumption still shows a contraction of 0.70%, accumulating 16 months of consecutive falls, being the maximum period in the record of consecutive setbacks.

Within the indicator, the consumption of goods and services of national origin grew at a monthly rate of 1.58%, the highest advance since October 2020.

The monthly growth of national consumption was driven by the increase in the consumption of services, which advanced 2.28% in March, its highest increase since September 2020.

Imports

On the other hand, the consumption of imported goods grew significantly, at a monthly rate of 6.21%, advancing at an annual rate of 23.62%, being the fourth consecutive month that this item of consumption shows annual growth.

During March, domestic demand strengthened due to better epidemiological conditions, which allowed the lifting of capacity and schedule restrictions in some establishments, especially in the services sector.

Going forward, it is expected that as of April significant annual growth will begin to be observed in the private consumption indicator due to the low comparison base, since in this month of 2020 consumption fell 22.72% annually.

Therefore, the ideal will be to compare the level of consumption with respect to the pre-pandemic level (February 2020). With the March figure published today, the consumption indicator still shows a contraction of 4.02% with respect to the pre-pandemic level, indicating that full recovery has not yet been achieved.

On the other hand, the monthly Gross Fixed Investment indicator registered a real increase of 2.28% during March compared to the previous month, in seasonally adjusted figures.

With this, the indicator accumulates three consecutive months on the rise and registered the first increase at an annual rate since January 2019, growing 1.41% (original figures) compared to March 2020.

Investors and the peso

However, Gross Fixed Investment is still 8.56% below the level observed in December 2019, prior to the start of the pandemic, and 18.76% below the maximum recorded in November 2016.

Within the indicator, investment in machinery and equipment grew 3.04% monthly in March after increases of 7.84% in machinery and equipment of national origin and 2.20% in imported, highlighting a growth of 12.45% in investment in imported transport equipment.

Investment in construction registered its first fall in the year, decreasing 0.32% compared to last month, caused by a fall of 2.09% in residential construction, despite the fact that non-residential construction grew 1.92 percent.

Regarding the pre-pandemic levels (December 2019), investment in machinery and equipment is lower by 2.66% and construction by 8.95%, which means that they are still far from fully recovering from the crisis.

Economy

In addition, it should be noted that the increases observed after the initial hit of the pandemic in April are a mere rebound effect and that there are still factors that hold back investment in the economy, especially those related to the management of economic policy by the government.

Investment began its downward trend in July 2018 after Morena’s victory in the presidential and congressional elections in the face of an expectation of policies that would favor the role of the State in the economy, at the expense of the private sector, so it is expected that the results of the elections held yesterday may mark a change in the perception of the environment for doing business in Mexico.

During the session, the exchange rate is expected to trade between 19.71 and 19.90 pesos per dollar. The euro starts the session with a depreciation of 0.03%, trading at 1.2163 dollars per euro, while the pound advances 0.11%, reaching 1.4172 dollars per pound.

Money and Debt Market.

In the United States, the yield on the 10-year Treasury bonds increased by 2.7 basis points, to 1.58%, while in Mexico the yield on the 10-year M bonds remained unchanged at a rate of 6.63%.

Derivatives Market.

To hedge against a depreciation of the peso beyond 20.00 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.51% 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 19.8207 at 1 month, 20.1739 at 6 months and 20.6439 pesos per dollar at one year.

Exchange Market

The Mexican peso starts the week with an appreciation of 0.95% or 19.0 cents, with the exchange rate trading close to 19.77 pesos per dollar and reaching a minimum of 19.7429 pesos, a level not seen since May 18.

The Mexican peso is the best performing currency in the broad basket of major crosses, due to a reaction to the June 6 elections, in which the Morena party, led by President Andrés Manuel López Obrador, is expected to achieve little less 50% of the 500 seats in the Chamber of Deputies.

Although it was not a presidential election, the preliminary result of the quick count suggests that the president will have a little more opposition if he seeks more constitutional reforms.

It should be remembered that, in recent months, some bills have been proposed and / or approved that have generated uncertainty in the Mexican markets and that could scare away investment, which had been causing some episodes of upward pressure for the exchange rate. .

In the rest of the financial markets, a session with few changes is observed, due to the fact that no economic indicators were published or relevant news were released.

Investors may maintain a cautious behavior, prior to the publication of inflation in the United States, scheduled for Thursday, June 10.

It should be remembered that inflation expectations in the United States and its potential effects on monetary policy have been one of the main sources of volatility in recent months.

In Mexico, inflation for the second half of May will also be published, scheduled for Wednesday, June 9, which could also generate volatility in the exchange rate.

Consumption and peso

Regarding economic indicators, in Mexico the private consumption indicator for March registered a real monthly increase of 2.79% according to seasonally adjusted figures, averaging a monthly growth of 1.00% in the first three months of the year.

The monthly advance in March was the highest since July 2020, indicating an acceleration in the rate of recovery of domestic demand due to the relaxation of containment measures during March.

At an annual rate, private consumption still shows a contraction of 0.70%, accumulating 16 months of consecutive falls, being the maximum period in the record of consecutive setbacks.

Within the indicator, the consumption of goods and services of national origin grew at a monthly rate of 1.58%, the highest advance since October 2020.

The monthly growth of national consumption was driven by the increase in the consumption of services, which advanced 2.28% in March, its highest increase since September 2020.

On the other hand, the consumption of imported goods grew significantly, at a monthly rate of 6.21%, advancing at an annual rate of 23.62%, being the fourth consecutive month that this item of consumption shows annual growth.

During March, domestic demand strengthened due to better epidemiological conditions, which allowed the lifting of capacity and schedule restrictions in some establishments, especially in the services sector.

Machinery and equipment

Going forward, it is expected that as of April significant annual growth will begin to be observed in the private consumption indicator due to the low comparison base, since in this month of 2020 consumption fell 22.72% annually.

Therefore, the ideal will be to compare the level of consumption with respect to the pre-pandemic level (February 2020).

With the March figure published today, the consumption indicator still shows a contraction of 4.02% with respect to the pre-pandemic level, indicating that full recovery has not yet been achieved.

On the other hand, the monthly Gross Fixed Investment indicator registered a real increase of 2.28% during March compared to the previous month, in seasonally adjusted figures.

With this, the indicator accumulates three consecutive months on the rise and registered the first increase at an annual rate since January 2019, growing 1.41% (original figures) compared to March 2020.

However, Gross Fixed Investment is still 8.56% below the level observed in December 2019, prior to the start of the pandemic, and 18.76% below the maximum recorded in November 2016.

Within the indicator, investment in machinery and equipment grew 3.04% monthly in March after increases of 7.84% in machinery and equipment of national origin and 2.20% in imported, highlighting a growth of 12.45% in investment in imported transport equipment.

Investment in construction registered its first fall in the year, decreasing 0.32% compared to last month, caused by a fall of 2.09% in residential construction, despite the fact that non-residential construction grew 1.92 percent.

Covid-19

Regarding the pre-pandemic levels (December 2019), investment in machinery and equipment is lower by 2.66% and construction by 8.95%, which means that they are still far from fully recovering from the crisis.

In addition, it should be noted that the increases observed after the initial hit of the pandemic in April are a mere rebound effect and that there are still factors that hold back investment in the economy, especially those related to the management of economic policy by the government. Investment began its downward trend in July 2018 after Morena’s victory in the presidential and congressional elections in the face of an expectation of policies that would favor the role of the State in the economy, at the expense of the private sector, so it is expected that the results of the elections held yesterday may mark a change in the perception of the environment for doing business in Mexico.

During the session, the exchange rate is expected to trade between 19.71 and 19.90 units of peso per dollar. The euro starts the session with a depreciation of 0.03%, trading at 1.2163 dollars per euro, while the pound advances 0.11%, reaching 1.4172 dollars per pound.

Money and Debt Market

In the United States, the yield on the 10-year Treasury bonds increased by 2.7 basis points, to 1.58%, while in Mexico the yield on the 10-year M bonds remained unchanged at a rate of 6.63%.

Derivatives Market and the peso

To hedge against a depreciation of the peso beyond 20.00 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.51% 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 19.8207 at 1 month, 20.1739 at 6 months and 20.6439 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE

 

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