The peso (19.87 vs. dollar), GDP in the US and the labor crisis

The peso starts the session with an appreciation of 0.05% or 1 cent, trading around 19.87 pesos per dollar, with the exchange rate touching a minimum of 19.8272 and a maximum of 19.9142 pesos.

In the foreign exchange market, the dollar shows a 0.18% decline according to the weighted index.

It is probable that during the session the market will speculate again on the future of the monetary policy of the United States, depending on the interpretation that the markets give to the publication of economic indicators this morning.

Yesterday afternoon, the vice president of supervision of the Federal Reserve, Randal Quarles, who is a voting member of the Committee, said that it will be important to begin discussing plans to reduce the pace of asset purchases, referring to the easing program monetary value of 120 billion dollars a month.

The mexican peso

This morning in the United States the weekly employment report was published, which showed that initial applications for unemployment support decreased by 38 thousand compared to the previous week, reaching 406 thousand units, below the market expectation of 425 one thousand.

This is the fourth week in a row that initial applications have decreased, a sign that the recovery in the labor market continues.

On the other hand, continuous applications for unemployment support decreased from 3.73 to 3.64 million people.

On the other hand, revised data for the growth of the GDP of the United States for the first quarter were published today, where the annualized quarterly rate remained unchanged at 6.4 percent.

Updated GDP data showed an upward revision in private consumption, from 10.7% to 11.3 percent.

Similarly, non-residential investment was revised from 9.9% to 10.8%, while residential investment was revised up from 10.8% to 12.8 percent.

However, these increases were offset by downward revisions for exports and government spending.

Finally, the durable goods orders for the month of April were published, which fell 1.3% with respect to the immediately previous month, according to preliminary figures adjusted for seasonality.

The data was worse than expected by the market, with a monthly increase of 0.8 percent.

Other currencies

In the market, most currencies are gaining ground, the most appreciated being the Hungarian forint, which advanced 0.49%, followed by the Polish zloty with 0.44% and the British pound with 0.34 percent.

The Chinese yuan, although showing a moderate advance of 0.25%, this morning touched a level of 6.3742 yuan per dollar, being its best level against the dollar since May 23, 2018.

The appreciation of the yuan is the consequence of a weakening of the US dollar since April and it seems that the authorities of that country are allowing their currency to gain ground, which makes it likely that it will continue to advance.

This morning, the People’s Bank of China pointed out that the exchange rate cannot be used to boost exports, which sends the signal that it will not intervene to depreciate the yuan.

It is important to note that the appreciation of the yuan also helps mitigate the inflationary risk that is a concern for the authorities in China, since from January to April, producer inflation in that country has risen from 0.3 to 6.8%, something not seen since October 2017.

Employed population and peso

Regarding economic indicators in Mexico, INEGI published the results of the National Survey of Occupation and Employment (ENOE) corresponding to the month of April 2021, which show an increase of 1.05 million people in the employed population and an increase of 0.5 million in the unoccupied.

With this, the Economically Active Population (EAP) increased from 55.98 million to 57.52 million people, and the open unemployment rate increased 0.78 percentage points (p.p.) to settle at 4.65 percent.

Although the unemployment rate is 0.02 p.p. lower than that of April of last year, the figure is 1.71 p.p. above the level observed prior to the pandemic in March 2020.

Among the 54.84 million employed persons, 7.52 million, equivalent to 13.71%, are in underemployed conditions, that is, they are able and in need of offering more hours of work.

The underemployment rate before the pandemic was 9.12%, and after reaching a maximum of 29.90% in May 2020, it has been gradually decreasing and is now only 4.6 p.p. above the pre-pandemic level.

Job search

One of the most relevant aspects of the labor crisis of the pandemic was the exodus of about 12 million people from the EAP to the Non-Economically Active Population (PNEA), where an increase of 11.5 million people was observed in March 2020 to April 2020.

This was due to the fact that a large number of people who were no longer busy made no efforts to find new jobs, since, during the first months of the pandemic, a large part of the economic activity was suspended.

The available population, that which does not have or is looking for a job, but would accept one if it were offered, went from 5.9 million in March 2020 to 19.97 million in April 2020. Currently, as of April 2021, the available population is at 7.68 million after decreasing 0.3 million in the month.

Taking into consideration this part of the PNEA to calculate what is known as the extended unemployment rate, a rate of 15.88% is obtained, which does not show changes with respect to the previous month, but is 3.89 p.p. higher than March 2020.

With a decrease of 0.92 million in the employed population between March 2020 and April 2021, and increases of 1.78 million in the available population and 2.44 million in the underemployed population during the same period, it can be approximated that the number of people affected in their employment due to the economic crisis of the pandemic stands at 5.13 million.

In April 2020, this figure stood at 32.46 million, in such a way that we can speak of a recovery of 84.2% as of April 2021.

Euro

During the session, the exchange rate is expected to trade between 19.80 and 19.97 units of peso per dollar.

The euro starts the session with an appreciation of 0.03%, trading at 1.2196 dollars per euro, while the pound gains 0.32%, reaching 1.4164 dollars per pound.

Money market and debt

In the United States, the yield on the 10-year Treasury bonds increases by 3.2 basis points, to 1.61%, while in Mexico the yield on the 10-year M bonds remains unchanged at a rate of 6.73 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 20.20 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.48% 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 19.9516 at 1 month, 20.3082 at 6 months and 20.7948 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE