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The peso (19.89 vs. dollar), China PMI and semiconductor chips

The peso begins the session with an appreciation of 0.31% or 6.2 cents, trading around 19.89 pesos per dollar, with the exchange rate touching a minimum of 19.8631 and a maximum of 19.9564 pesos.

The appreciation of the peso occurs alongside other currencies of emerging economies and commodity-producing countries, such as the Norwegian krone, which is the most appreciated with 0.76%, followed by the Swedish krona with 0.50% and the South Korean won with 0.42 per cent. hundred.

Likewise, the Canadian dollar also advanced with 0.25% and the Australian dollar with 0.05 percent.

The advance of the peso is due to the fact that, with the return of liquidity to the financial markets, oil prices show a significant gain of 2.97% for the WTI, trading at 68.29 dollars per barrel, touching a maximum in the year of 68.42 Dollars.

The oil price gains are underpinned by expectations of a solid economic recovery while an imminent increase in oil supply from Iran is not expected.

According to OPEC +, which is holding a meeting today, the oil reserves accumulated during the pandemic are almost depleted and are expected to decline rapidly during the second half of the year.

The mexican peso

Economic indicators released this morning are also consistent with a solid global economic recovery during May.

In China, Caixin’s manufacturing PMI rose from 51.0 to 52 points, advancing for the second consecutive month.

Meantime, in the Eurozone, the final PMI index for May was published for the manufacturing sector, which stood at 63.1 points, above the previous estimate of 62.8 units and setting a new record.

In the interior, surveys indicate that new export orders grew at their fastest pace due to the increase in international demand.

By country, the Netherlands posted the highest reading with 69.4 points followed by Austria with 66.4, both all-time highs.

The US Manufacturing PMI and Manufacturing ISM will be released at 8:45 AM and 9:00 AM, respectively. In Mexico, the IMEF manufacturing indicator for May will also be published at 12:00.

Europe and United States

In other financial markets, gains are observed, associated with a return in liquidity due to the reopening of the market in the United Kingdom and the United States, as well as the publication of positive economic indicators.

In Europe, the main capital market indices advance an average of 1.52%, while in the United States futures market the main indices advance close to 0.70% before the opening, mainly issuers from the industrial sector, with companies from the technology sector showing lower gains, close to 0.40 percent.

Regarding relevant events, today at 9:00 am the Vice President of the Federal Reserve, Randal Quarles, will speak about financial regulation and the economy.

For his part, Lael Brainard, a member of the Fed’s governing board, will speak at 1:00 pm.

In Mexico, family remittances for the month of April are published at 9:00 am.

At that same time, the update of the survey of Banco de México specialists is published.

Manufacturing and peso

Regarding economic indicators, the Business Confidence Indicator (ICE) for the month of May showed a reduction in pessimism in the four surveyed sectors (manufacturing, commerce, construction and services).

The construction and services sectors remain below the optimism threshold of 50 points, while the manufacturing and commerce sectors have managed to find themselves within the threshold with 50.34 and 50.89 points, respectively.

The manufacturing sector was not above the 50 point threshold since September 2019, while in the commerce sector this has not happened since October 2019.

At the same time, the indicator that continues to lag the most is construction, at 47.12 points.

The recent optimism may be the result of the absence of states on high alert at the epidemiological traffic light, which has allowed a wider opening of shops, at the same time that the demand for products from abroad has been strengthened for the manufacturing sector. However, it is not ruled out that there may be an increase in Covid cases, resulting in a change in the epidemiological traffic light, at the end of the election period in the country.

Automotive industry

Going forward, there are factors that could deteriorate business confidence.

In manufacturing, problems in the auto sector threaten confidence.

During June, the shortage of semiconductor chips will continue to cause technical stoppages at various auto plants.

Nissan confirmed that technical stoppages would be carried out in June at three of its assembly plants, located in Aguascalientes and Morelos.

Meanwhile, Volkswagen will carry out work stoppages at its Puebla plant.

In the past month, criticism of the automotive and energy sector persisted by business groups in the United States, which led to the first use of the USMCA Rapid Response Mechanism (MLRR) to complaints by the Office of the United States Trade Representative (USTR) to General Motors (Silao, Guanajuato) and Tridonex (Matamoros, Tamaulipas) due to alleged violations of workers’ rights.

Finally, uncertainty continues due to possible additional changes to Mexico’s institutional framework, which could inhibit investment and raise the perception of risk in the country.

During the session, the exchange rate is expected to trade between 19.78 and 19.99 pesos per dollar.

The euro starts the session with a depreciation of 0.05%, trading at 1.2221 dollars per euro, while the pound loses 0.34%, standing at 1.4163 dollars per pound.

Money market and debt

In the United States, the yield on the 10-year Treasury bonds increases by 3.8 basis points, to 1.63%, while in Mexico the yield on the 10-year M bonds remains unchanged at a rate of 6.60 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 20.50 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.14% 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 19.9800 at 1 month, 20.3220 at 6 months and 20.7950 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE

 

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