The peso (19.99 vs. dollar), consumption in Mexico and US employment

The peso starts the session with a depreciation of 0.46% or 9.3 cents, trading around 19.99 pesos per dollar, with the exchange rate touching a minimum of 19.8974 and a maximum of 20,0008 pesos per dollar.

The depreciation of the peso occurs parallel to a 0.14% strengthening of the dollar, as speculation resumes about the possibility that the Fed will adopt a less flexible monetary stance in the coming months.

Yesterday, Philadelphia Federal Reserve Chairman Patrick Harker said it would be appropriate to start tapering the bond buying program slowly.

His comment adds to others from Federal Reserve officials, sending the signal that they are preparing the market for a change in language in their next monetary policy announcements.

The next Fed announcement is scheduled for June 16.

Public comments from some Federal Reserve officials will be relevant during the day, including Atlanta Fed President Raphael Bostic, at 11:30 am.

Later, the president of the Dallas Fed, Robert Kaplan and the president of the Philadelphia Fed, Patrick Harken, will also participate. Finally, the vice president, Randal Quarles, will speak on financial regulation at 2:05 am.

During the overnight and in the first hours of operation, the financial markets are waiting for relevant economic information, the data of the non-farm payroll of the United States scheduled for tomorrow at 7:30 a.m., where the market anticipates the creation of 655 thousand job positions during May.

The mexican peso

It should be noted that losses are observed in the European capital markets and in the futures market, as the perception of global risk rises.

This is due in part to the fact that Russia announced that it will stop including dollars within the portfolios of the National Welfare Fund that administers pensions in that country, thereby seeking to reduce exposure to assets denominated in that currency due to the risk of sanctions. from the United States.

According to the media, the decision will affect about 119 billion liquid assets.

On the other hand, it is circulated in the media that the president of the United States plans to amend a ban on US investments in companies associated with the Chinese military in technology and surveillance sectors, this with the aim of expanding the list of related companies and transferring responsibility for sanctions from the Department of Defense to the Department of the Treasury.

In the capital markets, the main indices in Europe show average losses close to 0.80%, while in the United States the futures market shows falls of 0.75% in the industrial indices and 1.05% in the Nasdaq.

Working market

This morning in the United States, the Automatic Data Processing (ADP) employment survey was published, which estimated that 978 thousand job positions were created during May, well above the market’s expectation of 650 thousand jobs.

The foregoing generates optimism, as it is a sign of a faster recovery in the labor market.

Tomorrow the non-agricultural payroll will be published where it is expected that there will be job creation of around 655 thousand positions.

On the other hand, the weekly employment report showed that initial applications for unemployment support decreased by 20 thousand compared to the previous week, reaching 385 thousand units, in line with market expectations.

This is the first time since March 14, 2020 that initial applications have fallen below the 400,000 level, a sign that the recovery in the labor market continues. On the other hand, continuous applications for unemployment support increased from 3.60 to 3.77 million people.

It should be remembered that, starting next week, 23 states will begin to eliminate the additional unemployment benefits that were included in the last stimulus package, with the intention of motivating the job search.

Consumption and peso

In Mexico, the Consumer Confidence Survey for the month of May showed an increase of 0.3 points compared to the previous month to settle at 42.7 points.

With this increase, the indicator is at its highest level since February 2020, before the economic impact of the pandemic began.

Within the indicator, the improvement in consumer confidence is due to an improvement of 1.1 points in the expectation that households have regarding the economic situation they will face within 12 months, as well as an increase of 1.4 points in the perception of a better economic situation in the country than it was 1 year ago.

However, there is a deterioration in two components of the indicator: a fall of 0.3 points in the economic situation of the household compared to what it had 12 months ago, and a fall of 1.7 points with respect to the possibilities of making purchases of durable goods .

With respect to the levels of May of last year, all the components show growth, however, when compared with the pre-pandemic level of February 2020, the only ones that show positive change are those related to the expectation for the next 12 months.

Although Consumer Confidence is returning to its pre-pandemic levels, it is still 5.6 points below the maximum it reached in February 2019 (48.3 points).

Before the pandemic, the indicator had already decreased 4.7 points from that historical maximum, which shows that households felt a deterioration in the economic environment, even before the Covid-19 crisis began.

Exchange rate

Going forward, confidence is expected to recover as economic activity returns to normal, although the elections to be held on June 6 could have an important impact on this, since this significantly influences expectations for the consumers.

It is worth remembering that in July 2018, just after the victory of AMLO and Morena in the elections, the consumer confidence indicator gave its highest monthly increase in record of 6.0 points. However, this was not reflected in consumption or economic growth.

During the session, the exchange rate is expected to trade between 19.92 and 20.11 pesos per dollar.

The euro starts the session with a depreciation of 0.37%, trading at 1.2166 dollars per euro, while the pound loses 0.08%, settling at 1.4159 dollars per pound.

Money market and debt

In the United States, the yield on the 10-year Treasury bonds increased by 2.0 basis points, to 1.61%, while in Mexico the yield on the 10-year M bonds remained unchanged at a rate of 6.62%.

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 1.20% 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 19.9982 at 1 month, 20.3456 at 6 months and 20.8240 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE