The peso (20.08 vs. dollar) and impacts from VW and Nissan stoppages

The Mexican peso begins the session with an appreciation of 0.46% or 8.3 cents, trading around 20.08 pesos per dollar, with the exchange rate touching a minimum of 20.0525 and a maximum of 20.2132 pesos.

This is the result of a weakening of the US dollar of 0.27% according to the dollar weighted index, after the publication in the United States of the non-farm payroll for May, which showed the creation of 559 job positions during the month, below of market expectations of 675 thousand.

By sector, the greatest job creation was observed in leisure and hospitality, recovering 292 thousand jobs due to the relaxation of restriction measures in these businesses.

In May, the unemployment rate decreased to 5.8% from 6.1% the previous month, although if underemployed people are taken into account, that is, those who are working part-time and are willing to work longer hours, the unemployment rate is located at 10.2 percent.

The mexican peso

This is the second month that the job creation figure is below market expectations, indicating that full recovery in the labor market is still far from being achieved.

With the May figure, total jobs are still 7.6 million below their pre-pandemic level of February 2020.

In the foreign exchange market, most currencies are gaining ground against the dollar, with the Australian dollar (+ 0.48%), the Hungarian forint (+ 0.46%), the Chilean peso (+ 0.46%) and the British pound leading the gains ( + 0.41%). The worst performing currencies are the South Korean won (-0.25%), the Indian rupee (-0.13%) and the Malaysian ringgit (-0.09 percent).

Stability is observed in the raw materials market, with the price of oil advancing 0.61% and trading at 69.23 dollars per barrel, while industrial metals show a mixed performance and agricultural products show moderate increases.

Automotive industry

Regarding economic indicators in Mexico, the administrative registry of the automotive industry corresponding to the month of May, showed that the production of cars was located in 241,442 units, showing an annual growth of 956.08% due to the low comparison base of the previous year .

It should be remembered that April and May 2020 were the months with the greatest drops in automotive production due to the confinement measures.

In monthly terms, production showed a contraction of 10.30%, after some automotive companies such as Volkswagen and Nissan extended technical stoppages at their plants due to the shortage of semiconductors.

In fact, these two companies have already announced that in June they will also stop the production of some models, so it is expected that the semiconductor crisis will continue to limit the automotive industry for the next few months.

Likewise, automotive production (241,442 units) was en may the lowest since February and before that, since May 2020.

Comparing with May 2019, automotive production shows a contraction of 31.95% and is the lowest production for the same month since May 2012 (omitting 2020).

External sales and peso

Manuel Montoya Ortega, general director of the Automotive Cluster of Nuevo León (Claut) and president of the National Network of Automotive Industry Clusters pointed out that the shortage of chips could be leveled until 2022.

Automotive exports registered a total of 242,020 vehicles, growing at an annual rate of 1,498.65%, again due to the low comparison base.

At a monthly rate, exports advanced 3.17%, after the 8.41% contraction observed in April. Exports have been driven by the strength of external demand.

However, these could be limited by low production if technical stoppages at Mexican auto plants are extended for the rest of the year.

It should be noted that May automotive exports were the lowest for the same month since 2016 (omitting 2020), and show a contraction of 20.61% compared to May 2019.

During the session, the exchange rate is expected to trade between 20.00 and 20.22 pesos per dollar.

The euro starts the session with an appreciation of 0.15%, trading at 1.2145 dollars per euro, while the pound advances 0.41%, reaching 1.4169 dollars per pound.

Money market and debt

In the United States, the 10-year Treasury yield remains unchanged at 1.62%, while in Mexico the 10-year M bond yield remains unchanged at a rate of 6.70 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 1.51% 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 20.2308 at 1 month, 20.5892 at 6 months and 21.0809 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE