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The peso appreciates 20 cents against the dollar

The peso begins the session with an appreciation of 0.91% or 20.3 cents, trading around 22.18 pesos per dollar, accumulating an advance of 3.87% in the last five sessions.

Since Thursday last week, the exchange rate has pierced the key support of the 100-day moving average, which stands at 22.68 pesos per dollar, indicating a change in the trend of the downward exchange rate in the short term. .

The appreciation of the peso is due to a general increase in risk appetite in global financial markets, after the publication of the Hong Kong PMI index for services, corresponding to June, which rose 5.7 points to 49.6 units, its highest level since March 2018.

This generated a significant increase in the Asian capital market, where China’s CSI 300 index posted a 5.67% gain on Monday’s session, the largest daily gain since August 27, 2015, accumulating a gain of 13.64 % in the last five sessions and 18.08% since the second half of June, something not seen since 2014.

The momentum of the stock markets in China also originated from small investors who have turned to the capital market in search of high returns, after the government declared through official means its commitment to maintain a bull market after the pandemic.

The peso and the industry

In the rest of the world, Europe’s PMIs are expected to be favorable, which has also given a boost to the European capital market, where most of the main indexes show advances of close to 2%. In the United States, the futures market indicates that the session could start with advances.

In the exchange market, most currencies start the week with gains, standing out the Norwegian krone with an appreciation of 1.01%, followed by the Mexican peso with 0.91% and the Brazilian real with 0.80%. Most currencies in the EM basket show gains, with the exception of the Russian ruble, which depreciates 0.57 percent.

On the other hand, the Gross Fixed Investment Indicator was published today, which during April showed a monthly drop of 28.93% and an annual drop of 37.1%, the highest on record, standing at a level of 66.81 points, not seen since January from 1998.

In the interior, all the components showed setbacks, with construction investment falling 30.86% monthly and 36.3% annually, driven mainly by the investment in residential construction item, which fell 38.66% monthly and 41.1% annually.

For its part, the machinery and equipment component presented a decrease of 25.09% monthly and 38% annual. In April, the Gross Fixed Investment already accumulated 15 consecutive months on the downside.

Banxico

During the week, several relevant economic indicators will be published, highlighting in June inflation in Mexico scheduled for Thursday at 6:00 am and Banco de México’s monetary policy schedule scheduled for that same day at 9:00 am.

For its part, on Friday at 6:00 am, the industrial activity indicator for May will be released, key data for evaluating the performance of economic activity during the second quarter.

In the United States, less relevant information will be published, highlighting only the PMI indicators for services today at 8:45 am. For this reason, the attention of the market could focus on the statistics on the rate of contagion of the coronavirus that continues to increase in that country.

Indicators of Banxico

It is important to mention that the rally in the financial markets could be temporary, particularly if the number of coronavirus cases continues to increase and if more governments apply confinement measures again.

The exchange rate is expected to trade between 22.09 and 22.34 pesos per dollar. The euro begins the session with an appreciation of 0.72%, trading at $ 1.1329 per euro, while the pound gains 0.22% and is trading at $ 1.2511 per pound.

Money market

In the money market, the yield on 10-year Treasury bonds increases by 3.0 basis points, to 0.70%, while in Mexico, the yield on 10-year M bonds increases 2.7 basis points, at a rate of 5.75 percent.

Derivatives market

To hedge against a depreciation of the peso beyond 23 pesos per dollar, a call option, with an exercise date within 1 month, has a 1.50% premium and represents the right but not the obligation to buy dollars in the level mentioned above.

On the other hand, the interbank forward for sale is at 22.2756 at 1 month, 22.6709 at 6 months and 23.12 30 pesos per dollar at one year.

 

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE

 

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