The peso appreciates against the dollar at 20.87
The peso starts the session with an appreciation of 0.33% or 6.8 cents, trading around 20.87 pesos per dollar, with the exchange rate touching a minimum of 20.8125 and a maximum of 20.9606 pesos.
In fact, the peso is one of the few currencies that is gaining ground, ranking as the second most appreciated currency, behind the Russian ruble with 0.47 percent.
The stability of the exchange rate this morning is due in part to the fact that the market is waiting for the monetary policy announcement from Banco de México scheduled for 1:00 p.m., where the interest rate is likely to remain unchanged target at 4.0%, after yesterday the inflation data for the first half of March showed that inflationary pressures are greater than anticipated.
If it is confirmed that the rate remains unchanged, the peso could gain ground in the minutes after the announcement.
The peso
In the foreign exchange market, the dollar weighted index advances 0.10%, adding three days of increases for a cumulative 1.01 percent.
The advance of the dollar occurs alongside a greater demand for risk-free assets for the fourth consecutive day.
The 10-year Treasury bond rate shows a decline of 1.6 basis points, standing at 1.59%, falling 12.6 basis points in the week.
In line with the above, losses are observed in the capital market, as the demand for riskier assets has decreased.
In Europe the main indices lose on average 1.15%, with London’s FTSE 100 falling 1.32% and Germany‘s DAX losing 1.24 percent.
Likewise, in the United States, the futures market points to losses at the beginning of the session close to 0.50% for the three main indices.
The oil
In the commodities market, the price of oil starts Thursday’s session with losses, despite the fact that the Suez Canal remains blocked.
The downward pressure on the price of oil continues to be related to the nervousness around demand due to the increase in coronavirus infections in Europe and the reimposition of containment measures in some regions of the bloc.
Given this, the WTI starts the session trading at 59.43 dollars per barrel, which is equivalent to a reduction in its price of 2.86 percent.
Upward movements in the price of oil cannot be ruled out, particularly if the Suez Canal cannot be unblocked before Monday, March 29.
Laboral sector
Regarding economic indicators, 684 thousand new applications for unemployment support were registered in the United States, below the 730 thousand expected by the market and decreasing by 97 thousand compared to the previous week.
It should be noted that this is the lowest level in 52 weeks, which is a good sign for the recovery of the labor market.
Continuous applications for unemployment support, from those who are already receiving support or continue to wait, decreased from 4,134 to 3,870 million.
Despite these positive indicators, there is no improvement in market sentiment, as the market’s attention remains on the risk of a third wave of coronavirus globally.
On the other hand, the third estimate of GDP growth in the United States for the last quarter of 2020 was published, which showed a slight upward revision to 4.3% (quarterly annualized) from the rate of 4.1% previously registered.
The revision of this indicator, being from last year, did not have any observable effect on financial markets.
GDP and the peso
In Mexico, indicators were published that confirm a stagnation of the economic recovery at the beginning of the year.
The Global Indicator of Economic Activity (IGAE) for January registered a modest monthly advance of 0.11 percent.
Within the three groups of economic activity, only the tertiary sector showed a monthly drop, being the most sensitive to the trajectory of the pandemic.
At an annual rate, the IGAE showed a contraction of 4.15%, spinning down 19 months, being the longest period on record.
Economic activity is 5.36% below its last peak in August 2018.
Services
For its part, the Monthly Survey of Services (EMS) for January showed a real monthly contraction of 6.0% in total income from the supply of goods and services, slowing its recovery after six months of consecutive advances and being the largest monthly contraction since April , when the initial impact of the pandemic was observed.
The monthly decrease in income from services was mainly due to the epidemiological conditions of the country, since January was the month with the highest number of infections and hospitalizations due to Covid19.
It should be remembered that, during January, 11 states remained on epidemiological red light, entities that together represent 62.40% of the GDP of tertiary activities.
In annual terms, the total revenues of the services sector show a contraction of 14.6%, spinning 14 months of consecutive setbacks, a period still smaller than the 16 annual falls observed in the previous crisis, from January 2009 to April 2010.
As of the first month of 2021, service revenues continue to be 12.6% below the pre-pandemic level (March), evidence of the difficulty that this sector has faced in achieving a recovery.
During the session, the exchange rate is expected to trade between 20.59 and 20.97 pesos per dollar. The euro starts the session with a moderate depreciation of 0.02%, trading at 1.8111 dollars per euro, while the pound gains 0.28% and is trading at 1.3724 dollars per pound.
Money market and debt
In the United States, the yield on the 10-year Treasury bonds decreased by 1.6 basis points, at a rate of 1.59%, while in Mexico the yield on the 10-year M bonds remained unchanged, at 7.02 percent.
Derivatives market and the peso
To hedge against a depreciation of the peso beyond 21 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 2.40% 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 20.89462 at 1 month, 21.3142 at 6 months and 21.8180 pesos per dollar at one year.
Gabriela Siller; PhD
Director of Economic-Financial Analysis.
Banco BASE
