The peso starts the session with an appreciation of 0.86% or 18.6 cents, trading around 21.31 pesos per dollar, with the exchange rate touching a minimum of 21.2250 and a maximum of 21.5727 pesos per dollar.
Likewise, the appreciation of the peso is due to a correction movement after registering depreciations close to 1% during four consecutive sessions.
The same is observed with the US dollar, whose weighted index shows a decline of 0.43%, the first for a week and the highest since February 9.
From a technical point of view, the dollar-weighted index is close to the resistance marked by its 200-day moving average, which increases the probability of downward corrections in the short term.
However, for now, the upward trend of the US dollar observed since February 26 remains, so the risk of further upward movements in the exchange rate in subsequent sessions remains.
In the foreign exchange market, most currencies gain ground against the dollar, the Turkish lira being the most appreciated with 1.38%, followed by the South African rand with 0.95% and the Mexican peso with 0.86 percent.
In the session, along with the weakening of the dollar, there is a greater demand for Treasury bonds, whose 10-year rate shows a significant decline of 5.7 basis points, standing at 1.53 percent.
It should be remembered that, in previous sessions, speculation that the Fed could abandon its flexible stance early led to increases in interest rates, which in turn strengthened the US dollar.
It is important to note that the downward movement of interest rates in the bond market is also the result of a correction, since no indicators or events that cause this movement have been released.
The United States Treasury will auction 58 billion dollars in three-year notes today.
On Wednesday it will auction $ 38 billion in 10-year bonds and on Thursday $ 24 billion in 30-year bonds.
The demand for these auctions will be key for the market, as a few weeks ago low demand caused a significant increase in bond yields, which had a significant impact on other financial markets.
Despite the fact that the yield on 10-year bonds has increased significantly in recent months, reaching close to 1.6%, the differential between the estimate of GDP and interest rates has not been at such high levels since 1966.
Some market participants have growth expectations of up to 7.5% in 2021.
This suggests that there is still room for bond yields to continue rising in the United States.
Although the relationship between GDP growth and bond yield is not stable, it is rare to see such a wide difference.
On the other hand, oil starts the session with gains, with the WTI trading at 65.28 dollars per barrel, showing a rise of 0.37%, given the general weakening of the US dollar.
Regarding relevant information, the Organization for Economic Cooperation and Development (OECD) updated its growth forecasts for 2021 and 2022.
For world GDP, it estimates a growth of 5.6% this year, compared to the previous estimate of 4.2%, while for 2022 it estimates an advance of 4.0 percent.
In the case of the United States, it foresees a growth of 6.5% in 2021, higher than the previously estimated 3.2%, followed by an increase of 4.0% in 2022.
In Mexico, it expects to see a growth of 4.5% this year, higher than the previous estimate of 3.6%, while for 2022 it foresees a growth of 3.0%.
Regarding economic indicators in Mexico, consumer and producer inflation data for the month of February were published today.
Prices in Mexico
In February, inflation stood at an interannual rate of 3.76% (vs. + 3.54% in January), the highest rate since October 2020.
At a monthly rate, inflation showed an advance of 0.63%, representing the highest increase for the same month since 2000 (+0.89 percent).
For the second consecutive month, inflationary pressures were concentrated in the non-core component as it was pressured by energy (+ 3.47% monthly), contributing 53% of the monthly variation, while core inflation explained 47% of the variation monthly.
The underlying component registered a monthly increase of 0.39%, while at the interannual rate it rose slightly from 3.84% in January to 3.87% in February.
The pressures on core inflation were due to the monthly increase in the prices of non-food merchandise with 0.62%, after the winter season discounts on clothing and other accessories ended.
On the other hand, the services subcomponent remains contained, showing a monthly variation of 0.25%, so that at the interannual rate it registered an increase of 2.06%, below the 3% observed prior to the pandemic.
Gasoline subsidy and the peso
Non-core inflation was at a monthly rate of 1.36%, going from a year-on-year increase of 2.63% to 3.43 percent.
The rise in non-core inflation was caused by pressures on energy prices by increasing 3.47% monthly, with the price of high and low octane gasoline rising at a monthly rate of 5.08% and 4.59%, respectively, then international reference prices will increase.
In particular, the greater increase in high-octane gasoline is due to the fact that the Ministry of Finance only granted the IEPS subsidy on low-octane gasoline.
The stimulus for this fuel went from 6.9% at the beginning of the month to 15.77% in the last week of February.
It is worth mentioning that, due to the fact that international reference prices for crude oil continued to rise, the Treasury announced during the first days of March the increase in the IEPS subsidy for low-octane gasoline to 37.9 percent.
On the other hand, as anticipated as a result of the winter storm that hit Texas and the north of the country in mid-February, causing a gas supply and demand shock, the price of domestic LP gas showed a monthly increase of 4.28 percent. hundred.
With this, energy inflation went from 2.66% in January to 6.83% in February, being the highest since April 2019.
Three key risks are perceived in the price formation process in the short term: 1) the recent volatility in the exchange rate; 2) the increase in international oil reference prices, since in the year the WTI accumulates an increase of 33.7%; and 3) increases in the prices of industrial metals, since some of these, such as steel and copper, accumulate increases of 26.17% and 12.90% respectively.
INEGI published the National Producer Price Index for the month of February, which shows an increase of 1.40% compared to the previous month and an interannual rate of 6.75% (including oil).
The latter is the highest rate since November 2018 when it stood at 7.09 percent.
The highest inflation in producer prices occurs in secondary activities, with an interannual rate of 9.77%, followed by the primary ones with 7.30%, and finally the tertiary ones with 1.34 percent.
Excluding oil prices, the INPP increased 1.1% in the month to stand at an interannual rate of 5.88%, the highest since December 2018.
In the breakdown by subsector of economic activity, it is noted that the highest interannual inflation rates are in the sectors of construction (9.22% interannual) and manufacturing (7.73%), while that of temporary accommodation services and food preparation and beverages, shows a deflation of 2.01% year-on-year, due to the low demand for these services due to the pandemic and sanitary restrictions.
Within the services sector, the highest inflation occurs in health and social assistance services, with an interannual rate of 4.56 percent.
INEGI reported that the products with the greatest incidence in the price increase during February were crude oil and residential construction.
The peso and Banxico
It is worth mentioning that inflation in final merchandise for domestic consumption, which, according to Banco de México’s Quarterly Report for the second quarter of 2016, is the one that best predicts the merchandise component of the INPC, shows an interannual rate of 6.2% and in the The last two months are at levels not seen since December 2017, which implies a risk of additional upward pressure on the core component of consumer inflation.
During the session, the exchange rate is expected to trade between 21.21 and 21.56 pesos per dollar. The euro starts the session with an appreciation of 0.35%, trading at 1.1888 dollars per euro, while the pound gains 0.38% and is trading at 1.3876 dollars per pound.
Money market and debt
In the United States, the yield on the 10-year Treasury bonds decreased by 5.6 basis points, to 1.54%, while in Mexico the yield on the 10-year M bonds remained unchanged, at a rate of 6.27 percent.
Derivatives market and the peso
To hedge against a depreciation of the peso beyond 22 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.55% 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 21.3971 at 1 month, 21.7518 at 6 months and 22.1962 pesos per dollar at one year.
Gabriela Siller; PhD
Director of Economic-Financial Analysis.