The peso starts the session with little change compared to Friday’s close, showing a depreciation of 0.07% or 1.4 cents and trading around 19.99 pesos per dollar.
In the foreign exchange market, currencies show a mixed performance and caution prevails among market participants, as there is still uncertainty regarding the performance of economic activity due to the Covid-19 pandemic.
Worldwide, Covid19 cases are about to exceed 100 million. In Mexico, President López Obrador reported that he is infected with coronavirus, presenting mild symptoms.
In the capital market, losses are observed during the European session, with falls that average 1.2%, while the futures market in the United States shows a mixed performance, with expected falls in companies in the industrial sector and gains close to 1% in issuers of the technology sector.
Since 2020, the Covid19 pandemic has favored companies in the technology sector due to the structural change in consumption patterns.
The peso and the United States
The caution of the markets is due to the fact that during the week there will be events and the publication of relevant indicators. Today at 4:30 the United States Senate will vote for the nomination of Janet Yellen as Secretary of the Treasury.
On Wednesday 27 there will be a monetary policy announcement, where it is likely that the Federal Reserve will reiterate its intention to maintain an interest rate close to 0% for a prolonged period of time.
Capital market participants could be waiting for this release and the publication of more quarterly results, mainly in the United States. Later, on Thursday 18, the economic growth of the fourth quarter in that country will be published, which is expected to be at a quarterly rate close to 1% and an annualized rate of 4.1%, confirming a moderate slowdown in economic activity towards the end 2020.
Another relevant event is the annual meeting of the World Economic Forum, which will be online. Today will begin with the conference of the President of China, Xi Jinping. In addition, the President of France, Emmanuel Macron and the German Chancellor, Angela Merkel, will give lectures during the week.
Relevant data will also be published in Mexico. On Thursday the 28th the trade balance for the month of December will be published, while on Friday the 29th the economic growth of the fourth quarter will be announced, which is estimated at a quarterly rate of 3.0% and an annual rate of -5.3%, with which which the economy would average an annual contraction of 8.7 percent.
On the other hand, as of Monday, the deputies and senators will hold conversations regarding the reform of the Bank of Mexico Law, which seeks to force the central bank to buy dollars in cash.
Legislators will have a virtual meeting at 5:00 pm to form a working group and discuss the reform before it is voted on in Congress in February.
Regarding economic indicators published this morning, in Mexico the Global Indicator of Economic Activity (IGAE) showed a slight monthly growth of 0.87% in November, being the smallest advance since its recovery began in June.
In annual terms, economic activity registered a fall of 3.51%, adding 17 months of setbacks according to figures adjusted for seasonality.
In the interior, the three groups of economic activity registered monthly increases, with the tertiary sector leading the advances with 1.09%, although at the annual rate it continues to be the group that lags behind with a fall of 4.49% due to the late opening and the restrictions that have remained in certain activities.
It is followed by the secondary sector with a monthly growth of 1.06% and an annual contraction of 3.25%. Finally, the primary sector registered a modest increase compared to October of 0.16%, reaching 8.90% above what was observed in November 2019.
For its part, the National Survey of Construction Companies (ENEC) showed that, during November, the value of production contracted at a real monthly rate of 0.44%, being its second consecutive monthly decrease.
In its annual variation, the value of production showed a fall of 23.84%, spinning 29 consecutive setbacks. In the interior, public sector works (-22.3% annually) showed a lower contraction than those contracted by the private sector (-24.81% annually).
This is due to projects such as the Mayan Train and the Dos Bocas Refinery that the current administration is promoting. At the state level, only 7 of the 32 entities showed annual advances in production value, highlighting Oaxaca, Tabasco and Guerrero.
It is important to highlight that the November IGAE showed that construction had a monthly growth of 2.2%, which differs from the publication of a 0.44% contraction of the ENEC. This is due to the fact that the IGAE is an indicator of added value that also includes the informal sector while the ENEC only includes information on companies in the sector.
During the session, the exchange rate is expected to trade between 19.89 and 20.12 pesos per dollar. The euro starts the session with a depreciation of 0.21%, trading at 1.2146 dollars per euro, while the pound loses 0.06% and is trading at 1.3678 dollars per pound.
Money market and debt
In the United States, the yield on 10-year Treasury bonds decreased by 2.2 basis points, to 1.06%, while in Mexico the yield on 10-year M bonds increased by 2.7 basis points, at a rate of 5.64 percent .
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 1.48% 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 20.0545 at 1 month, 20.3922 at 6 months and 20.7928 pesos per dollar at one year.
Gabriela Siller; PhD
Director of Economic-Financial Analysis.