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The peso gains 10.5 cents against the dollar

The peso starts the session with an appreciation of 0.52% or 10.5 cents, trading around 20.00 pesos per dollar, with the exchange rate touching a low of 19.9282 pesos, a level not seen since March 6.

From a technical point of view, the movement of the exchange rate below 20.00 pesos per dollar and the absence of an immediate upward rebound, indicates a clear decrease in demand for dollars and increases the probability that in the short term the exchange rate is located at a level of 19.80 pesos, to later drop to a level of 19.40 pesos per dollar.

In the exchange market, the peso is this morning as the third most appreciated currency, behind the pound sterling, which advanced 0.89% and the Czech crown with 0.65 percent.

The foregoing is due to a generalized fall in the US dollar, whose weighted index loses 0.32% and reached its lowest level since April 27, 2018, as the demand for safe-haven currencies decreases due to the expectation that in the coming months a vaccine against Covid-19 that allows a gradual normalization of economic activity.

This morning there is some appetite for risk in the markets, as the vaccine developed by the University of Oxford and AstraZeneca proved to be 70% effective in preventing cases of Covid-19.

Although the level of efficacy is below those shown by Pfizer and Moderna, the Astra-Oxford vaccine has the advantage that the dose can be kept in refrigerator temperature, which facilitates the distribution process.

Business

In the European capital markets, the main indices show an average gain of 0.44%, while the futures market shows that the United States capital markets are likely to start the session higher, with a gain close to 0.60% for the S&P 500 and the Dow Jones, as well as a gain close to 0.40% for the Nasdaq.

The foregoing also shows how optimism is favoring issuers of cyclical companies and to a lesser extent companies in the technology sector.

For now, the market seems to ignore the negative effect of the Covid-19 resurgence on economic activity, which has already begun to be reflected in timely economic indicators for November.

In the Eurozone, the November preliminary Composite PMI index stood at 41.5 points, decreasing from the reading of 50.0 the previous month, registering a low not seen in six months.

The drop in business activity was due to restrictions on mobility that were re-imposed in most European countries due to the increase in coronavirus cases.

The foregoing raises the risk that a further decline in economic activity will be confirmed in the last two months of the year.

In the Eurozone, the confinement measures mainly affected the services sector, taking the Services PMI to 41.3 points from 46.9 in October.

For its part, the manufacturing PMI stood at 53.6 points, falling from 54.8 points in October and registering a low not seen in three months.

Covid-19

For its part, in Germany, the extension of mobility restrictions until the end of the year is being discussed.

Previously, the measures were in effect until the end of November.

However, the authorities proposed extending them until December 20, in case the infection rate remains above the target for the next two weeks.

In the United States, at 8:45 a.m., the leading PMI indicators for November for manufacturing and services will be published, which will be relevant to understanding the initial impact of the outbreak and the new containment measures implemented during the current month.

Building

Regarding economic indicators in Mexico, during September, the National Survey of Construction Companies (ENEC) showed that the value of production continued to recover at a moderate monthly rate of 0.18 percent.

In annual terms, it presented a contraction of 25.92%, spinning 29 months of setbacks. In the accumulated from January to September, construction contracted 25.28% compared to the same period of the previous year.

By subsector, the construction of civil engineering works continues to lag the most, registering an annual contraction of 28.39%, followed by construction (-23.74%) and specialized works for construction (-17.24 percent).

The survey reflects a slow recovery in the construction sector due to distrust on the part of the private sector as uncertainty, both internal and global, remains high.

The peso and GDP

The week will be relevant in terms of economic indicators in Mexico. On Tuesday 24 at 6:00 am, inflation for the first half of November will be published, which is expected to be at an interannual rate close to 3.7 percent.

On Wednesday 25, the Balance of Payments for the third quarter is published at 9:00 a.m., while at 12:00 a.m. the quarterly inflation report of Banco de México is published, where inflation expectations and economic growth will be updated of the Central Bank.

On Thursday 26 at 6:00 am the second estimate of economic growth for the third quarter is published, as well as the IGAE for September, while at 9:00 am the minutes of the latest monetary policy announcement are published.

Finally, on Friday 27 October exports and imports are published.

Indicators of Banxico

During the session, the exchange rateis expected to trade between 19.92 and 20.12 pesos per dollar.

The euro starts the session with an appreciation of 0.37%, trading at 1.1901 dollars per euro, while the pound shows an appreciation of 0.83% and is trading at 1.3385 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increases by 2.6 basis points, at a rate of 0.85%, while in Mexico the yield on 10-year M bonds decreases by 2.2 basis points, to 5.905 percent .

Derivatives market

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 1.59% 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 20.0734 at 1 month, 20.4124 at 6 months and 20.8633 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE

 

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