The peso gains 18 cents against the dollar

The peso begins the session with an appreciation of 0.74% or 18.0 cents, trading around 24.12 pesos per dollar after hitting a low of 24.0370 pesos. The appreciation of the peso is mainly due to two factors:

On the one hand, there is a greater appetite for risk in global financial markets due to a better perspective on the coronavirus pandemic, as the number of infected and deaths continues to decrease, allowing in some European countries and in the United States. United strategies are announced to reopen the economy in the coming weeks.

Another factor contributing to risk appetite in the markets is that on Tuesday afternoon the US biopharmaceutical company Gilead Sciences Inc. reported positive results in its preliminary test of a treatment for COVID-19.

This allows positive results particularly in the capital market, where gains of around 2% are observed in Europe and the United States.

For its part, the US dollar weakens against its main crosses, as the market seems to be speculating that the Federal Reserve, which already has its interest rate at a record low of 0% to 0.25%, could lead it to negative territory. for the first time in history in the announcement scheduled for today at 13:00.

The peso and Reserve

The most speculation about the Fed’s announcement comes in the wake of the publication of the preliminary estimate of United States GDP in the first quarter, which showed an annualized quarterly contraction of 4.8%, the largest since the first quarter of 2009.

The decrease in GDP reflects the impact of the coronavirus during the month of March, with negative contributions in personal consumption, non-residential investment and exports.

It should be noted that the Covid-19 pandemic ended the longest expansion on record in the United States (114 months) and a greater impact is expected in the second quarter of the year, due to the fact that the economy was stopped throughout the month of April for confinement measures.

Within GDP, the contraction is attributed to the services sector, which led GDP growth to negative territory. The health services subsector was the most affected, contributing 2.25 of the 4.8% of the GDP contraction.

This is probably due to the pandemic, as people stop going to hospitals to avoid contagion. The next sector with the worst performance was food and lodging services, as a consequence of the containment measures.

Energy sector

For its part, the price of oil starts the session with gains in the expectation that cuts in oil production by OPEC and its allies (OPEC +) may decrease the global supply of hydrocarbon. It should be noted that on May 1 the cut of 9.7 million barrels per day officially begins.

Given this, the Russian Minister of Energy, Alexander Novak, mentioned that that country will reduce production by 19% compared to February levels.

However, it is not ruled out that the price of oil could go down again, as the weekly statistics that the United States Energy Information Administration (EIA) will publish today could move sentiment in the market.

The previous week, the EIA published that the storage capacity of the United States is at 60%, while, at the point of delivery, Cushing, Oklahoma, it is at 76% and to continue with the current trend, the storage capacity is it would run out in the second week of May, while in the United States in late June.

During the session, an exchange rate is expected, trading between 24.00 and 25.00 pesos per dollar. The euro begins the session with an appreciation of 0.43%, trading at $ 1.0867 per euro, while the pound gains 0.17% and is trading at $ 1.2447 per pound.

Money market

In the money market, the yield on 10-year Treasury bonds decreases 2.5 basis points to 0.59%, while in Mexico the yield on 10-year M bonds decreases 3.3 basis points, at a rate of 6.86 percent.

The peso and the derivatives market

To cover a depreciation of the peso beyond 26 pesos per dollar, a call option, with an exercise date within 1 month, has a premium of 1.37% 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 24.3474 at 1 month, 24.8616 at 6 months and 25.3743 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE