The peso starts the session with an appreciation of 0.22% or 4.5 cents, trading around 20.16 pesos per dollar, moving along with most of the currencies that is gaining ground.
The dollar weighted index loses 0.15%, resuming its downward trend from the first sessions of the week.
In the foreign exchange market and global financial markets, optimism remains in view of the expectation of a sustained economic recovery in the United States.
It should be remembered that the Federal Reserve minutes were published yesterday, reiterating the need for a broadly accommodative stance since the economy is far from its inflation and maximum employment targets.
Today the market will be attentive to the comments of the Chairman of the Federal Reserve, Jerome Powell, who will participate in the debate on the global economy that will be held by the International Monetary Fund (IMF) at 11:00 am.
Although optimism remains in global markets, mixed performance this morning.
In the capital markets of Europe, gains are registered on average close to 0.25%, although in some indices moderate losses are observed, including the DAX of Germany that falls 0.03 percent.
In the United States, the futures market shows that the main indices could start the session with gains, mainly in issuers of the technology sector, as the Nasdaq could open with a gain close to 0.80 percent.
In the bond market, there is a greater demand for risk-free instruments.
The yield rate on 10-year Treasury bonds shows a decline of 2.8 basis points, reaching 1.64%, erasing the increase in Wednesday’s session.
The markets’ caution is due in part to the news in the session that indicates that the coronavirus pandemic is still far from over in several regions of the world.
In India a new record of daily infections of Covid19 was registered, with 126,700 cases in the last 24 hours.
In addition, this is the third consecutive day in which more than 100,000 infections are registered daily.
Likewise, in Ontario, Canada, a state of emergency was declared due to the probability of a new wave of coronavirus.
Thus, citizens must stay at home for four weeks from April 8, allowing only essential outings.
Regarding economic indicators, in the United States in the week ended April 3, 744 thousand new applications for unemployment support were reported, increasing by 16 thousand from the revised level of the previous week and above market expectations. of 694 thousand.
This is the second consecutive increase in initial requests, which could be caused by an increase in Covid19 cases in recent weeks.
Continuous applications for unemployment support, from those who are already receiving support or continue to wait, decreased from 3.75 to 3.73 million, the lowest level since March 21, 2020.
For its part, in Mexico, INEGI announced that after a 0.83% increase in the National Consumer Price Index during March, annual headline inflation stood at 4.67%, the highest rate since December 2018, when inflation was 4.83 percent.
Inflation and the peso
The monthly price increase of 0.83% was the highest for the same month since 1999 and was explained by:
- By 35.1% due to the energy component and tariffs authorized by the government, since in the interior the prices of high-octane gasoline (+ 5.96%) and low-octane (2.08%) rose at a monthly rate, as well as domestic gas. LP (+5.21).
- Secondly, the merchandise component that explained 28.8% of monthly inflation, as a significant increase in the prices of food and non-food merchandise was observed. Although the increases in merchandise prices were more homogeneous between products, the increase in prices of shirts and T-shirts for children (+ 2.92%), corn tortillas (2.88%) and electrical appliances for personal care (2.71 percent) stands out).
- In third place, there were the prices of services that explained 20.2% of the monthly increase of the general index, although almost everything explained by the subcomponent of other services, highlighting the monthly increases in air transport rates (+ 22.12%), package tourism services (+ 9.41%) and hotels (+ 2.94%), being the three services with the highest monthly variation.
- In fourth place, the prices of fruits and vegetables explained only 16.0% of the monthly increase in the general price index, mainly due to the monthly increase in the prices of lemon (+ 25.41%) and green tomato (+ 22.33% ), among others.
Non-core inflation was at a monthly rate of 1.69% and an annual rate of 6.31 percent.
The rise in non-core inflation is a consequence of the increase in energy prices, which presented an inflation rate of 14.55% in March, the highest since October 2018.
This is mainly due to the increase in international oil prices and natural gas prices after the frost in the north of the country.
Regarding core inflation, which is a better indicator of the long-term trend of headline inflation, the annual rate was 4.12%, the highest since February 2018.
Within the core, the merchandise component presents an annual inflation of 5.79 percent.
In the case of merchandise, inflation reached its highest level since December 2017, the year in which inflation reached historically high levels after the liberalization of gasoline prices and a pass-through effect of the depreciation of the peso against the dollar.
It is expected that, given the upward trend in inflation, the Bank of Mexico will no longer cut the target interest rate, because despite the slack in the economy, inflation is above 4 percent.
Likewise, inflation is expected to continue to rise to reach its maximum level in April above 5%, then to decline and end the year around 4.24 percent.
The administrative registry of the automotive industry, corresponding to March, was also published, which reported a car production of 303,545 units, the highest level for the same month since 2019.
Compared to March 2020, a 12.5% growth in car production was observed, the first advance after two months of setbacks.
In monthly terms, a growth of 27.08 percent was registered.
On the other hand, automotive exports registered a total of 256,119 vehicles, the lowest level for the same month since 2016. At an annual rate, they showed a fall of 13.2%, being the third consecutive annual decline.
At a monthly rate, automotive exports grew 19.69%, which may be a sign of recovery for auto exports in the short term.
It should be remembered that, in the United States, during March an annual growth of 56.2% was observed in the sales of trucks and light cars, the largest annual increase in record.
Going forward, the semiconductor shortage may continue to pose a risk to Mexican production and exports.
The General Motors plant in San Luis Potosí returned to operations on April 5 after almost 2 months of inactivity, due to this problem.
For its part, Volkswagen announced during the month of March a technical strike at its plant in Puebla from March 22 to April 16 to stop the production of its Jetta model, it also stopped the production of the Taos models for a few days (on March 29 and 30, resuming on April 5) and Tiguan (on March 29, 30 and April 5, resuming on April 6).
During the session, the exchange rate is expected to trade between 20.09 and 20.29 units of peso per dollar. The euro starts the session with an appreciation of 0.13%, trading at 1.1883 dollars per euro, while the pound advances 0.22% and trading at 1.3676 dollars per pound.
Money market and debt
In the United States, the yield on the 10-year Treasury bonds decreased by 2.5 basis points, at a rate of 1.65%, while in Mexico the yield on the 10-year M bonds remained unchanged at 6.53 percent.
Derivatives market and the peso
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 1.61% 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 20.2336 at 1 month, 20.5810 at 6 months and 21.0329 pesos per dollar at one year.
Gabriela Siller; PhD
Director of Economic-Financial Analysis.