The peso gains against the dollar: it is listed at 20.73 units

The peso starts the session with an appreciation of 0.54% or 11.2 cents, trading around 20.73 pesos per dollar, with the exchange rate touching a minimum of 20.6643 and a maximum of 20.8525 pesos.

The appreciation of the peso is due to a decrease in risk aversion in global financial markets, allowing demand for dollars to decline.

In the foreign exchange market, the dollar weighted index shows a moderate advance of 0.07%, with the US dollar showing a mixed performance against its main crosses.

It should be noted that the peso is the second most appreciated currency this morning, with the South African rand leading with 0.63 percent.

After the Mexican peso, the most appreciated currencies are the Norwegian krone with 0.58%, the Israeli shekel with 0.29% and the Russian ruble with 0.28 percent.

The peso

The appreciation of the Mexican peso is due to a combination of factors:

First factor

Positive economic indicators have been published globally. The composite PMI index for the euro area stood at 52.5 points in March, above the expected 49.1 units and returning to the expansion zone after six months.

Economic activity in the Eurozone was driven by manufacturing production, with the manufacturing PMI reaching 62.4 points, a new record since June 1997. For its part, the services PMI showed a monthly advance of 3.1 units and stood at 48.8 points, the highest level in seven months.

It should be remembered that, during the month, some countries such as France and Germany tightened their containment measures in the operation of some businesses and it is expected that these will last until April, which is expected to slow down the activity of the services sector.

Second factor

Several currencies of oil-producing countries are gaining this morning, such as the Norwegian krone, the Russian ruble, the Brazilian real and the Canadian dollar, which generates a carry-over effect on several currencies of emerging economies.

In the commodity market, a recovery in oil prices is observed, with the WTI advancing 2.51% and trading at 59.21 dollars a barrel, after a cargo ship blocked the Suez Canal after getting stuck.

As the lockdown is expected to be released in the next few hours, the upward movement in oil prices is likely to be temporary.

Third factor

Greater inflationary pressures in Mexico and a lower probability that Banxico will continue cutting its interest rate.

United States

Regarding relevant economic indicators, in the United States, durable goods orders decreased at a monthly rate of 1.1%, contrary to the expectation of an increase of 0.4% and being the first contraction after nine consecutive advances.

In the interior, the greatest decrease was observed in new orders for motor vehicles and auto parts (-8.7 percent).

Inflation and the peso in Mexico

During the first half of March, inflation was at an interannual rate of 4.12% (vs. + 3.68% in the second half of February), representing the highest rate since the second half of May 2019.

With this, inflation is above the variability range of Banco de México of 3% +/- 1% for the first time since the second half of October 2020.

At the biweekly rate, inflation was 0.53%, the highest increase for the same fortnight since 1998.

The pressures for inflation were balanced between both components, with the underlying contributing 49% of the biweekly variation, while the non-core represented 51%, unlike the first two months of the year where the pressures were concentrated in the non-core. underlying to the rise in energy.

Food

On the one hand, the biweekly inflation in the core component was 0.35% and a interannual rate of 4.09 percent.

This is because since July 2020 there has been a significant increase in the producer price index for final goods destined for consumption, going from 3.04% per year in June 2020 to 6.24% per year in February 2021.

Core inflation has exceeded its 3.88% average for the last three years, despite the fact that broad economic slack was expected to play a greater role in containing the increases.

The pressures on the underlying continue to be concentrated in the merchandise subcomponent, with fortnightly increases in the price of food of 0.37% and in non-food merchandise of 0.45 percent.

Within food merchandise, the fortnightly increase in the price of corn tortillas of 1.79% stands out, impacted by the rise at the beginning of the year in international reference prices.

Meanwhile, the figure for non-food merchandise was distorted by the relaxation of containment measures, which allowed the reopening of shopping centers and non-essential businesses.

Biweekly inflation in the services subcomponent was 0.28% (+ 2.22% year-on-year).

Petroleum and peso

The non-core component registered a biweekly inflation rate of 1.08% and an interannual rate of 4.19 percent.

In the interior, energy prices continued to rise, with a fortnightly increase of 1.78% and 9.45% year-on-year, although the annual comparison is distorted by the low comparison base, since in March of last year the price of oil fell drastically before the beginning of the confinement around the world.

The price of domestic LP gas continues its upward trend, increasing 4.05% compared to the previous fortnight, while the price of low and high octane gasoline increased at a fortnightly rate of 0.98% and 3.67%, respectively.

The increase in the price of low-octane gasoline was contained by a greater stimulus by the Ministry of Finance to the Special Tax on Production and Services (IEPS), which was 37.9% for most of the fortnight, while the of high-octane gasoline was just 3.39 percent.

For the second half of March, it is expected that some distortions caused by the start of confinement in the country last year will begin to be reflected, although the greatest impact is expected for April, when year-on-year inflation could exceed the level of 5.00 percent. .

Likewise, in April, increases in prices are also expected in the categories related to tourism, due to the reactivation of demand at Easter.

National Survey of Occupation and Employment

The National Survey of Occupation and Employment (ENOE) corresponding to February 2021 shows that in the month there was an employed population of 53 million people, this is 1 million more than in the previous month, and 2.7 million less than in February of the year last.

The unemployed population, those who seek employment and cannot find it, decreased from 2.6 million in January to 2.4 million in February.

With an increase of 1 million people in the Economically Active Population (EAP), the unemployment rate was 4.4%, 0.3 percentage points (pp) lower than the previous month, and 0.8 pp higher than a year ago .

During the session, the exchange rate is expected to trade between 20.52 and 20.78 pesos per dollar.

The euro starts the session with a depreciation of 0.29%, trading at 1.1815 dollars per euro, while the pound loses 0.33% and is trading at 1.3706 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increases by 2.5 basis points, at a rate of 1.65%, while in Mexico the yield on 10-year M bonds increases by 1.3 basis points, at 6.80 percent.

Derivatives market ant the peso

To hedge against a depreciation of the peso beyond 21 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 2.02% 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 20.8091 at 1 month, 21.1734 at 6 months and 21.6432 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE