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The peso has high volatility: it is trading at 20.11

The peso starts the session with high volatility, trading around 20.11 pesos per dollar, with the exchange rate touching a minimum level of 20.0860 and a maximum of 20.3680.

The exchange rate began an erratic movement after 6:00 a.m., after knowing Mexico‘s GDP for 2020.

The opportunity estimate showed a quarterly growth of 3.08% and an annual contraction of 4.62%, giving an annual contraction of 8.52% in 2020, the largest drop in GDP since 1932 with the Great Depression (-14.92%) and the second year after thread that the economy contracts (2019: -0.05%).

It should be added that, with the annual decline in the fourth quarter, there are six consecutive quarters of falls in GDP, matching the longest period of setbacks in the record, which goes from the third quarter of 1982 to the fourth quarter of 1983.

Within GDP, the increase in the fourth quarter was again driven by the quarterly growth of secondary activities with 3.31% (-3.40% annually), favored by the growth of exports, particularly in the manufacturing sector.

However, in 2020 they fell 10.24% compared to 2019, as the confinement of the second quarter and the temporary closure of some companies in the sector caused a deep quarterly drop of 23.34% in that period.

Tertiary activities registered a quarterly growth of 3.01%, although in annual terms it is the activity group that lags the most, showing a contraction of 5.30% in the fourth quarter.

Services

During 2020, tertiary activities contracted 7.90% compared to 2019. This is because, during the second quarter, the quarterly contraction was 15.14%, less profound than that observed in secondary activities.

However, the recovery of the sector has been slower, as several service subsectors face severe restrictions to continue operating due to the pandemic and are far from recovering.

Finally, the primary sector showed a decrease at a quarterly rate of 2.64%, the first since the fourth quarter of 2019.

However, its annual variation remained in positive territory, showing a growth of 4.90% during the fourth quarter.

In 2020, the primary sector grew 2.13% compared to 2019, because during the year this sector was driven by strong external demand and did not face restrictions due to the pandemic as it is an essential activity.

Considering the most recent information, Grupo Financiero BASE estimates a rebound of 3.8% for 2021.

European economy

In Europe some countries reported their preliminary growth for the last quarter of the year. France registered a quarterly fall of 1.3%, after the advance of 18.5% during the third quarter.

At an annual rate, France’s GDP fell 5.0% in the last quarter of 2020, averaging an 8.3 percent contraction for the year.

For its part, the German economy showed a slight quarterly growth of 0.1%, falling 3.9% annually and averaging a contraction of 5.3 percent in 2020.

Finally, Spain reported a quarterly growth of 0.4% during the fourth quarter of 2020, contrary to the market’s expectation of a contraction.

At an annual rate, Spain’s GDP fell 9.1% during the last quarter, averaging a contraction of 11% in 2020. The data shows that the economic recovery stalled and in some cases a new contraction was observed due to the resurgence of coronavirus cases towards the end of the year.

The peso

It should be noted that in the capital market there are again losses that began in the Asian market.

Japan’s Nikkei 225 closed down 1.89%, while in Europe the main indices registered generalized falls, on average 1.20 percent.

Prior to the opening of the market, in the United States the futures market shows losses close to 1.00 percent.

In the bond market, the 10-year Treasury bond yield rate shows an increase of 3 basis points, reaching 1.08%, accumulating an increase of 6.5 basis points in the last two sessions.

On the other hand, in the United States the monthly report on income and personal consumption for December was published.

During the last month of 2020, personal income increased at a monthly rate of 0.6%, after having decreased 1.3% in November.

The savings rate was 13.7%, above the 7.2% rate observed in December 2019.

For its part, personal consumption decreased at a monthly rate of 0.2%, being the second consecutive monthly decline.

During the session, the exchange rate is expected to trade between 19.96 and 20.30 pesos per dollar.

The euro starts the session with an appreciation of 0.22%, trading at 1.2149 dollars per euro, while the pound loses 0.15% and is trading at 1.3741 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increases by 5.1 basis points, to 1.10%, while in Mexico the yield on 10-year M bonds increases by 1.6 basis points, at a rate of 5.59 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 1.98% 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 20.3132 at 1 month, 20.6687 at 6 months and 21.0794 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE

 

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