The peso starts the session with a significant depreciation of 1.65% or 34.8 cents, trading around 21.48 pesos per dollar, ranking as the second most depreciated currency in the wide basket of main crosses, behind the South African rand, which lost 2.48 percent.
Most currencies lose against the dollar amid a clear return in risk aversion in global financial markets amid fears related to the coronavirus pandemic.
In the United States, 39,844 new cases of coronavirus were reported in the last 24 hours, a figure that is above the average of the last seven days, which suggests that infections are increasing.
“I think we will have at least one more cycle of this virus into the fall and winter,” said Dr. Scott Gottbield of the Food and Drug Administration (FDA).
For its part, in the United Kingdom, new cases of coronavirus are doubling every seven days, so that by October, up to 50 thousand cases a day could be observed if precautions are not taken.
This increases the likelihood that Prime Minister Boris Johnson will announce new containment measures, seeking a balance that slows the pandemic, but prevents a severe drop in economic activity.
The volatility of the markets may also be related to the death of the US Supreme Court Justice Ruth Ginsburg, as there is now uncertainty about how this could impact the presidential elections in November.
Donald Trump said that during the week he will nominate a woman as a successor to Judge Ginsburg, who will fill the post once the elections are over.
The peso and other currencies
Few currencies are gaining ground in the foreign exchange market, with the Japanese yen standing out, advancing 0.46% due to a greater demand for safe-haven currencies.
On the other hand, in the bond market, the yield rate of the 10-year Treasury bonds showed a decline of 3.4 basis points to 0.66%, as a result of a higher demand for risk-free assets.
In contrast, capital markets are seeing a severe shock. In Asia, Hong Kong’s Hang Seng Index lost 2.06%, while China’s Shenzhen registered a 0.96% decline.
Finally, in the United States, the futures market points to losses close to 2% during the session.
It should be noted that, in the capital markets of Europe, the losses are concentrated in companies in the financial, energy and industrial sectors, which are considered cyclical, so today’s movement is due to the expectation of a resurgence of the pandemic and the threat of a new impact on global economic activity.
Commodity markets also post significant losses, with WTI shedding 2.02% and trading at $ 40.28 per barrel.
Metals mostly lose more than 1%, including the price of gold that fell 1.03% to $ 1,930.7 per ounce. Although gold is a safe haven asset, the losses are the result of the strengthening dollar this morning.
Regarding economic indicators, today the aggregate demand figures for the second quarter were published in Mexico. According to seasonally adjusted figures, aggregate demand contracted at a quarterly rate of 19.8% and an annual rate of 21.6 percent.
In the breakdown, all the components presented a contraction compared to 1Q 2020, where the greatest effects were in Exports with a fall of 30.5%, Investment of 29.8% and Private Consumption with 19.4%, while Government Consumption fell 1.0 percent.
Indicators of Banxico
Anticipated figures reveal that the main engine of the recovery for 3Q 2020 will be external demand, since the deterioration of economic fundamentals, the lack of an expansive fiscal policy and uncertainty would continue to affect private and government consumption, as well as in investment.
During the session, the exchange rate is expected to trade between 21.25 and 21.63 pesos per dollar. The euro starts the session with a depreciation of 0.62%, trading at 1.1767 dollars per euro, while the pound depreciates at 0.54% and is trading at 1.2847 dollars per pound.
Money market and debt
In the United States, the yield on 10-year Treasury bonds decreased by 3.4 basis points, at a rate of 0.66%. For its part, in Mexico the 10-year M bond rate shows an increase of 4.7 basis points, to 5.95 percent.
To hedge against a depreciation of the peso beyond 22 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.45% 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 21.5521 at 1 month, 21.9204 at 6 months and 22.3718 pesos per dollar at one year.
Gabriela Siller; PhD
Director of Economic-Financial Analysis.