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The peso loses 10 cents against the dollar

The peso begins the session with a depreciation of 0.46% or 10.2 cents, trading around 22.38 pesos per dollar, losing ground for the fifth consecutive session in which it accumulates a fall of 2.08% or 45.5 cents.

The depreciation of the peso is the result of a general strengthening of the US dollar against its main crosses, due to two factors: 1) an upward correction, after losing ground during July, which was the worst month for the dollar since January 2018 , 2) nervousness due to various factors, such as the cases of coronavirus that continue to rise and the growing political tensions between China and the United States.

Globally, coronavirus cases exceeded 18 million, increasing one million infections since the last week. Due to the increasing number of cases, countries have begun to respond with security measures, such as in Australia, where restrictions were imposed to prevent the spread of the virus. With this, there is no end in sight to the threat of the pandemic.

Regarding the tensions between the United States and China, Mike Pompeo said that measures against Chinese software companies are expected to be announced shortly, as they pose risks to the national security of the United States.

In July, tensions between the two countries escalated to the extent that consulates in the United States and China were closed, so measures that prohibit the operation of Chinese software and applications on US soil could worsen relations between the two countries and generate nervousness in the market, particularly in the capital market in companies in the technology sector.

The peso and oil

In the raw materials market, oil starts the session with losses in the expectation that global supply will increase, as OPEC and its allies (OPEC +) began with their relaxation of cuts in oil production.

In August, the cut will be 7.7 million barrels per day and not 9.6 million. The price of the WTI starts the session with a decrease of 0.42%, trading at $ 40.10 per barrel. The downward movement of oil prices creates pressures against currencies of oil-producing countries and other raw materials.

For its part, the price of gold begins with a moderate loss of 0.24% at $ 1,971.07 per ounce, after reaching a new all-time high of $ 1,988.40 overnight.

As for economic indicators, PMI indicators for the manufacturing sector have already been published in Europe.

In the Eurozone, the indicator for July was 51.8 points, above the preliminary estimate of 51.1. This is the first expansion registered by the manufacturing economy in the area since February 2019.

Inside most of the countries had readings above the threshold of 50 points, with Spain being the highest with 53.5, a maximum not seen in 27 months.

The foregoing generates limited optimism within the capital market, where the main indexes in Europe show average progress of close to 1.5 percent.

For its part, in the United States the market is waiting for ISM manufacturing indicators to be published until 9:00 a.m.

Mexican market

In Mexico, the publication of the National Survey of Business Opinion (EMOE) as of July stood out, which showed an advance in the Indicator of Business Confidence of manufacturing of 0.4 points compared to the previous month, to stand at 38.7 points.

While construction increased 4.3 points, settling at 40.8 points and trade increased 3.5 points, reaching 41.6 points.

Confidence in all three items has advanced from its low reached in May, due to the economic reopening. The survey also revealed an increase in the Orders Indicator (IPM) for July of 0.57 points monthly, standing at 49.1 points.

Despite the advance, the indicator accumulated 6 consecutive months below the threshold of 50 points. During the session, family remittances will be published in June at 9:00 am, along with the monthly survey of private sector specialists carried out by Banco de México.

Laboral sector

It should be added that, during the weekend, the President reported in his statement on Sunday that 3,430 formal jobs were lost during July, bringing the total to 925,013 formal jobs lost during the year.

Indicators of Banxico

However, from February to the end of July, the number of formal jobs lost is 1,117,107. It is estimated that job loss will continue due to the fall in economic activity and a domino effect. Banco BASE estimates under a central scenario that in 2020 1.8 million formal jobs will be lost.

During the session, the exchange rate is expected to trade between 22.25 and 22.50 pesos per dollar. The euro begins the session with a depreciation of 0.48%, trading at $ 1.1722 per euro, while the pound depreciates 0.47% and is trading at $ 1.3024 per pound.

Money and debt market

In the United States, the yield on 10-year Treasury bonds increases 3.4 basis points, at a rate of 0.56%, while in Mexico the yield on 10-year M bonds increases 6.3 basis points, to 5.79 percent.

Derivatives market

To hedge against a depreciation of the peso beyond 23 pesos per dollar, a call option, with an exercise date within 1 month has a premium of 1.59% 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 22.24830 at 1 month, 22.8774 at 6 months and 23.3262 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE

 

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