The peso loses against the dollar: it is trading at 19.83

The peso starts the session with a moderate depreciation of 0.03%, trading around 19.83 pesos per dollar, with the exchange rate touching a minimum of 19.8000 and a maximum of 19.8661 pesos per dollar, showing a variation interval of only 6.6 cents, the lowest since January 1, which was a non-business day, and before that date since February 17, 2020, before the markets were shaken by the initial impact of the Covid19 pandemic.

The stability of the exchange rate this morning is a reflection of the caution among market participants, at the beginning of a relevant week in terms of economic indicators and events.

Meanwile, the main relevant event will be the Federal Reserve’s monetary policy announcement scheduled for Wednesday at 1:00 p.m., where the interest rate and the bond purchase programs are expected to remain unchanged.

The Mexican peso could see further appreciation if broadly flexible language is confirmed by the Fed in its statement and by Jerome Powell in his press conference. For now, the dollar weighted index remains stable, advancing 0.01% in the session.

Subsequently, the publication on Thursday 29 of the economic growth of the United States for the first quarter will be relevant, which Banco BASE estimates will be at an annualized quarterly rate close to 8.0%, equivalent to a quarterly rate of 1.9 percent.

The confirmation of an accelerated economic recovery in the first quarter of 2021 increases the probability of episodes of increased appetite for risk.

The peso

For its part, in Mexico, the publication on Friday 30 of the economic growth of the first quarter stands out, which Banco BASE estimates will be at a quarterly rate of 0.2% and an annual rate of -3.3%, the result of significant economic stagnation during the months of January and February.

It is worth mentioning that this morning there are contradictory signals for the markets, because, although the expectation of a solid global economic recovery continues, coronavirus cases continue to advance in some countries.

In India, 352,991 new cases of Covid19 were registered, being the fifth consecutive day with more than 300 thousand new infections, which indicates that the threat of the pandemic is still present.

Due to the above, the raw materials market has shown a mixed performance and this morning the price of copper advances 1.84%, accumulating an increase of 25.93% in the year and a level of 9,758 dollars per metric ton, the highest since August from 2011.

On the contrary, the price of WTI oil loses 1.34% this morning and has fallen 9.81% from the maximum in the year, trading at 61.31 dollars per barrel, this due to the deterioration of growth expectations in India, which is the third largest importer. of crude oil globally.

Mexican economy

Regarding economic indicators, this morning the Global Indicator of Economic Activity (IGAE) stands out, showing a real decrease of 0.3% during February, falling for the third consecutive month according to seasonally adjusted figures.

Both primary and tertiary activities decreased 0.3% compared to the previous month, while secondary activities increased 0.4 percent.

This increase in the secondary sector is due to the monthly growth of 2.5% in construction and 2.3% in mining, offsetting the fall of 2.1% in the manufacturing sector and 3.8% in power generation and water and gas supply. which were affected in mid-February by the frost in the north of the country that forced many plants to stop their production for a couple of days due to the high costs of gas.

Within the tertiary sector, the drop of 1.6% in wholesale trade stands out, this being the strongest monthly contraction since May 2020. On the other hand, although the retail trade shows a decrease of less than 0.4%, it is the third consecutive month in which it falls.

The only tertiary subsectors in which monthly growth is observed are information in the mass media (2.1%), government activities (0.7%) and educational and health services (0.01%), which is most likely due exclusively to the health sector.

Pandemic and peso

Compared to February of last year, the IGAE shows an annual contraction of 4.0%, thus accumulating 20 consecutive months of falls (since July 2019).

The only sector with growth in the last 12 months is the primary sector, which grows at a rate of 6.3%, while the secondary and tertiary sectors are still affected by the pandemic, falling 3.1% and 5.0%, respectively.

As has already been mentioned on previous occasions, the tertiary sector is the most affected since it requires a greater degree of mobility and contact between people, which has been limited by official regulations of the authorities or even on a voluntary basis.

However, it must be remembered that the recession started before the pandemic. The secondary sector began to show annual contractions in March 2019, a year before the pandemic and has already accumulated 24 consecutive months of falls.

The main factor behind this is low investment and job creation, which in the last two years has deteriorated significantly, limiting the possibilities for growth in the medium and long term.

During the session, the exchange rate is expected to trade between 19.79 and 19.91 pesos per dollar.

The euro starts the session with a depreciation of 0.14%, trading at $ 1.2080 per euro, while the pound gains 0.03% and is trading at $ 1.3880 per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increased by 2.8 basis points, to 1.59%, while in Mexico the yield on 10-year M bonds remained unchanged at 6.74 percent.

Derivatives market

To hedge against a depreciation of the peso beyond 20.00 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.78% 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 19.9164 at 1 month, 20.2591 at 6 months and 20.7176 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE