The peso loses against the dollar: it is trading at 20.05

The peso starts the session with a depreciation of 0.38% or 7.5 cents, trading around 20.05 pesos per dollar, as caution continues to be observed among market participants, as happened during Monday’s session.

In the foreign exchange market, the currencies that lose are mainly from emerging economies, the most depreciated being the South African rand with 2.03%, the Brazilian real with 1.15%, the Russian ruble with 0.64% and the South Korean won with 0.52%.

The caution of the markets in the first sessions of the year is mainly due to two factors:

First factor

The likely negative impact of the pandemic on economic activity. Although the first effective vaccines against Covid19 began to be distributed since December, globally, more than 500,000 infections are confirmed daily and the total number of confirmed infected is close to 86 million.

Yesterday the United Kingdom began a severe lockdown by suspending classes and non-essential services at least until February 15, something that could cause a recession in the shape of a «W».

In Germany, the possibility of extending the confinement measures scheduled to end on January 10 is being evaluated.

In Japan, the city of Tokyo is also confirming record numbers of serious cases.

Second factor

In the United States, voting will take place for two Senate seats that correspond to the state of Georgia. In the state, for a candidate to be a winner, it is necessary to obtain more than 50% of the votes, something that did not happen in November and that forces today’s voting.

The results will be decisive for the control of the Senate, because if the Democrats win both seats, the party would win 50% of the seats.

It is worth mentioning that, according to the United States constitution, the vice president in turn is also president of the Senate and has a vote only for a tiebreaker when an internal vote is divided, so a victory for the Democrats would give the party effective control of the Senate.

The peso and oil

In the capital markets, losses are observed in Europe, with the main indices falling on average 0.65%, while, in the United States, the futures market points to moderate losses at the beginning of the session.

In the raw materials market, the prices of the main oil mixtures began the session with gains, given the rejection of the proposal from Russia, a country that wanted to continue with the increases in oil production during the month of February.

Russia is said to be in favor of another 500,000 barrels a day increase, while the rest of the OPEC + members favor keeping it at current levels.

Manufacture

Regarding economic indicators, in Mexico, the December Business Confidence Indicator (ICE) for the manufacturing sector stood at 43.0 points (+0.7 points monthly, -5.5 annually), according to seasonally adjusted figures.

Within manufacturing, the only component that showed a monthly decline was the right time to invest (-0.1), a sign of the country’s internal risks.

In addition, the manufacturing indicator already accumulates 15 months below the 50-point threshold, evidence of the uncertainty that prevailed in the country since before the pandemic.

The ICE of commerce registered a level of 44.1 points (+0.9 points monthly, -5.6 annual). All the components of the trade indicator showed monthly increases, highlighting the increase of 2 points in the current economic situation of the country.

Indicators of Banxico

For its part, business confidence in construction stood at 43.3 points (+0.6 points per month, -5.4 per year), where the component of the company’s current economic situation showed the greatest advance compared to November, of 1.2 points.

The ICE for construction already accumulates 26 months below the threshold of 50 points.

During the session, the exchange rate is expected to trade between 19.89 and 20.12 pesos per dollar. The euro starts the session with an appreciation of 0.16%, trading at 1.2268 dollars per euro, while the pound loses 0.05% and is trading at 1.3564 dollars per pound.

Money market and debt

In the United States, the 10-year Treasury bond yield increased 1.8 basis points, to 0.93%, while in Mexico the 10-year M bond yield remains unchanged at 5.53 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 1.68% 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 20.1120 at 1 month, 20.4548 at 6 months and 20.8636 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE