The peso begins the session oscillating between gains and losses, trading around Thursday’s close at 24.81 pesos per dollar, after hitting an overnight low of 24.6070 pesos. The upward pressures for the exchange rate came after the publication of the Global Indicator of Economic Activity (IGAE) in Mexico, a sign that the market considers the Mexican macroeconomic environment to be unfavorable.

In February, the IGAE showed a monthly contraction of 0.24%, the largest since October last year and an annual contraction of 1.56%, the largest contraction since November 2009, at the end of the Great Recession.

Inside, it can be seen that economic activity was affected by a shock to the supply chain due to the initial outbreak in China and the negative trend of the economy since last year. Tertiary activities did not observe a significant impact since mobility restrictions were not yet implemented in February.

Within the IGAE, secondary activities showed a monthly contraction of 0.60% and an annual fall of 3.52%, the largest also since 2009. The foregoing was the result of an annual fall of 9.54% in construction, the largest contraction in record for the sector and a 2.19% drop in manufacturing, the largest since November last year.

The peso and the industry

With the data as of February, manufacturing accumulates five consecutive months of falls at an annual rate. Tertiary activities contracted at an annual rate of 0.25%, mainly due to wholesale trade, which fell 7.19% annually, the biggest drop since the Great Recession, and accumulating severe contractions during the last 13 months.

The other subsectors of the services sector were not affected during the month of February.

On the other hand, mixed results are observed in the rest of the financial markets, as investors continue to weigh the economic risks of the coronavirus pandemic with the fiscal and monetary stimuli that have been announced globally.

In the United States, last night the House of Representatives approved a package of 484 billion dollars with 388 votes in favor and 5 against, focused on assisting small businesses to avoid continuing to see massive layoffs.

Due to the performance of the futures market, capital markets in the United States are likely to start the session with gains, which also contributes to the moderate risk appetite at the beginning of the session.

Monetary politics

Markets in Europe are also cutting their losses, after Spain reported the fewest cases in five weeks, while in Italy and France the number of new cases continues to decline.

The optimism of the European market is also due to speculation that the European Central Bank will expand its expansive monetary policy measures in its April 30 announcement.

During the session, an exchange rate is expected, trading between 24.00 and 25.00 pesos per dollar. The euro begins the session with an appreciation of 0.22%, trading at $ 1.0801 per euro, while the pound gains 0.02% and is trading at $ 1.2346 per pound.

Money market

In the money market, the rate of return on 10-year Treasuries increases 0.7 basis points, to 0.61%, while the yield on 10-year M bonds increases 2.8 basis points, at a rate of 6.81 percent .

The peso and the derivatives market.

To hedge against a depreciation of the peso beyond 25.50 pesos per dollar, a call option, with an exercise date within 1 month, has a premium of 2.33% 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 24.9342 at 1 month, 25.4454 at 6 months and 25.9665 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE