The peso starts the session with a depreciation of 0.14% or 2.9 cents, trading around 20.88 pesos per dollar, observing a lateral behavior during the overnight around 20.90 pesos per dollar.

In recent days, particularly yesterday, the trading range was wide, due to upward pressure on interest rates in the US bond market.

This morning the bonds appear to have stabilized, with the 10-year rate showing a decrease of 5.8 basis points to stand at 1.46 percent.

The low demand in the primary bond market, which was already being reflected in the secondary market since the end of January, was the result of a reduction in risk exposure to possible future changes in the Fed’s monetary stance.

While Federal Reserve officials have reiterated that they will keep the interest rate unchanged and liquidity injections will continue, strong economic indicators for the US economy are prompting a reaction similar to the “Taper Tantrum” of 2013, when rates reacted upward due to the announcement of a gradual normalization of monetary policy after the Great Recession of 2008-2009.

It should be remembered that there is an inverse relationship between the interest rate and the price of a bond, so that increases in the rate imply losses in the value of the portfolios in the short term.

The peso and other currencies

In the foreign exchange market, the US dollar continues to show strength, with the weighted index advancing 0.30%, after rising 0.64% yesterday.

Most of the currencies in the broad basket of major crosses lose ground this morning, the most depreciating being the Indian rupee at 1.41%, the South Korean won at 1.37%, the Australian dollar at 1.28% and the Turkish lira at 1.10 percent.

It should be remembered that the strengthening of the US dollar during the session on Thursday was due to a sharp increase in interest rates on Treasury bonds in the United States, mainly around noon, after an auction of 62 billion dollars of bonds of the 7-year Treasury, with a demand of 2.04 times what was placed, being the lowest since 2009, while the difference between the rate prior to the auction and the highest rate in the auction was 4.2 basis points, something not seen before for similar placements.

The oil

It is probable that the capital market will continue to show losses during the session, since in the futures market the main indices of the United States register declines close to 0.20 percent.

In Europe, the main indices lose on average about 0.86 percent.

In the commodities market, the price of WTI oil shows a 2.30% decline, trading at $ 62.07 per barrel, as a result of a downward correction in earnings for the month, ahead of an OPEC meeting on Thursday. of the following week, where the continuity of the limits to the oil production of the member and allied countries will be discussed.

During February, the WTI accumulated an increase of 4.81%.

Consumption in the US

Today the House of Representatives is expected to pass Joe Biden’s $ 1.9 trillion stimulus package. However, it is likely that the increase to the minimum wage to $ 15 will not be included, since, according to MP Elizabeth MacDonough, this proposal does not meet the requirements to enter into budget reconciliation, so 60 would be needed votes to approve the measure.

Regarding economic indicators, in the United States the monthly report on income and personal consumption for January was published.

During the first month of 2021, personal income increased at a monthly rate of 10%, spinning up two months and being the largest monthly increase since April 2020, supported by fiscal stimuli.

The savings rate was 20.5%, increasing from the 13.7% rate observed in December.

For its part, personal consumption increased at a monthly rate of 2.4%, after having decreased in November and December.

Exports

For its part, in Mexico, the Trade Balance of January merchandise registered a deficit of 1,236 million dollars (Vs. -2,481 million dollars in January 2020), being the first after seven months of surpluses, according to original figures.

This is due to stronger imports and seasonal effects, as non-oil exports tend to be weak in the first month of the year.

Total exports registered a monthly fall of 0.37%, while in annual terms they grew at a rate of 3.45%, adding four months of increases.

The foregoing, despite adverse conditions related to:

• The deterioration of epidemiological conditions at a global level.
• A challenging base, since in December total exports grew 3.83% monthly and 7.36% annually.
• Some blockages on the railways of Michoacán, affecting the flow of goods to the port of Lázaro Cárdenas.

Automotive industry and the peso

Within exports, manufacturing decreased at a monthly rate of 0.74% (+ 4.87% annually), as a result of the monthly drop in other manufacturing exports of 2.66% and the surprise increase compared to December in automotive exports of 2.72%. hundred.

It is worth mentioning that the automotive sector faced unfavorable conditions, since since the beginning of the year some plants in the sector were unemployed due to the global shortage of semiconductors.

The problem has extended to February, including some automakers like GM have announced cuts in their production at least until mid-March.

External purchases

For their part, total imports continued to grow at a monthly rate of 2.93 percent.

In annual terms, total imports registered a growth of 1.13%, being the second consecutive increase.

Imports were particularly supported by intermediate use imports with a monthly growth of 3.36% and 4.37% annually.

For their part, imports of capital goods advanced at a monthly rate of 1.42%, although at the annual rate they continue to lag behind, with a drop of 4.51 percent.

Finally, consumer imports increased 1.07% monthly and presented an annual contraction of 13.57 percent.

The peso and frost

In January, the deterioration of epidemiological conditions in the United States and Mexico represented a challenge for trade, which was not severely affected, despite the fact that containment measures were reinforced in various areas of both countries.

Although the relaxation of sanitary measures in Mexico began in mid-February, going from thirteen states on maximum alert in the first half of the month to 2 in the second half, the winter storm that hit the United States and Mexico probably affected the trade.

The frost caused interruptions in the supply of gas and electricity on both sides of the border for a few days, which in turn caused the suspension of activities in various plants in the manufacturing sector, particularly automotive.

After the adverse events that occurred in February, exports are expected to once again show favorable dynamics, supported by the rapid vaccination process and the broad US $ 1.9 trillion fiscal stimulus that will probably be ratified in March.

During the session, the exchange rate is expected to trade between 20.65 and 21.05 units of peso per dollar.

The euro starts the session with a depreciation of 0.44%, trading at 1.2122 dollars per euro, while the pound loses 0.56% and is trading at 1.3937 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds decreased by 6.5 basis points, to 1.45%, while in Mexico the yield on 10-year M bonds increased by 1.0 basis points, at a rate of 6.30 percent.

Derivatives market

To hedge against a peso depreciation beyond 22 pesos per dollar, a call option, with an exercise date within 1 month, has a premium of 1.19% 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 20.9677 at 1 month, 21.2950 at 6 months and 21.7160 units of peso per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE