The peso begins the session with an appreciation of 0.59% or 12.5 cents, with the exchange rate trading around 21.07 pesos per dollar, after inflation was published in the United States.

In February, the Consumer Price Index showed an annual variation of 1.7%, in line with market expectations, while in its monthly comparison inflation was 0.4 percent.

Monthly inflation was driven by gasoline prices (+ 6.4%), representing more than half of the increase in the Consumer Price Index, which implies that there is no upward pressure on the underlying component of inflation , something that had been speculating for a few weeks.

This morning in the bond market, the 10-year Treasury bond rate rises 2.4 basis points to 1.55%, after falling more than 6 basis points during Tuesday’s session.

In the capital market a second session of optimism is observed, but moderate compared to Tuesday, with the main European indices advancing on average 0.49%, while in the United States the futures market indicates a mixed start of session, with close gains to 0.30% for companies in the industrial sector, but losses close to 0.20% for companies in the technology sector.

The peso

There are two events that could allow the US dollar to resume its uptrend. In the United States, the House of Representatives will vote today to approve the $ 1.9 trillion stimulus package.

The new package includes a round of direct checks of 1,400 dollars for Americans who earn less than 75 thousand dollars a year, the extension of the unemployment support payment of 300 dollars a week until September 6, a fund of 130 billion dollars. dollars for schools, among other supports.

This will further boost the economic growth of the United States during 2021.

Another event that could influence market sentiment, in relation to monetary policy, is that the Bank of Canada will have a monetary policy announcement at 9:00 am (CT).

The market expects it to keep its interest rate unchanged at 0.25 percent.

However, it is speculated that the central bank could announce plans to start reducing its asset purchases.

Tourism

Regarding economic indicators in Mexico, according to the International Traveler Survey (EVI) published by INEGI, during January 2021 3,800,940 visitors entered the country, 54.9% less than in January of last year and 12.2% less than in December 2020. From 1,923,672 visitors were international tourists, showing an annual contraction of 49.3 percent.

Due to the pandemic, most of the tourists that enter the country are from the border, since this figure has fallen at lower rates than that of international tourists who enter by air or land.

In the EVI of January 2020, the proportion of inpatient tourists was 54%, while now it was 43%.

Total spending by international visitors contracted 59.1%, from 2,281.6 million dollars (million dollars) to 934.1 million dollars.

On average, the average expenditure was 245.74 dollars, which meant a contraction of 9.3% compared to January 2020. Regarding expenditures, the number of visitors who left Mexico during January 2021 was 2,473,234, a figure 63.6% lower than a year ago.

Total spending by national visitors fell 64.2% from 819.0 to 293.2 million dollars, with average spending falling 1.6% in the period.

It is evident that the strongest contractions are observed in visitor arrivals, which is explained by a faster recovery abroad than in the domestic economy.

As developed economies advance with their vaccination programs, Mexico’s tourism sector will recover.

However, the lack of vaccines in Mexico will continue to present a challenge for the recovery of the economy in general and in particular of the tourism sector, which also depends on domestic tourism.

Industry

 On the other hand, the Monthly Indicator of Industrial Activity by Federal Entity (IMAIEF) for November showed that at an annual rate, 21 states continue to register contractions, highlighting Baja California Sur (-24.61%), Colima (-22.35%), Quintana Roo (-19.74%), Hidalgo (-17.66%) and Tlaxcala (-16.58%). However, these entities barely represent 4.35% of the total industrial activity in the country.

In contrast, the states with the highest annual growth rates are Oaxaca (+ 33.49%), Baja California (+ 9.56%), Tabasco (+ 5.64%), Chiapas (+ 4.95%) and Aguascalientes (+ 3.49%). Among these five entities they represent 12.79% of total industrial activity, a greater share than that of the five states with the greatest drops.

It is worth mentioning that, although construction is one of the most lagging sectors, in November it performed well, since according to the Monthly Industrial Activity Indicator (IMAI), construction grew in November at a monthly rate of 2.20 % (-7.97% annually).

The recent rebound in construction has particularly benefited Oaxaca and Tabasco, entities that show annual growth in construction activity of 83.84% and 27.89%, respectively.

Automotive section

Industrial activity by state is expected to continue showing a mixed performance in December 2020 and the first two months of 2021 due to the following factors:

1) Tough epidemiological conditions, with 13 states on high alert during the first half of February.

2) Crashes caused by severe frosts in Texas and the north of the country that caused interruptions in the supply of gas and electricity for a few days, which in turn forced some plants to suspend operations, particularly in the automotive sector.

It should be added that, in particular, the automotive sector has also been affected by the global shortage of semiconductors, forcing some plants to stop and reduce their production.

In this sense, some indicators related to industrial activity in February have begun to reflect the impact of these shocks, highlighting the annual fall of 28.85% in automotive production and the monthly decline of 0.30 points in the IMEF manufacturing indicator.

During the session, the exchange rate is expected to trade between 21.00 and 21.25 units of peso per dollar.

The euro starts the session with a depreciation of 0.02%, trading at $ 1.1899 per euro, while the pound loses 0.04% and is trading at $ 1.3886 per pound.

Money market and debt

In the United States, the yield on the 10-year Treasury bonds increased by 2.1 basis points, to 1.55%, while in Mexico the yield on the 10-year M bonds remained unchanged, at a rate of 6.26 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 21.50 units of peso per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 2.04% 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 21.2740 at 1 month, 21.6290 at 6 months and 22.0766 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE