The peso starts the session with a depreciation of 0.64% or 13.3 cents, trading around 20.74 pesos per dollar, with the exchange rate touching a minimum of 20.5524 and a maximum of 20.7675 pesos per dollar.

The Mexican peso ranks as the second most depreciated currency, behind the Brazilian real, which lost 0.84%. Both currencies lose ground as a result of a higher perception of internal risk.

On the one hand, in Brazil it is feared that the administration of Jair Bolsonaro will lean towards more interventionist policies, moving away from the pro-market approach after higher taxes on financial institutions and the termination of a preferential regime for companies in the chemical industry were announced. , with the aim of cutting taxes on diesel and cooking gas.

The reduction in taxes on diesel consumption will be in effect during the months of March and April, while for cooking gas the measure is indefinite.

It should be noted that the Brazilian real has accumulated a depreciation of 5.53% in the last five sessions and is trading around 5.7130 reais per dollar.

Electricity

For its part, in Mexico, last night, the Senate of the Republic approved the reform of the Electricity Industry Law, without making any changes. It was approved with 68 votes in favor and 58 against without holding an Open Parliament and with only two days of discussions in committees and in plenary session.

The reform that gives priority to the CFE in the production of electricity and leaves private participation at the end, implies a risk for private investment in the energy sector, which has shown a clear downward trend since 2019.

The greater perception of risk in Mexico is likely to generate upward pressure on the exchange rate in the short term and the possibility of reaching levels close to 21.00 pesos per dollar again is not ruled out.

Peso

It is important to note that after the Brazilian real and the Mexican peso, the two most depreciated currencies are the Swiss franc and the Japanese yen, which lost 0.27% and 0.22% respectively, due to a lower demand for safe-haven currencies and a greater appetite for risk in global financial markets.

In the capital market, the main indices in Europe show gains close to 0.50% on average and in the United States the futures market points to moderate gains close to 0.30 percent.

Although the exchange market remains calm and the weighted index of the dollar advances only 0.20%, it is likely that the dollar will continue to strengthen during the session, as upward pressures on Treasury bond rates are once again observed in the money market .

The 10-year bond rate rises 7.2 basis points this morning to 1.46 percent.

Developed countries

Regarding economic indicators, in Europe the services PMI index for February stood at 45.7 points, above the previous estimate of 44.7 units and increasing by 0.3 points compared to the final reading for January.

This is the sixth consecutive month that the index is in a contraction zone, due to the restrictions on operating capacity that remain in the services sector.

In the United States, the Automatic Data Processing (ADP) employment survey estimated that 117,000 job positions were created in February, below the market’s expectation of 177,000 jobs.

On Friday, the non-agricultural payroll for the second month of 2021 will be published, where the creation of at least 180 thousand job positions is expected to be confirmed.

Mexican market and the peso

In Mexico, the total sale to the public of light vehicles for the month of February was 82,323 units, being the lowest level for the same month since 2014. In annual terms, automotive sales showed a contraction of 21.1% (Vs. 22.5% in January), adding 12 months of setbacks.

In February, automotive sales were affected by three factors: 1) sanitary restrictions in 13 states of the country, as some agencies were forced to remain closed as they were not classified as essential; 2) the decrease in the supply to agencies of some models as a consequence of the lack of electronic semiconductors in the plants; and 3) the weak consumption of durable goods due to the deterioration of the labor market.

Moving forward, auto sales are expected to continue to show weakness, as some factors that have affected sales have not faded. On the one hand, the semiconductor shortage continues, forcing some automakers to reduce or stop their production.

On the other hand, although the opening will help employment to resume its recovery path, the slow vaccination process in the country could cause the normalization of economic activity to be prolonged.

Finally, it is not ruled out that the agencies will be affected again by the reinforcement of mobility restrictions, since the Easter holiday period could cause a new rebound in coronavirus cases.

During the session, the exchange rate is expected to trade between 20.62 and 20.89 pesos per dollar. The euro starts the session with a depreciation of 0.33%, trading at 1.2051 dollars per euro, while the pound gains 0.05% and is trading at 1.3962 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increases by 6.9 basis points, to 1.46%, while in Mexico the yield on 10-year M bonds increases by 2.7 basis points, at a rate of 6.10 percent .

Derivatives market

To hedge against a depreciation of the peso beyond 22 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 0.87% 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 20.8253 at 1 month, 21.1632 at 6 months and 21.5885 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE