The peso starts the session with a depreciation of 0.37% or 7.4 cents, trading around 20.38 pesos per dollar, with the exchange rate touching a minimum of 20.2535 and a maximum of 20.4468 pesos.

With the above, the Mexican peso ranks as the most depreciated currency in the session and as the most depreciated in the week, as it has lost ground during five consecutive sessions and accumulates a decline of 2.20 percent.

The second most depreciated currency in the week is the Colombian peso with 0.84%, followed by the Brazilian real with 0.66 percent.

The performance of the peso in the exchange market is evidence of a greater perception of risk with respect to Mexico, due to the effects of the low temperatures in Texas on energy prices and their availability in Mexico, as well as the forthcoming discussion and approval of the Law of the electrical industry.

Today, the Energy Commission of the Chamber of Deputies will discuss a proposal for an approval opinion for the reform of the Electricity Industry Law that the President of the Republic proposed a few weeks ago.

Once approved by the committee, the opinion will be sent to the plenary session of the Chamber of Deputies for discussion and eventual approval, which, as it is a reform to a secondary law, will require a simple majority.

This reform of the law would cause:

• Increases in the prices of electricity to consumers.
• Pressure on public finances.
• Greater uncertainty regarding the T-MEC, since it does not comply with it.

The peso

In general, the rest of the financial markets are optimistic, allowing most currencies to gain ground against the dollar.

The dollar weighted index shows a decline in the session of 0.32%, indicating that demand for other currencies is recovering, including those of emerging economies, with the exception of the Mexican peso.

In the capital markets of Europe gains are also observed, with the main indices advancing 0.70% on average, while, in the United States, the futures market points to gains mainly for companies in the technology sector.

The calm in the markets is mainly due to the publication of positive economic indicators.

In the Eurozone, the PMI indicators for February were published, the composite index of total activity increased from 47.8 to 48.1 points, marking a maximum in the last two months, although it is still below the expansion threshold (50 points).

The PMI of the manufacturing sector of the Eurozone stands out, which advanced from 54.8 to 57.7 points, registering a maximum in 36 months.

Growth in manufacturing was driven by new orders and an increase in employment.

Going forward, businessmen show greater optimism supported mainly by vaccination processes in Europe and other advanced economies.

The US advance PMI for the month of February will be released at 8:45 am.

Mexican economy

Regarding economic indicators in Mexico, INEGI published the Timely Indicator of Economic Activity (IOAE) corresponding to the month of January 2021, where it is estimated that the economy contracted 4.4% compared to the same month of the previous year.

The indicator also estimates annual contractions for secondary and tertiary activities of 4.1% and 5.4%, respectively.

With respect to the previous month, the IOAE estimates that secondary and tertiary activities fell 0.2% and 0.5%, respectively.

These results were expected, especially the contraction in the services sector, since at the beginning of the year the authorities reinforced social distancing measures.

Although during February the new cases of coronavirus began to decline gradually, an additional blow to economic activity is expected, as the winter storm that hit Texas and northern Mexico caused a shortage of electricity and natural gas, affecting millions of homes and businesses.

The magnitude of the impact will be known until the next IOAE publication and more precisely until the end of April, with the timely estimate of GDP for the first quarter of 2021.

Tourism

On the other hand, in the third quarter of 2020, the tourism GDP showed a quarterly rebound of 26.67%, after the historic drop in the second quarter of 43.89% as a reflection of global confinement.

At an annual rate, tourism GDP registered a contraction of 34.22%, spinning four quarters of setbacks and showing that it is the sector hardest hit by the health crisis.

It should be remembered that, prior to the pandemic, the tourism sector was already showing signs of weakness, as strong cuts had been made to the budget of the Ministry of Tourism, which was 42.7% lower in 2020 compared to 2019.

With this, in the third quarter of 2020, tourism activity presents an average annual drop of 29.39%, the highest since the series began in 1993.

In the interior, the tourism GDP of goods advanced 45.69% at a quarterly rate.

The advance has not been enough to offset the fall in the second quarter of 46.87%, so in annual terms it showed a severe contraction of 28.54%, adding six quarters of falls.

For its part, the tourism services GDP presented a more modest rebound of 22.32%, limited by sanitary measures that restrict the operation of restaurants, flights and hotels.

In annual terms, the tourism services GDP registered a contraction of 35.47 percent.

It is worth mentioning that the most vulnerable states due to the fall in tourist activity are: Quintana Roo and Baja California Sur, entities where accommodation services and food and beverage preparation represent 22.7% and 15.9% of their GDP respectively.

Vaccination

For the last quarter of 2020, the tourism sector is expected to show a moderate recovery, consistent with the progress observed in hotel occupancy and passenger flow as of November.

By early 2021, the tourism sector will continue to be affected by the strengthening of health measures to contain the rebound in coronavirus infections.

During the first half of February, 13 states were on high alert. It is expected that throughout the year the recovery of the tourism sector will be limited by the slow progress of the vaccination campaign in the country, which would cause the restrictions to be prolonged and in turn could discourage tourists.

As of February 18, Mexico has administered 0.90 doses per 100 people, one of the lowest rates in the world.

For comparison purposes, the United States has provided 17 vaccines per 100 inhabitants in the same period.

During the session, the exchange rate is expected to trade between 20.20 and 20.45 pesos per dollar.

The euro starts the session with an appreciation of 0.33%, trading at 1.2132 dollars per euro, while the pound advances 0.36% and is trading at 1.4025 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increased by 1.9 basis points, to 1.31%, while in Mexico the yield on 10-year M bonds increased by 2.5 basis points, at a rate of 5.98 per hundred.

Derivatives market and the peso

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 1.94% 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 20.4195 at 1 month, 20.7494 at 6 months and 21.1513 pesos per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE