The peso starts the session with an appreciation of 0.22% or 4.4 cents, trading around 20.20 pesos per dollar, as the US dollar weakens and the risk appetite increases in global financial markets, particularly in the capital markets.

The dollar weighted index starts with a 0.16% decline, while the Mexican peso is the fourth most appreciated currency, behind the British pound with 0.35%, the South African rand with 0.32% and the Chilean peso with 0.30 per cent. hundred.

The optimism in the markets is again related to the expectation that a new fiscal stimulus package will be approved in the United States. Today Republican leader Mitch McConnell will hold a press conference, where he is expected to support a stimulus package of 748 billion dollars.

Included in the package are $ 300 billion to support small businesses, through the Check Protection Program (PPP), $ 180 billion for additional unemployment insurance, $ 45 billion for airlines and 82 billion for education.

It also includes financing for the distribution of vaccines, postal service, among others. It is important to mention that this Friday is the last session of the Senate, so an agreement would have to be reached between today and tomorrow to be able to approve it before the end of the year.

The peso and fiscal stimuli

In the capital market, the main indices in Europe show a mixed performance, although on average they advance close to 0.50%, driven by the DAX of Germany, which advanced 0.72 percent.

In the United States, the futures market indicates that the main indices will start the session with gains close to 0.65%, driven by the probability that new fiscal stimuli will be authorized in the United States.

It is important to note that, for global financial markets, the sustained advance of the pandemic continues to be a risk of falls in the short term, as happened during yesterday’s session, when capital markets registered losses due to the possibility that New York implements a total lockdown for the second time.

Europe

In the UK, medical publishers: British Medical Journal and Health Service Journal, called on Prime Minister Boris Johnson to ban Christmas gatherings to protect the National Health Service. On the other hand, the British authorities indicated that a new variant in the virus could be causing an increase in the number of infections.

Therefore, restrictions in London are going to be tightened, closing all bars and restaurants, allowing only take away service.

Other European countries such as Germany and the Netherlands also announced new restrictions. German Chancellor Angela Merkel said that to try to curb the wave of infections, all non-essential stores will be closed, employees will be asked to work from home and students will be asked to take classes remotely.

Also, gatherings and the sale of alcohol will be prohibited during New Years. The measures will be in effect at least until January 10.

Banxico

For its part, in Mexico the discussion and voting of the reforms to the Bank of Mexico Law in the Chamber of Deputies will be key.

If the reform is approved, which would force the Central Bank to buy currencies that could not be channeled abroad through correspondent services, it is likely that the perception of risk with respect to Mexico in global financial markets will rise, raising the probability of capital outflows and upward pressure on the exchange rate in the short term.

Indicators of Banxico

It should be noted that the rating agency Moody’s warned that this reform could have negative implications on the country’s credit rating, as it could violate the autonomy of Banco de México.

During the session, the exchange rate is expected to trade between 20.12 and 20.42 pesos per dollar. The euro starts the session with a moderate depreciation of 0.05%, trading at 1.2138 dollars per euro, while the pound shows an appreciation of 0.50% and is trading at 1.3391 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increased 0.7 basis points, to 0.90%, while in Mexico the yield on 10-year M bonds increased 1.0 basis point, to 5.71 percent.

Derivatives market

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 1.74% 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 20.2388 at 1 month, 20.5705 at 6 months and 20.9930 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE