The peso begins the session with an appreciation of 0.85% or 20.4 cents, trading around 23.86 pesos per dollar, approaching the key support of 23.80 pesos.
This is due to a greater appetite for risk in global financial markets, which has allowed for the strengthening of most currencies against the dollar, with the exception of the Japanese yen, which depreciates 0.08% due to lower demand for safe-haven currencies.
On average, capital markets in Asia saw gains above 1%, while in Europe, markets also showed progress at the end of the week, with the DAX index of Germany rising 1.17% and the FTSE 100 in London registering a 1.40 percent gain.
The peso, oil and China
Finally, the price of the WTI recovers with a moderate advance of 0.64% and trading at $ 23.70 per barrel.
The increased appetite for risk in global financial markets is due to the following factors:
First factor
Overnight, the Chinese Ministry of Commerce confirmed a phone conversation between Liu He, China’s deputy prime minister, and Robert Lighthizer, the US trade representative, with the participation of the US Treasury secretary.
According to the statement, participants agree that work is being done to make the «phase one» agreement a success.
It should be remembered that said agreement not only contemplates an increase in Chinese imports of US goods and services by 200 billion dollars between 2020 and 2021, but the implementation of intellectual property rules, increases in the consumption of agricultural products from the United States and greater openness for the participation of US companies in the Chinese financial sector.
The signal from China is that it is working to comply with various items of the agreement, despite the fact that the recent crisis has temporarily affected the demand for imports from China.
Second factor
Optimism about the economic openness of the United States has resurfaced. The state of California has published the rules and list of companies that will be able to restart activities starting today.
Laboral sector
As for economic indicators, this morning the non-agricultural payroll for April confirmed the destruction of 20.5 million jobs in the United States, which is equivalent to all the jobs created in that country from September 2011 to February 2020, that is, during the longest period of economic expansion in United States history.
Likewise, the unemployment rate rose from 4.4% to 14.7%, reaching its highest level since the Great Depression. It should be added that the effect on financial markets has been moderate, as the data on initial applications for unemployment support for the last 7 weeks already indicated a destruction of employment of this dimension.
On the other hand, in Mexico the gross fixed investment data for February was published, showing an annual contraction of 10.21% according to seasonally adjusted figures, the largest annual drop in fixed investment since October 2009.
With this data, 13 consecutive months of contraction of gross fixed investment in Mexico were accumulated.
It is important to note that the contraction in investment during the first two months of the year was not directly related to the coronavirus crisis and was part of a downward trend, given the deterioration of the business environment in Mexico.
Inside, it stands out that investment in machinery and equipment contracted 11.54%, investment in residential construction 8.18% and investment in non-residential construction 9.29%, similar to the falls observed since September 2019.
Automotive industry
For its part, the INEGI together with the AMIA, published that during April the production of automobiles fell 98.7% annually to 3,722 units, as a consequence of the plant closings in the face of the health crisis. In March, the production was 261,805 units.
Several automakers had zero production, standing out General Motors, Honda, Nissan, Volkswagen, Toyota, Audi and BMW. Car exports also showed a contraction of 90.2% in the month, standing at 27,889 units, being its lowest level for an April month since 1990.
During the session, an exchange rate is expected, trading between 23.85 and 24.50 pesos per dollar. The euro begins the session with a slight appreciation of 0.01%, trading at $ 1.0835 per euro, while the pound gains 0.07% and is trading at $ 1.2371 per pound.
Money and debt market
In the debt market, the yield on 10-year Treasury bonds increases 2.3 basis points to 0.66%, while in Mexico the yield on 10-year M bonds decreases 1.7 basis points at a rate of 6.06 percent.
Derivatives market
To hedge against a depreciation of the peso beyond 25 pesos per dollar, a call option, with an exercise date within 1 month, has a premium of 1.87% and represents the right but not the obligation to buy dollars in the level mentioned above.
On the other hand, the interbank forward for sale is at 24.0680 at 1 month, 24.5462 at 6 months and 25.0222 pesos per dollar at one year.
Gabriela Siller; PhD
Director of Economic-Financial Analysis.
Banco BASE
