The peso begins the session with few changes compared to yesterday’s close, showing an appreciation of 0.31% or 7.5 cents and trading around 23.82 pesos per dollar.

During the overnight, the exchange rate reached a maximum of 24,1680 pesos, before a strengthening of the dollar related to the concern of a second wave of contagions worldwide, after the beginning of the week confirmed a resurgence of cases in Germany and South Korea.

The stability of the dollar at the beginning of the week is also due to less speculation that the Federal Reserve will adopt negative interest rates, after yesterday that two Fed officials pointed out to cut rates to negative territory is not something they are planning, because it is a weak tool.

On the other hand, according to media, last night the Trump administration asked the Federal Retirement Savings Investment Board, which is responsible for managing retirement funds for federal employees, to avoid making investments in funds that include stakes in Chinese companies.

This indicates that the rhetoric against China for its responsibility in the coronavirus pandemic is likely to return, as it did at the beginning of the previous week. For now the markets remain calm and have not been affected by this news.

In Europe, the main indices in the capital market show progress on average below 1%. For its part, in the United States the futures market points to an opening in positive terrain.

In the raw materials market, there is also a strengthening in the price of oil, with the WTI increasing 5.68% to $ 25.51 per barrel in anticipation of a gradual recovery in demand for energy.

The peso and prices

Regarding economic indicators, a few minutes ago inflation in the United States was published, corresponding to April, which was located at an interannual rate of 0.3%, its lowest reading since December 2015. This data reflects the effects of the coronavirus on the The US economy, since the greater economic slack is one of the downside risks to inflation.

For its part, in Mexico, the industrial activity indicator for March was published, which showed a monthly contraction of 0.45% and an annual fall of 4.91%, the largest since October 2009.

Inland, construction contracted at an annual rate of 6.96%, while manufacturing observed an annual decrease of 6.44%, the highest since August 2009. It is important to mention that this indicator does not yet show the impact of the coronavirus on the economy. Mexican, which in April caused a severe drop in automotive production and is expected to reflect a larger drop in secondary activities.

During the session, an exchange rate is expected, trading between 23.50 and 24.50 pesos per dollar. The euro begins the session with an appreciation of 0.51%, trading at $ 1.0862 per euro, while the pound advanced 0.19% and is trading at $ 1.2359 per pound.

Money and debt market

In the debt market, the yield on United States 10-year Treasury bonds remains unchanged from yesterday’s close, at a rate of 0.71%, while the yield on 10-year M bonds in Mexico increases 2.3 basis points to 6.04 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 2.26% 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 23.9369 at 1 month, 24.4053 at 6 months and 24.8601 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE