The peso begins the session with a moderate depreciation of 0.16% or 3.2 cents, with the exchange rate trading around 19.93 pesos per dollar, after reaching a minimum of 19.8648 and a maximum of 19.9809 pesos.

In the rest of the foreign exchange market, most currencies show moderate movements.

In fact, the most appreciated currencies in the broad basket of the 31 main crosses of the dollar are the Russian ruble, with an appreciation of 1.17%, and the Brazilian real, with a rise of 1.03%, while the third currency with the highest gain is the Malaysian ringgit, with a moderate appreciation of 0.19 percent.

Similarly, the most depreciated currencies in this basket are the Chilean peso, which loses 1.10%, and the Turkish lira, which loses 0.94%, while the second currency with the highest depreciation is the New Zealand dollar, which loses 0.45 percent.

The market seems to continue to weigh some risks.

On the one hand, the risk that the Covid-19 pandemic could affect the economic recovery remains latent.

In Japan, Prime Minister Yoshihide Suga recommended applying a state of emergency in some regions, including the cities of Tokyo and Osaka, due to an increase in the number of new cases of the virus.

Preventing an outbreak in this country has become particularly relevant for the Japanese government, as the Olympic games will take place in a few months.

Additionally, India reported 314,835 new cases of coronavirus in the last 24 hours, breaking the United States record of 314,312 cases on December 21, 2020.

The World Health Organization noted that other countries that are also seeing a significant increase in the number of cases are Argentina, Turkey and Brazil.

The peso

On the other hand, part of the market continues to show optimism regarding the economic recovery and the progress of the vaccination campaign.

Investor attention in recent weeks has focused on financial reports for the first quarter of 2021, which have reflected a better performance of companies as the economy has recovered.

In sessions in which not many economic indicators were published, the quarterly results have determined the appetite for risk.

Regarding relevant events, in Europe the European Central Bank (ECB) announced its monetary policy decision, keeping its main reference rates unchanged: the refinancing rate at 0.0%, the deposit rate at -0.50% and the loan rate at 0.25 percent.

Likewise, the ECB kept its bond purchase program unchanged at 1.85 trillion euros, noting that the pace of purchases could accelerate in the current quarter, depending on the progress of the vaccination campaign compared to the new outbreaks of Covid- 19.

American workers

Regarding economic indicators, in the United States, the weekly employment report was published, which showed that initial applications for unemployment support decreased by 39 thousand compared to the previous week, reaching 547 thousand units, well below the the 610 thousand expected by the market.

On the other hand, continuous applications for unemployment support, from those people who have already received support or who continue to wait for, decreased from 3.708 to 3.674 million.

Prices and peso

In Mexico, inflation in the first half of April surprised to the upside, reaching a biweekly rate of 0.06%, the highest rate for the same fortnight since April 2009, when it stood at 0.14 percent.

For its part, the annual inflation rate stood at 6.05%, being the highest inflation rate since the second half of December 2017, when it stood at 6.85 percent.

The higher inflation is explained by higher-than-expected inflationary pressures in the core component and lower-than-expected deflationary pressures in the non-core component, where the decrease in electricity rates was already anticipated.

Core inflation had a biweekly incidence of 0.14% on general inflation, which was offset by a negative biweekly incidence of 0.07% of the non-core component (0.14% – 0.07% = 0.06 percent).

Inflationary pressures in the core component were reflected in a biweekly inflation of 0.18% and annual inflation of 4.13%, with the pressures concentrated in both merchandise subcomponents that explain 83.7% of the incidence of core inflation on headline inflation.

Tortillas

The prices of food merchandise rose at a biweekly rate of 0.25%, reaching an annual rate of 5.96%, while non-food merchandise rose at a biweekly rate of 0.32%, reaching an annual rate of 5.32 percent.

Within merchandise, the products with the highest fortnightly increase in prices did not show a clear pattern, since the largest increases were in personal hygiene products and medicines, although a significant increase in the price of corn tortillas of 0.89 per cent was observed. hundred.

In the accumulated of the first seven fortnights of the year, the largest accumulated increases in merchandise prices were televisions (+ 6.77%), dining rooms and dining rooms (+ 6.26%), movies and music (+ 6.25%), edible vegetable oils and fats (+ 6.12%), air conditioners (+ 5.98%), corn tortilla (+ 5.69%) and motorcycles (+5.29 percent).

Fruits and vegetables

The prices of services rose at a moderate rate of 0.06% every two weeks, reaching an annual rate of 2.47%, as the most significant pressures occurred in the second half of March in anticipation of Easter.

During the first half of April, the services with the highest fortnightly increase in their price were cultural services, entertainment and sporting events (+ 1.23%), car insurance (+ 0.47%) and lunch shops, inns, torterías and taquerías (+0.45 percent).

Non-core inflation, a component that includes products with higher volatility prices, was at a biweekly rate of -0.28% and an annual rate of 12.21 percent.

In the interior, an increase in the prices of agricultural products was observed at a biweekly rate of 1.60% and an annual rate of 3.63%, the most significant biweekly increase was in the subcomponent of fruits and vegetables, which rose at a biweekly rate of 3.23%, highlighting fortnightly increases in the price of serrano pepper (+ 25.13%), tomato (+ 18.84%), avocado (+ 15.74%) and melon (+10.47 percent).

Gasoline

For its part, the energy subcomponent showed a biweekly decrease in prices of 2.31%, reaching an annual rate of 28.22%, product of a clear effect of a low base of comparison with respect to the same fortnight of 2020.

It should be noted that the annual inflation of the energy subcomponent is the highest since the second half of March 1997.

A year ago, the annual inflation of the same component was -15.36% and observed annual decreases during 11 consecutive fortnights, from the first fortnight of February to the second fortnight of July 2020, a consequence of the start of the Covid19 pandemic and a fall in the demand for energy.

Within the energy component, the highest fortnightly increase was the prices of high octane gasoline at a rate of 0.62%, followed by low octane gasoline with an increase of 0.11 percent.

The price of LP gas fell 2.31% biweekly and electricity fell 12.03% biweekly. During the first seven fortnights of the year, the largest increases in accumulated prices are LP gas (+ 18.32%), high and low octane gasoline (+18.10 and 12.71% respectively) and natural gas (+2.30 percent).

With the publication of today’s data, the inflation expectation for April rises significantly from 5.2% per year to 6.0% per year, considering a biweekly inflation of 0.13% in the second half of the month.

Likewise, the inflation expectation towards the end of the year is adjusted upwards, from 4.2% to 5.0 percent.

Labor sector and the peso

Additionally, INEGI published the results of the National Occupation and Employment Survey (ENOE) corresponding to the month of March 2021.

The Economically Active Population (EAP) increased 0.5 million in March compared to last month to reach a total of 57.2 million people, 1.5 million less than in March 2020.

Of the 12 million people who left the PEA in April of last year, 10.6 million have returned.

During the month 0.8 million jobs were created, bringing the employed population to 53.8 million people, which is still lower than that of March 2020 by 2 million.

On the other hand, in the month the unemployed population decreased from 4.4% to 3.9% of the EAP, with the urban unemployment rate standing at 5.1 percent.

Finally, the underemployment rate decreased 0.7 percentage points in the month to 13.2%, but it is still high in relation to the pre-pandemic employment situation, when it stood at 9.1 percent.

This month was the last whose annual comparison shows the effects of the pandemic, since as of April, the base of comparison will be a very low one since the crisis began in that month.

However, for the purposes of analyzing the economic recovery, the March 2020 figures should continue to be used as a reference. In this sense, it is expected that in absolute terms the employment situation will return to pre-crisis employment levels in the middle of the year.

However, this will be with some structural changes in the labor market, especially an increase in informality and underemployment, as well as a lower labor participation of the working-age population.

Foreign exchange

During the session, the exchange rate is expected to trade between 19.78 and 20.03 pesos per dollar.

The euro starts the session with an appreciation of 0.10%, trading at 1.2047 dollars per euro, while the pound loses 0.45% and is trading at 1.3868 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increased 1.8 basis points, to 1.57%, while in Mexico the yield on 10-year M bonds remained unchanged at 6.73 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 20.00 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 19.9899 at 1 month, 20.3438 at 6 months and 20.8008 units of peso per dollar at one year.

 

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE