The peso starts the session with a moderate depreciation of 0.05%, trading around 20.11 pesos per dollar, after little volatility was observed overnight.

In the foreign exchange market, the performance of currencies against the dollar is mixed and the dollar weighted index shows no changes compared to yesterday’s close.

It is important to mention that both emerging and advanced economy currencies and safe haven currencies are losing ground, so there is no pattern that denotes a greater perception of risk.

The most depreciated currencies are the Brazilian real with 0.79%, the New Zealand dollar with 0.43%, the Czech crown with 0.40%, the Chinese yuan with 0.25% and the Japanese yen with 0.19%.

The stability of the exchange rate and the little variability of the weighted index of the dollar, may be due to the fact that the market is attentive to a conference by the Chairman of the Federal Reserve, Jerome Powell, before the Economic Club of New York, today at 1:00 p.m. hours, where he will talk about the labor market.

Peso

A message that again confirms that monetary policy will remain broadly flexible despite the fiscal stimulus proposed by the Joe Biden administration, could cause the dollar to further weaken against its major crosses.

However, this does not mean that the Mexican peso will continue to appreciate in the short term, as Mexico faces several internal risks, which increases the relative risk perception of the market.

Among the risks are the low availability of vaccines against Covid-19, the absence of a countercyclical fiscal policy that allows a more accelerated economic recovery and the promotion of reforms that have the capacity to inhibit investment and potential economic growth, like the electrical reform that will be discussed in the next few days.

Other financial markets continue to reflect optimism, particularly the capital markets, where the futures market indicates that the main indices in the United States will start to rise close to 0.30 percent.

It should be noted that the S&P 500 index accumulates four consecutive sessions touching new record highs, since in recent days the probability that the Biden administration and the Democrats will push the stimulus package by 1.9 trillion dollars without the need for votes has risen republicans.

Optimism is also evident in the commodities market, where the WTI starts with an advance of 0.63%, trading at 58.74 dollars per barrel, a maximum not seen since January 21, 2020, while metals such as aluminum advance 1.02 %, copper 2.00%, nickel 1.42% and platinum 4.97%, reaching a maximum of 1,241.49 dollars per ounce, a maximum not seen since February 2015.

Covid-19

A factor that contributes to the optimism of the market is the gradual decrease in new cases of coronavirus globally, mainly in advanced economies.

German Chancellor Angela Merkel reported that she plans to begin the gradual reopening of non-essential schools and businesses, starting next month.

In Hong Kong, authorities began to ease restrictions, allowing restaurant service until 10:00 pm.

The Food and Drug Administration (FDA) has approved the use of Eli Lilly’s treatment, which is expected to be effective in combating novel coronavirus mutations.

On the other hand, the United States Senate approved the impeachment of Donald Trump as constitutional, with a vote of 56-44.

To convict the former president, 67 votes will be needed.

Regarding economic indicators, in the United States inflation in January was at an annual rate of 1.4%, slightly below the market’s expectation of 1.5%, while in its monthly comparison the index increased 0.3 percent.

In the interior, the greatest increase was observed in the gasoline price index, advancing at a monthly rate of 7.4 percent.

For its part, core inflation remained unchanged in its monthly comparison and stood at 1.4% annually.

Industry

In Mexico, the Monthly Indicator of Industrial Activity by Federal Entity (IMAIEF) for the month of October revealed that 8 of the 32 states that make up the country showed monthly setbacks, showing that the recovery accelerated during that month, since in September there were 16 states that fell at a monthly rate.

The greatest decline at the monthly rate was observed in Quintana Roo with 11.19%, with falls in its four industrial activities, followed by Tlaxcala with 4.46% and Puebla with 1.89 percent.

The eight entities that presented monthly falls account for 18.55% of the total industrial activity in the country. In contrast, the largest increases were registered in Oaxaca (21.84%), Nayarit (7.66%) and Querétaro (5.7 percent).

Additionally, INEGI released the results of the survey of international travelers for December 2020, the month in which a total of 4 million 330,606 visitors entered, 53.5% less than in December 2019.

Travellers

Compared to the previous month, the number of visitors increased 10.6%, reaching a maximum since April.

However, it is still well below the visitors received in the last month before the pandemic, when 6.5 million visitors were received in March.

Total spending by international travelers was 1,269.9 million dollars, which at the annual rate represents a drop of 48.8 percent.

Throughout the year 51 million 160,265 visitors entered the country, which compared to the previous year is equivalent to a reduction of 47.5 percent.

The total foreign exchange income was 11,024.8 million dollars, which compared to 2019 was 55.1% lower.

Tourism is expected to make a full recovery until the end of 2022, when vaccination campaigns are more advanced and consumers regain the confidence to travel.

During the session, the exchange rate is expected to trade between 20.06 and 20.24 pesos per dollar.

The euro starts the session with an appreciation of 0.10%, trading at 1.2131 dollars per euro, while the pound gains 0.22% and is trading at 1.3847 dollars per pound.

Peso and the money and debt market

In the United States, the yield on 10-year Treasury bonds decreased 1.7 basis points, to 1.14%, while in Mexico the yield on 10-year M bonds decreased 0.8 basis points, at a rate of 5.66 percent.

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 1.53% 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 20.1659 at 1 month, 20.5114 at 6 months and 20.9269 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE