The peso begins the session with an appreciation of 1.03% or 25.1 cents, trading around 24.13 pesos per dollar, touching a minimum of 24.11 pesos.

The appreciation occurs along with a general strengthening of currencies against the dollar, as a result of:

1) Significant increases in oil prices. The WTI starts the session with a 9.96% advance and is trading at $ 26.38 per barrel, its highest level since April 9, as a consequence of the Saudi Arabian oil company, Saudi Aramco, decided to cut its oil production and increase the prices of your June delivery contract. The Brent price rises 6.29%, reaching $ 31.59 per barrel.

2) News that communication between the negotiators of the trade agreement between China and the United States will resume.

The peso and the labor market

Regarding economic indicators, in the United States the initial requests for unemployment support last week stood at 3,169 million, the seventh consecutive week that they are at a high level.

Continuing applications for unemployment support, showing people who were eligible for and are currently receiving the benefit, stood at 22.647 million people.

The market remains waiting for tomorrow’s non-farm payroll to show the destruction of around 20 million job positions during April and an increase in the unemployment rate to a level above 15 percent.

On the other hand, in Mexico inflation in April was at a year-on-year rate of 2.15%, its lowest level since December 2015, when it was at 2.13%, being the lowest inflation on record.

In its monthly comparison, the INPC contracted 1.01%, being the largest contraction on record since 1969. Inland, non-core inflation stood at a monthly rate of -5.17% and an interannual rate of -1.96%, while Core inflation showed a monthly increase of 0.36% and stood at a 3.50 percent year-on-year rate.

Prices

The historical fall in non-core inflation was the result of a monthly contraction in fruit and vegetable prices of 4.12% and energy prices of 12.45 percent.

On the other hand, in the underlying component, the prices of food merchandise, where several of the most demanded products during the pandemic are located, rose at a monthly rate of 1.10% and stood at an interannual rate of 5.78 percent.

With the most recent headline inflation data of 2.15%, it is likely that Banco de México will cut its interest rate again by 50 basis points on May 14, because by the end of the year headline inflation could be below 3 percent.

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 small appreciation of 0.02%, trading at $ 1.0797 per euro, while the pound remains unchanged at $ 1.2350 per pound.

Money and debt market

In the debt market, the rate of return on 10-year Treasury bonds decreases 0.9 basis points, to 0.69%, while in Mexico the yield on 10-year M bonds decreases by 2.2 basis points at a rate of 6.26 percent.

The peso and the 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 2.09% premium 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 24.2911 at 1 month, 24.7800 at 6 months and 25.2759 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE