MEXICO CITY (Banco Base) – This Thursday, the dollar starts its operations stable at the twenty pesos barrier, attentive to the economic relevance issues and the covid-19 emergency.
At 4:30 in the morning, the dollar touched a minimum level of 20.2944 pesos. Before 7 a.m., the dollar was trading at 20.3880 pesos, up 0.53 percent. The Mexican peso is expected to resist against the dollar at the end of the week.
The peso starts the session with a depreciation of 0.68% or 13.8 cents, trading around 20.43 pesos per dollar, with the exchange rate touching a low of 20.2556 and a high of 20.4589 pesos. With this, the peso accumulates a depreciation of 2.29% or 45.8 cents during the week, and the exchange rate is at its highest level since December 21.
In the foreign exchange market, the U.S. dollar strengthened once again, with the weighted index advancing 0.24% and reaching its highest level since December 23, which seems to confirm a pause in the dollar’s downward trend that began in April 2020. The Mexican peso is the sixth most depreciated currency in the session and the third most declined in the week.
In the global financial markets, the perception of risk continues due to the slow distribution of vaccines and the coronavirus pandemic’s negative effect on economic activity in the first quarter. Although yesterday Fed Chairman Jerome Powell reiterated the need to maintain a highly accommodative monetary policy stance, he also said that U.S. economic activity has moderated, which far from sending a positive signal has contributed to the sharp downward corrections in the capital markets, raising the perception of risk in other markets.
Another factor influencing the negative performance of the U.S. capital market has been the reaction of institutional investors to the operations of minority investors, which over the last year have increased their participation in the volume of operations.
In terms of economic indicators, GDP in the United States grew at an annualized quarterly rate of 4.0% during the last quarter of the year, after having grown 33.4% in the previous quarter. This is equivalent to a quarterly rate of 1.0%. On an annualized basis, GDP contracted 2.5%, bringing the U.S. economy’s average annual decline for the year to 3.5%.
This is the first annual average contraction since 2009 when it fell 2.5% due to the Great Recession and the largest since 1946 when a contraction of 11.6% was observed. By component, consumption accounted for 1.70 percentage points of the 4.00 points of annualized quarterly growth, while investment contributed 4.06 points. Exports subtracted 1.52 points from fourth-quarter GDP. Going forward, it is expected that the approval of further fiscal stimulus, in conjunction with an effective vaccination process, will allow the U.S. economy to grow 5.0% during 2021.
In the U.S., the weekly employment report was also released, which showed that new applications for unemployment benefits for the week ending January 23 were at 847 thousand units, decreasing by 67 thousand concerning last week. On the other hand, continuing claims for those who are already receiving support or who continue to wait reduced from 4.974 to 4.771 million.
In Mexico, the Merchandise Trade Balance recorded a surplus of $6.262 billion during December according to original figures, marking a new record high and the fifth in the year. In 2020, trade balances recorded a surplus of 34,476 million dollars, the highest on record. The historical trade surplus was since during the second half of the year, external demand showed greater strength relative to domestic demand, as demand for imports of consumer and capital goods fell. In original figures, exports showed an annual drop of 9.3% during 2020, while imports contracted 15.8%.
In December, exports showed a monthly growth of 3.43% according to seasonally adjusted figures, supported by the advance of oil and manufacturing exports with 10.47% and 3.61%, respectively. At the annual rate, exports increased 7.37%, the highest since May 2019. A monthly advance of 2.86% was observed for imports, reflecting the increase in oil imports (10.87%) and consumer goods (5.16%). In annual terms, imports presented a slight growth of 0.06%, the first after 18 months of contractions.
In Mexico, the Quarterly Indicator of State Economic Activity (ITAEE) for the third quarter of 2020 was also published. The economy showed a rebound effect, growing 12% quarterly, after the fall in the second quarter. Therefore, a quarterly advance was observed in practically all the country’s states, except for Campeche (-0.5% quarterly), being the only entity that does not show a defined seasonality pattern, so the original series is used.
The states that showed the highest quarterly increase were: Puebla (+28.3%), Baja California Sur (+25.5%), Zacatecas (+23.3%), Aguascalientes (+22.9%), and Baja California (+22.3%). Puebla’s growth was driven by the automotive industry, a strategic sector in that state. On the other hand, Baja California’s gains are a rebound effect after the deep fall observed in the second quarter (-37.9% in Baja California Sur and -18.47% in Baja California).
Despite the quarterly growths, all entities show annual contractions during the third quarter, highlighting Quintana Roo’s states (-28.9%) and Baja California Sur (-24.8%). Tabasco is the state with the smallest annual decline (-0.2%), which has benefited from public infrastructure investment.
It is expected that the entities with the highest participation in tertiary activities will continue to be the laggards since, in the last months of the year, restrictive measures were tightened in most of the states, including Mexico City and the State of Mexico.
During the session, the exchange rate is expected to trade between 20.30 and 20.55 pesos per dollar. The euro starts the session with a 0.06% depreciation, trading at 1.2104 dollars per euro, while the pound loses 0.26% and trades at 1.3651 dollars per pound.
Money and Debt Market.
In the United States, the 10-year Treasury bond yield increases by 0.7 basis points to 1.02%, while in Mexico, the 10-year M-bond yield increases by 1.5 basis points to a rate of 5.61%.
Derivatives market.
To hedge against a peso depreciation beyond 20.50 pesos per dollar, a call option with an exercise date in 1 month has a premium of 2.31%. It represents the right but not the obligation to buy dollars at the level mentioned earlier.
On the other hand, the interbank forward sale is 20.4918 for 1one month, 20.8450 for six months, and 21.2528 pesos per dollar for one year.
