The peso begins the session with a depreciation of 0.80% or 17.9 cents, trading around 22.58 pesos per dollar, after the weekly employment report was published in the United States, corresponding to the week that ended September 19. Initial claims for unemployment benefits for the week ended September 19 were 870,000, up 4,000 from the previous week.
Applications have remained near the 850 thousand levels for four consecutive weeks, showing stagnation in the labor market’s recovery. Likewise, the continuous unemployment support applications of those who are already receiving support or continue to wait decreased from 12,747 million to 12,580 million.
Markets are also reacting cautiously, as new cases of coronavirus are likely to continue to rise during October, at the same time that attention will be focused on the elections in the United States whose outcome is uncertain and which has politicized several things since the approval from fiscal stimuli until the authorization of a vaccine against the coronavirus.
Donald Trump said he could override any restrictions that the Food and Drug Administration (FDA) issues around the vaccine’s authorization. Trump has said on several occasions that the vaccine will be ready by the end of October.
The preceding encourages investors to continue taking positions in lower-risk assets and abandon positions in capital market instruments and currencies from emerging economies. If nervousness continues, the exchange rate will continue to face upward pressure, approaching levels of 23.00 pesos per dollar in the short term.
Globally, the news about new cases of coronavirus and the implementation of restrictions continue. In Europe, governments have again issued contingency measures in the face of the increase in coronavirus cases. Yesterday France, also introduced regulations not seen since May, including the closure of bars and restaurants at 10 pm, in Paris and other cities. “If we do not take action quickly, we run the risk of being in a critical situation in some regions within a few weeks,” said the French Minister of Health. The previous encourages capital markets in Europe to show moderate losses with an average decline of 0.20%. Likely, the United States will again see losses in the capital market. It should be added that the futures market shows a greater weakness for issuers in the technology sector.
Regarding economic indicators of Mexico, in the morning, it was published that, during the first fortnight of September, the biweekly inflation was 0.16%, being the lowest fortnightly increase in prices for the same period since the series began in 1988.
The interannual inflation stood at 4.10%, slightly below the interannual inflation of the second half of August (4.11%). The underlying component presented an increase of 3.99% year-on-year in the interior, driven by both the biweekly inflation of merchandise (0.16%) and services (0.16%). On the other hand, the non-core component registered inflation of 4.44% year-on-year, where the highest fortnightly increase in prices was observed in the tariffs authorized by the government of 0.30%.
Agricultural products continued to show upward pressure, with biweekly inflation of 0.17%. The highest inflation rates were onion (23.55%) and serrano pepper (12.37%). In general, although year-on-year inflation was above Banco de México’s target of 3% +/- 1%, its upward trend has moderated. Banco Base estimates that inflation at the end of the year will be 3.75%.
For its part, the National Survey of Construction Companies for July showed a monthly increase of 1.1% and an annual contraction of 21.9%. The most affected subsector was specialized works for construction, whose production contracted 33.6% compared to the same month of the previous year, followed by civil engineering works, with a drop of 32.2%, and building, which fell 24.5%.
In the accumulated from January to July, the value of the sector’s production shows an annual contraction of 24.6%. It is worth mentioning that construction was already showing significant contractions since before the pandemic.
During the session, Banco de México will announce its monetary policy decision at 1:00 pm, showing a more cautious tone. If Banco de México cuts the rate, it is expected to be only 25 basis points, to put it at 4.25%.
During the session, the exchange rate is expected to trade between 22.35 and 22.70 pesos per dollar. The euro starts the session with a depreciation of 0.19% trading.
Gabriela Siller; PhD
Director de Análisis Económico-Financiero.