The Day at a Glance | October 29 2020

The Top

· ECB points to new a stimulus in December.

· The US economy logged record growth in the 3Q20 after the reopening.

· BoJ will act if necessary amidst the uncertainty regarding the virus: Kuroda.

· China made public its growth plans for the next 15 years; the country will focus on becoming a tech leader and achieving sustainable growth based on domestic consumption.

· Economic indicators: Initial jobless claims continued to slow down more than estimated in the US (751k vs 775k e.).

Economic environment

The European Central Bank announced that it will increase its emergency asset purchasing program in December. At the moment, the ECB maintained its purchasing program at 1.35 trillion euros until June 2021. Interest rates remained at (-) 0.5% for deposits and 0% for refinancing. The ECB reiterated that it will not withdraw stimulus until the crisis phase of the virus has passed and pointed out that it expects to publish new macroeconomic estimates in December, which will help recalibrate the use of monetary policy instruments. Downwards adjustments to growth and investment forecasts are expected to occur after the main European economies announced stricter measures to contain the virus in November as the most recent figures showed an important slowdown in the economy (particularly in services); this, in addition to a negative rate of inflation for two consecutive months. It`s estimated that this will increase the ECB`s purchasing program in 500 billion euros. In a press conference, President of the ECB Christine Lagarde assured that the bank will respond in order to compensate for the virus`s impact. She assured that negative inflation is expected up to the start of 2021 and that the strong recovery seen in the 3Q20 is quickly losing momentum.

The US GDP grew at an annualized rate of 33.1% during the 3Q20. The figure is the greatest recorded in the history of the country`s economy and set above estimates (31% e.). The rate of growth was 7.4%. The upsurge, however, is temporary, since it was boosted by the economy`s reopening and the implementation of extraordinary fiscal stimulus that reinforced consumption. In fact, it was consumption that contributed the most to the expansion, with a 40.7% annualized increase and strong expansion in investment (28.5% fixed investment, 59.3% residential). Government spending and investment were the only components that recorded a slight contraction (-4.5%), while net exports also deducted growth because of the rise in imports (91.1%) after the upsurge in consumption. The report shows that the economy`s rebound after confinement was solid, but expects growth figures to moderate in the following quarters. The lack of a new fiscal stimulus along with COVID-19 outbreaks threaten the recovery in the 4Q20, while unemployment is still historically high, which could have repercussions on growth in the medium term. GDP remains 3.5% under its pre-pandemic levels.

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