The Day at a Glance | July 25 2024

The Top

• The US economy rebounded in the second quarter of 2024.

• US President Joe Biden addressed the nation on Wednesday for the first time since abandoning his re-election bid, stating he decided to relinquish his personal ambition to save democracy in a calm speech in the Oval Office.

• China’s central bank surprised markets for the second time this week by conducting an unscheduled lending operation at much lower rates on Thursday, suggesting that authorities are trying to provide stronger monetary stimulus to back the economy.

• Initial unemployment claims in the US dropped from 245,000 to 235,000 in the week ending July 20^th.

• According to an Ifo Institute survey, business confidence in Germany unexpectedly fell in July amidst growing pessimism about the performance of Europe’s largest economy.

• Oil prices fell on Thursday due to mixed demand signals, a day after significant declines in US inventories, while consumption in China, the world’s largest crude importer, remains weak.

• The S&P 500 is logging slight movements after a rough day.

Economic Environment

The US economy rebounded in the second quarter of 2024. Economic activity in the US grew at a 2.8% annualized quarterly rate, adjusted for seasonality, in Q2 2024, according to the first of three estimates from the Bureau of Economic Analysis (BEA). Thus, the Q2 2024 GDP reading was 1.9%, above market expectations and very close to the GDP Now estimate of 2.6%. Growth contribution in the first quarter was mainly explained by an increase in consumer spending (+1.57 percentage points), inventory changes (+0.82 pp), fixed investment (+0.64 pp), and government spending (+0.53 pp), while net exports fell (-0.72 pp). On a yearly basis, US GDP grew by 3.1% in Q2 2024, up from 2.9% in Q1 2024. The growth figures are positive and reduce the likelihood of a marked slowdown in the world’s largest economy, at least in the near future. It is possible that in the coming quarters, GDP growth might be lower as the change in inventories had a positive contribution this time. As of the writing of this report, the trajectory of between 2 and 3 rate cuts for the federal funds rate remains unchanged.

Markets and Companies

The S&P 500 is logging slight movements after a rough day. Investors are digesting more earnings reports and new US economic data, while the market seeks to recover from a tough session. Wednesday’s trading session saw intense declines in the S&P 500 and the Nasdaq Composite, driven by disappointing quarterly reports from Alphabet and Tesla. Both the broad-market index and the tech-heavy benchmark posted their worst session since 2022, while the Dow lost approximately 504 points to end the day. In Europe, stocks are falling as the earnings season progresses. The Stoxx 600 was down 1.2% at 2:08 p.m. London time; tech stocks were down 2.6%. Similarly, in Asia, markets are down. Japan’s Nikkei fell more than 3.28% as Asia-Pacific markets followed Wall Street’s sell-off; the Japanese index closed at 37,869, its lowest level since April. Regarding commodities, oil prices are down as concerns about the Chinese economy increase after rate cuts; concerns about China’s economy are even outweighing the impact of declining crude inventories in the US. Metals are mostly down, and cryptocurrencies are in the red. In Mexico, the IPC is down (-0.61%) and stands at 52,842 points. 

After yesterday´s trading session, the exchange rate fluctuated between a low of 18.30 and a high of 18.55, currently trading at 18.37.

Chedraui published its 2Q24 results yesterday afternoon. Consolidated sales increased by 4.5% (vs. 3.8% expected) and were driven by strong performance in operations in Mexico, the US, and the Real Estate division. Regarding earnings, EBITDA increased by 5.5% (vs. 2.5% expected), and the margin expanded by 10 basis points to 9.1%.

Walmex released its quarterly results yesterday; it was a positive report. Revenues increased by 6.4% (vs. 6.3% expected). There were advances in the same-store sales (SSS) indicator in both regions, with Mexico standing out, which represents approximately 84% of consolidated revenues. EBITDA grew by 7.7% (vs. 6.6% expected), and the margin advanced by 20 basis points to 10.4%.

In 2Q24, Bajío reported 10.4% y/y growth in its loan portfolio, while the financial margin grew by 4.7% y/y and net income increased by 2.3%. Net income was above our estimate and the consensus forecast. Bajío revised its NIM expectation upwards to 6.7% – 6.8% from 6.5% – 6.7%. With this, net income would be in the range of $10,600 to $10,900 million pesos.

In 2Q24, Orbia reported a 9.2% y/y decline in revenues and a 25.0% y/y decrease in EBITDA. The results were slightly below our estimate at the revenue level, although above in EBITDA. The weakness observed in the first-half results was already anticipated, according to the company’s comments. On a positive note, there were sequential improvements, which could indicate a better second half and bring Orbia closer to its EBITDA guidance of $1.3 billion for this year.

In 2Q24, Funo reported 5.6% y/y growth in revenues and a 1.9% y/y increase in Net Operating Income (NOI). The results were slightly below our expectation. Over the year, Funo’s certificate prices (CBFIs) have fallen by 22.6%. This decline could be explained by the lack of materialization of the two initiatives that Funo announced last year: 1) the separation of industrial assets (Fibra Next) and the internalization of the manager.

Alfa’s revenues during 2Q24 recorded a -0.6% y/y figure (vs. -2.5% expected), while EBITDA increased by 23.6% y/y (vs. 19.4% expected). The results set above our expectations, leading to a positive implication for the report. The figures were driven by an outstanding performance in Sigma, which led to an upward revision in the 2024 guidance, and more stable results in Alpek, which are progressing as expected.

In 2Q24, Alpek reported a -6.3% y/y decline in revenues (vs. -3.4% expected) and a -21.4% y/y decline in comparable EBITDA (vs. -22.4% expected), the latter setting in line with our and the consensus estimates. Despite the continued decline in revenues and comparable flow, the report contains some positive elements, such as slight volume growth in the polyester division and the cost-saving target of $75 million (annualized).

In Q2 2024, Cemex reported sales of $4.494 billion, remaining virtually unchanged compared to Q2 2023. Regarding EBITDA, the company recorded a 1.5% year-over-year increase. The results were in line with expectations. Price increases across all its products mitigated declines in aggregate volumes. Mexico stands out as the only region where increases were reported in both volume and price.

Fibra Monterrey reported a 5.6% increase in revenues, with net operating income rising 3.7% year-over-year, while funds from operations (FFO) grew 44.1% year-over-year. The latter benefited from the company’s investment in short-term instruments, taking advantage of the current interest rate levels. FMTY’s cash increased following its latest certificate issuance.

Corporate News

• American Airlines shares fell 6% after the airline issued weak profit guidance for the third quarter. American Airlines estimates unit revenue will drop as much as 4.5% as the broader industry struggles with oversupply that has led to low fares.

• Honeywell shares fell nearly 5% after the industrial giant issued guidance that did not meet analysts’ expectations, overshadowing quarterly figures that exceeded expectations.