The Day at a Glance | October 17 2024

The Top

• The European Central Bank cut its interest rates and expects inflation to rise in the coming months due to base effects.

• In the US, retail sales increased more than expected in September.

• On Thursday, US Treasury Secretary Janet Yellensaid that isolating the US economy, as proposed by Republican presidential candidate Donald Trump, would be “deeply misguided,” as it would raise prices for consumers and make US businesses less competitive.

• In the week ending October 12^th, initial unemployment insurance claims in the US stood at 241,000 (260,000 expected), a drop of 19,000 from the previous week’s 260,000.

• China will expand a list of housing projects eligible for financing and increase bank loans for such developments to 4 trillion Yuan ($562 billion) by the end of the year, Minister of Housing and Urban-Rural Development Ni Hong said on Thursday.

• In September, Japan’s exports decreased for the first time in 10 months, complicating the central bank’s intentions to raise interest rates if global demand remains weak.

• Oil prices remained relatively unchanged on Thursday as investors await developments in the Middle East, the release of official US oil inventory data, and details on China’s stimulus plans.

Economic Environment

The European Central Bank (ECB) cut its interest rates and expects inflation to rise in the coming months due to base effects. The ECB reduced its three key interest rates—deposit, refinancing, and lending rates—by 25 basis points, bringing them to 3.25%, 3.40%, and 3.65%, respectively. Regarding the economic environment, the ECB acknowledged that the latest data showed that the disinflation process is on track, while recent economic activity has logged downward surprises, and financial conditions remain restrictive. In the coming months, inflation is expected to rise due to base effects in the energy sector before starting to return to the target next year. The ECB’s balance sheet is shrinking at a measured and predictable pace, as both the Asset Purchase Program (APP) and the Pandemic Emergency Purchase Program (PEPP) have stopped reinvesting principal payments. Currently, the PEPP’s balance sheet is reducing at a rate of €7.5 billion per month. Reinvestments under the PEPP are expected to discontinue by the end of this year. Going forward, the ECB’s Governing Council is ready to adjust all its tools within its mandate to ensure that inflation returns to the 2.0% target in the medium term. More specifically, it will keep its interest rates in restrictive territory for as long as necessary and will follow a data-dependent assessment ineach monetary policy decision, considering the inflation outlook in light of economic activity and financial information.

In the US, retail sales increased more than expected in September. Retail sales increased by 0.4% m/m in September, surpassing expectations of a 0.2% m/m rise and the previous month’s 0.1%. Excluding the more volatile categories, such as autos and gasoline, retail sales rose by 0.7% m/m in September, after increasing 0.3% m/m in August. On an annual basis, retail sales rose by 1.7%, while sales excluding autos and gasoline increased by 3.7%. The aforementioned figures include annual growth rates of 7.9% in miscellaneous store sales, 7.1% in online sales, 4.6% in health, 3.7% in restaurants, and 3.5% in clothing, while sales of sporting goods, electronics, and gasoline declined by 3.5%, 4.6%, and 10.7%, respectively. Overall, retail sales in the US positively surprised, backing the idea that the economy maintained a strong growth pace during the third quarter.

Markets and Companies

US indices are up and are being driven by solid performance in the semiconductor sector and better-than-expected economic data. US retail sales logged a 0.4% increase in September, surpassing the 0.3% expectation. Additionally, unemployment insurance claims were lower than expected, reinforcing the perception of a robust economy. In Europe, markets were up. Most sectors closed in the green, with food and beverage stocks standing out. The European Central Bank announced its third rate cut of the year, lowering rates by 25 basis points in response to a decline in inflation duringSeptember. Lastly, in Asia, markets were mostly affected by declines in Chinese real estate stocks. In Japan, the Nikkei 225 fell following the release of trade data showing an unexpected contraction in exports in September.

Regarding commodities, crude oil prices fell on Thursday. Despite tensions in the Middle East, concerns over a potential supply glut have tempered gains. In precious metals, gold reached $2,687.48 per ounce. Demand for safe-haven assets remains high as investors await more clarity on the global macroeconomic outlook.

US Treasury yields rose on Thursday after the release of positive economic data. The 10-year bond yield increased by more than 7 basis points, reaching 4.09%, while the 2-year yield stood at 3.98%.

The local stock market opened lower, with the IPC trading at 52,452.4 points, while the exchange rate stands at 19.96 pesos per dollar, slightly above the previous close (19.89).

In 3Q24, Nemak’s revenue totaled $1,224 million, a decrease of 3.8% compared to 3Q23. The quarterly EBITDA rose 3.2% year-over-year. The results were in line with our estimates, as weak volumes in both North America and Europe continue to negatively affect sales.

Corporate News

• Shares of Taiwan Semiconductor rose after reporting a 54% increase in third-quarter earnings. Nvidia and AMD shares were also boosted by these results. 

• Electric vehicle company Lucid Group announced a public offering of over 262.5 million shares, to which the market reacted negatively. 

• Uber Technologies is exploring the possibility of acquiring online travel agency Expedia, according to a report by the Financial Times.