The Day at a Glance | April 23 2020

Strong deceleration regarding inflation in Mexico

The first half of April recorded a (-) 0.72% contraction in concerning general prices in the economy, which set the annual rate of inflation at 2.08%, level way below analysts` estimates. The underlying component increased 0.2% in the first half of April and highlighted its downwards trend, recording a 3.4% annual rate. Energy prices were, once again, the ones that most contributed to the decrease in inflation (-8.49% biweekly), backed by agricultural goods (-0.78%); meanwhile, concerning underlying prices, the price of goods grew 0.4% but services also contracted (-0.02%). Data confirms the country`s central bank`s expectations and suggests there will be more cuts in interest rates as time moves forward, after the bank adopted a position that allows a greater monetary laxity in line with inflation during an extraordinary meeting held on Tuesday.

A collapse in economic activity in Europe during April is confirmed

The European economy`s PMI`s recorded historical levels of contraction in economic activity in the month of April, after the near total closure of economies in attempts to contain COVID-19. The general economy recorded a contraction in activity comparable to a quarterly fall of (-) 7.5% of GDP and logged its lowest historical level in the PMI Composite (13.5). Manufacturing contracted more than what was estimated (33.6), its lowest level in the last decade; meanwhile, services showed a much harsher contraction (11.7), exceeding estimates and setting itself at its lowest level since the indicator`s existence. The economy`s closing occurred with a drop in global demand, and an absence of consumables and labor to maintain production. The economic impact`s severity largely exceeded economists` expectations, and 2Q20 seems like it will be the worst quarter in Europe`s recent history. The contraction`s depth could accelerate unemployment and worsen expectations regarding the virus`s impacts on the economy. Recovery will largely depend on the effectiveness of the lifting of quarantine measures in the region, however there is still a risk of a second wave of the virus`s spread. European governments are still unable to reach an agreement that will allow a coordinated economic response, as the European Central Bank modified its rules yesterday in order to purchase debt without investment grade in the future, as part of its quantitative easing program. The ECB`s measure considers purchasing any debt issued by governments whose credit rating has been at investment grade up until April 7th of this year; this measure seeks to preempt the possible loss of investment grade regarding the debt issued in European countries, especially Italy`s.

Four million people are added to unemployment figures in the US

Initial jobless claims increased in 4.4 million during last week in the United States, raising the total number of unemployed people to 26 million in the last five weeks. Of those 26 million initial jobless claims, 16 million were still standing in the process to receive benefits on April 11th. Data suggests the worst for unemployment happened two weeks ago, with the general closure of the US economy. Extraordinary figures still put pressure on the government, which continues to approve the use of resources to decrease the negative impact caused by unemployment during the economy`s recovery. Secretary Treasury Steven Mnuchin assured the government will spend whatever is necessary to “win the war”, in response to statements made by the Republican`s majority leader in the Senate, Mitch McConell, who asked to pause the stimuli in midst of concerns regarding the fiscal deficit.