The Day at a Glance | Aug 3 2022

The Top

*Mester and Daly, members of the FED, deny that the increasing rate cycle is close reaching its end.

*China suspends trade of some goods with Taiwan as retaliation for Nancy Pelosi`s visit.

*Pelosi commits to not abandoning Taiwan amidst threats from China.

*China`s army will start military exercises and ballistic testing close to Taiwan.

*Programs and subsidies to control inflation will cost the Ministry of Finance and Public Credit 575 billion pesos: Rogelio Ramírez de la O, Treasury Secretary.

*OPEC+ agrees to increase minute increase (100 thousand daily barrels) in September`s crude oil production; oil increases.

*Inflation for producers in Europe became more moderate in June for a second consecutive month (35.8% annual vs 36.3% prev.).

Economic environment

FED committed to the stability of prices. Members of the Federal Reserve have reiterated the central bank`s commitment to control inflation and discarded the idea that the increasing rates cycle will slow down and come to an end by the end of this year. Since Jerome Powell`s press conference last week, markets have started being overrun by a narrative that the FED will gradually shift towards more moderate interest rate increases and completely halt them at the start of 2023 due to the US economy`s weakness. However, Mary Daly (San Francisco FED) reiterated that there are still no signs that inflation has become more moderate and they are still committed to carrying out monetary restriction in order for their medium term inflationary target to be reached. Loretta Mester (Cleveland FED) assured the Washington Post that she expects convincing evidence of lower levels of inflation to be seen before interest rate increases become more moderate and the FED starts to point towards the end of its restrictive cycle. Charles Evans (Chicagdo FED) pointed out that the next two inflationary reports will be crucial as they are expected to show signs of a slowdown in inflation, which will allow a 50bp interest rate increase in September. If inflation doesn’t show signs of a slowdown, the FED may have to revise the expected trend in interest rates upwards. 

China retaliates. Speaker of the US House of Representatives, Nancy Pelosi, visited Taiwan for 24 hours – during which she spent a night in Taipei and met with President Tsai Ing-wen. Pelosi assured that the United States will not abandon Taiwan and reaffirmed her support of Taipei`s democratic government despite threats from China. As an immediate response, China has announced the partial suspension of trade with the island: It will halt fruit and fish imports from Taiwan and will ban exporting sand used for construction. China argued that here was an excessive amount of pesticides found in fruits and positive COVID tests in fish products to justify said measure, although its motivation is political. The actions won`t have a severe impact as Taiwan`s exports of agricultural goods only represent 0.6% of total exports and China`s exports of sand barely exceed one million dollars a year. However, the risk that these measures may extend to more important sectors, such as manufacturing, semiconductors and electronics, remains in place. Additionally, China`s army has announced that it will start carrying out military exercises and testing missiles in six zones that surround Taiwan between Thursday and Sunday. Some of these zones cross Taiwan`s oceanic territory, which could affect air and maritime traffic in Taiwan`s Strait.