The Day at a Glance | Aug 30 2022

The Top

*Inflation in Spain became more moderate for the first time in 4 moths (10.4% annual, August); it continues to rise in Germany (8.8%).

*Liquidity withdrawal on behalf of the FED will increase to its maximum level – 95 billion dollars per month – this week.

*Unemployment in Mexico set at 3.2% in July.

*Gazprom will decrease its supply of gas to Engie, French electricity & energy company, arguing that disagreements were had regarding some contracts.

*I am satisfied with the reaction among markets after the Jackson Hole message: Neel Kashkari (Minneapolis FED).

*Confidence in the European economy dropped (97.6) to its lowest level in over 11 years due to the war in Ukraine and inflation.

*China´s largest real-estate company, Country Garden´s, logged its largest drop in profits (96%) in the first half of 2022.

*Economic indicators: The US housing price index will be made known.

Economic environment

Inflation in Europe. This morning, mixed inflationary data was made known by some of the European block´s most important economies. In Spain, inflation surprised to the downside during August and slowed down to an annual 10.4% (vs 10.9%e.), its lowest level in 4 months. The good news was offset by a larger than expected increase in the underlying component, which suggests that there are second order effects and an overall increase in prices. In Germany, inflation once again reached a new record-high level during August by setting at an 8.8% annual rate; it´s still being boosted by energy and food prices. The German Bundesbank forecasts that inflation will reach 10% in the last quarter of the year in a still uncertain environment due to the war in Ukraine. Tomorrow, inflationary figures will be made known in the Eurozone – prices are estimated to increase at an 8.8% annual rate, which would imply stabilization in prices during August with respect to previous figures. However, the increasing inflationary risks remain in place. France has accused Russia of using its supply of natural gas as political weapon after Gazprom announced that it will decrease its supply to the French utilities and energy company, Engie. This aggravates the region´s energy crisis and will maintain upwards pressures on prices, something that could force the ECB to increase rates aggressively in order to avoid inflation from getting out of control. The ECB is expected to increase the interest rate in 50bp on September 8^th, however, various market players have started to speculate about the possibility of a 75bp increase. Inflation has started to undermine consumer spending and confidence, which has increased the likelihood of a recession occurring in the European block at the end of the year. A restrictive monetary policy on behalf of the ECB to control inflation could reinforce the weakening economic trend.