The Day at a Glance | Aug 31 2022

The Top

*New record-high inflationary surprises in Europe during August (9.1% annual vs 9%e.).

*China`s economy continues losing strength in August, according to official PMI`s.

*Budgetary revenues in Mexico increased 7.8% annual in July; budgetary revenues decreased (-) 9.4% annual due to gasoline subsidies despite the rise in IVA and ISR revenue.

*Consumer confidence in the United States increased to its highest level in 3 months.

*Employment in the US private sector grew more than expected in August (ADP 132,000 vs 288,000e.).

*Fears of a recession will not stop the increasing rates cycle in Europe: Joachim Nagel, member of the ECB.

Economic environment

Record high inflation in Europe. Europe`s Consumer Price Index logged a record-high level in August and exceeded analysts` estimates by logging a 9.1% annual rate of growth (0.5% m/m). Energy and food prices are still the main factors that are boosting inflation, but there are some signs of widespread inflation in the underlying index, which increased to 4.3% annual. General and underlying inflation are at their highest levels since the European economic and monetary block exist. The upwards surprise reinforces arguments in favor of a 75bp increase in the ECB`s September meeting. The Euro`s strong depreciation during the last few months increases import prices, which contributes towards inflation; while the recovery in the services sector and consumption after the pandemic has also helped boost prices upwards. This forces the ECB to act more decisively in order to avoid an inflationary dynamic that may get out of control. At least 6 of the ECB`s members have publicly backed an increase larger than 50bp in September (or at least they believe it`s important to discuss it), while markets are taking a 75bp increase into account with a 60% probability on September 8^th. After this, the ECB is expected to maintain aggressive interest rate increases in its following meetings in order to ensure inflation is contained. 

China`s slowdown continues. Official PMI`s in China`s manufacturing sector logged a contraction for a second consecutive month in August (49.4) and services slowed down (52.6) and confirmed a slowdown in China`s economy during the summer. Power cuts occurred due to droughts and halts in production among factories affected manufacturing activities, while intermittent COVID outbreaks in the country continued to weaken demand and growth in the services sector. The country`s 31 provinces logged recent cases of COVID-19, which makes the recent spread of the virus the most widespread since February of 2021. Additionally, there are pressures due to the real-estate sector`s collapse, which maintains confidence sluggish among economic agents. Specialists have started cutting growth estimates for China`s economy and expect a mere 3.5% rate of growth in 2022.