The Day at a Glance | August 15 2023

*Retail sales in the US increased more than expected in July. 

*Weak economic activity in July led China to cut key rates for the second time in 3 months. 

*The Secretariat of Finance and Public Credit (SHCP for its initials in Spanish) announced a massive sustainable financing plan at the 2023 Mexico Carbon Forum. 

*Salary increases in the United Kingdom reached an all-time high, increasing pressure on the Bank of England. 

*Inflation in Canada accelerated in July, increasing the likelihood of a new interest rate hike. 

*Japan surpassed growth estimates in the 2Q23 because of its exports.

Economic environment

Retail sales in the US surprised to the upside. Retail sales in the US recorded a monthly 0.7% increase in July (0.2% prev.), a figure larger than what the consensus expected (0.4% m/m), and was primarily driven by online sales. With this, July´s reading suggests that the US economy continues to expand at the beginning of the third quarter of 2023. On the other hand, “core sales,” which exclude the sale of automobiles, gasoline, building materials, and services, increased by 1.0% m/m in July (0.5% prev.). Demand has remained resilient despite high interest rates due to strong wage increases in a tight labor market. With inflation trending downward, consumers´ purchasing power has improved. Therefore, although consumer spending slowed down in the second quarter, the increase was enough for the economy to grow 2.4% in the 2Q23.

China´s economic outlook darkens with weak readings in July’s data. Industrial production in China significantly slowed down at the beginning of the 3Q23, as a 3.7% y/y increase was logged in July, down from June’s 4.4%, and below the market’s expected 4.3% y/y. Similarly, retail sales recorded a 2.5% y/y figure in June, lower than the consensus estimate of 4.0% y/y and a previous reading of 3.1% y/y. Additionally, fixed investment increased by 3.4% y/y (3.8% e.), while investment in the real-estate sector plummeted by -8.5% y/y (compared to -7.9% prev.). With this, key economic indicators fell short of consensus expectations in July, as most recorded stagnation or marginal expansion on a monthly basis. Consequently, the People’s Bank of China cut its rates for the second time in three months, pointing to a rapid loss in momentum that had been generated in the economy earlier in the year during the post-pandemic economic reopening.