The Day at a Glance | August 27 2020

The Top

· Jerome Powell will disclose some details regarding the FED`s monetary policy framework review in the Jackson Hole Symposium this morning.

· Mexican exports grew 9.81% in July (-8.9% annual) and continue their recovery in midst of the pandemic; trade surplus increases to 5,799 million dollars (5,547M prev.), after a slower recovery in imports (3.19% monthly, -26.1% annual).

· China would allow US regulators to audit state-owned companies in efforts to avoid them being de-listed from US stock exchanges.

· Chinese army fires four missiles into the South China Sea as a warning to the US after it carried out military exercises in the region.

· Economic indicators: Initial jobless claims are still at one million per week, in line with estimates (14.5M ongoing vs 14.4M e.).

Economic environment

This morning (8:10 am Mexico), Chair of the Federal Reserve Jerome Powell will disclose some details regarding the FED`s monetary policy framework review. The FED`s aims and monetary policy framework have been debated and revised during the last 6 months with a high chance of Powell unveiling a more flexible stance regarding its inflation objective today. Investors expect Powell to announce that the agency will allow inflation above 2% for some period of time in the future, without this warranting an immediate restrictive monetary response and allow greater economic expansion. The strategy would contrast with the current stance, which stipulates preventative rises in interest rates to maintain inflation under control once the objective is reached. The FED has not reached its 2% inflation objective in a sustainable manner since 2012 and the new strategy would attempt to compensate for the fact. Some market participants are concerned that this new stance could neglect important inflationary risks that could appear once the health emergency passes; even though the majority interprets this as a sign that rates will remain low for a longer period of time as the FED shows greater tolerance for an acceleration in prices.

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