The Day at a Glance | August 31 2023

*The personal consumption expenditure deflator rebounded in July, in line with expectations. 

*The Eurozone´s timely inflationary estimate for August points to no change with respect to the previous month. 

*China´s composite PMI rebounded in August amidst a smaller than expected setback in the manufacturing sector. 

*In Mexico, the unemployment rate set above 3% for the first time in six months (3.1% July). However, it remained below the 3.4% recorded in the same month of last year despite an increase in the economically active population (60.9%; +0.9pp). 

*Unemployment claims in the US decreased to 228 thousand (-4 thousand) in the week ending August 26th, which contrasted with the expected 235 thousand figure. With this, the four-week average increased marginally to 237.5 thousand. 

Economic environment

The personal consumption expenditure (PCE) deflator logged a 3.3% figure in July. The rebound logged in the FED´s preferred inflationary reading is consistent with what was forecasted by the analysts´ consensus. At a monthly rate, the PCE deflator logged the same figure as in the previous month (0.2%), which came from a 0.4% m/m increase in services and a -0.3% decrease in prices. Additionally, the underlying index logged a 0.2% m/m reading (4.2% y/y). Lastly, consumer spending sped up in July as it logged a 0.8% m/m figure (0.5% prev.; 0.7% m/m e.). 

The Eurozone´s timely inflationary figure points to a 5.3% y/y reading in August, above the 5.1% figure expected by the market. Energy kept logging decreasing figures, although it did so at a slower rate than what was logged in the previous month (-3.3% y/y vs -6.1% y/y Jul.), while services logged little progress (5.5% vs 5.6% Jul). Although food, alcohol and tobacco decreased 1pp in its annual reading, the 9.8% y/y is still too high. With this, underlying inflation decreased to 5.3% y/y after setting at 5.5% for two consecutive months. Even though August´s inflationary readings continued logging moderation, there is still reluctance to decrease, which should back the idea of another ¼ point increase in the next monetary policy meeting, scheduled to take place on September 14th. However, the fragile state of the Eurozone’s economy is also an argument to pause the increasing rates cycle amidst fears of greater economic deterioration. With this, it´ll be important to follow up on economic figures in the next two weeks. 

China´s manufacturing PMI exceeded market forecasts and set at its highest level since March. After three months of relative improvements, the leading indicator logged a 49.7 point reading in August, exceeding the 49.2 point figure expected by analysts and was the smallest contraction since the 51.9 point figure was logged in March – amidst measures taken by authorities in efforts to boost China´s economy. This relatively positive performance was boosted by the fastest rate of growth in production in five months (51.9), as well as new orders setting in expansionary territory (50.2); even though employment remained in contractionary territory (48.0) for a sixth consecutive month, along with the lowest reading in exports in three months (46.7). For its part, the non-manufacturing sector continued to grow for an 8th consecutive month, although it did so at its slowest pace since the start of 2023 and set below market expectations (51.0 vs 51.2e.). Weakness came from a setback in new orders (47.2) and a decrease in foreign sales for a fourth consecutive month (48.9). With this, the composite indicator rebounded 0.2 points from its low point logged in June and set at 51.3 points in August. Both sectors logged higher costs for a second consecutive month, along with increases in sales prices; however, there was divergence in the expectations index as the manufacturing index reached a six month high (55.6 points) and the non-manufacturing fell to an eight-month low (58.2). Overall, the figures made public on Wednesday night (Mexico City time) are encouraging for China´s economic growth during the 3Q23 as they showed that the measures carried out by authorities through a tortuous process of recovery had a positive effect on the economy; especially if new stimulus measures are carried out. However, we´ll have to wait for hard figures to confirm this trend.

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