The Day at a Glance | August 5 2024

The Top

• The peso depreciated in overnight trading due to fears of a slowdown in the US and a more hawkish monetary policy from the Bank of Japan.

• Vice President Kamala Harris is expected to announce her running mate on Tuesday after conducting interviews with top contenders at her Washington home over the weekend.

• According to Reuters, the US Department of Commerce is expected to propose banning Chinese software in autonomous and connected vehicles in the coming weeks.

• Later today, the ISM Services Index will be released, with the consensus expecting it to set at 51.0 points.

• Annual producer inflation in the Eurozone slightly exceeded market estimates (-3.2% vs. -3.3%e) in June.

• Oil futures extended their losses in a volatile session on Monday, though the declines were cushioned by concerns over a possible escalation of the conflict in the Middle East, which could affect crude supplies.

• US stocks dropped sharply on Monday due to a global sell-off in markets, driven by fears of a US recession. 

Economic Environment

The peso depreciated in overnight trading due to fears of a slowdown in the US and a more hawkish monetary policy from the Bank of Japan. Yesterday, in the overnight session, the Mexican peso depreciated amidst a stress episode in Asian financial markets. During the session in said markets, the exchange rate traded in a range between a low of 18.90 and a high of 20.16 pesos per dollar. At the start of today’s trading session, the peso is trading close to 19.50 pesos per dollar. Similarly, Mexico’s 5-year Credit Default Swap in dollars increased by 22 points to trade at 132 points, the highest level since October last year. In this stress episode, the Japanese yen continued appreciating, reaching 142.50 yen per dollar, up from the 146.53 yen it closed at last Friday. Another asset that logged significant changes was the 10-year US Treasury Bond, which is 10 basis points below its closing level last Friday at 3.69%. Among the explanations found in various financial media, two main reasons stand out: 1) the possibility of a more pronounced slowdown in the US economy, as last Friday’s employment data had barely reflected on the sentiment of Asian markets, and 2) the Bank of Japan’s monetary policy, which turned out to be more hawkish than expected and is affecting various carry trade positions between the Japanese yen and other currencies, including the Mexican peso.

Markets and Companies

Global markets are down. US stocks dropped sharply on Monday due to a global sell-off in markets, driven by fears of a US recession. Investors are also concerned that the Federal Reserve is lagging in lowering interest rates to stimulate the slowing economy, as the central bank chose to keep rates at their highest level in two decades last week. In Europe, stocks fell sharply at the start of the week, while the VIX volatility index rose to a Covid-era high over concerns of an imminent US recession. The Stoxx 600 was down -3.1% at 2:20 p.m. London time, with individual sectors and major regional exchanges falling deeper into the red. In Asia, Japan’s Nikkei plummeted -12% in its worst day since the Black Monday crash of 1987 on Wall Street. Japan confirmed a bear market on Monday, as it erased the gains it had logged this year. In commodities, US crude oil fell below $72 per barrel, hitting a six-month low amidst fears that the economy might be on the brink of a recession. Metals and cryptocurrencies were also trending lower. In Mexico, the IPyC dropped -1.19% to 51,620 points. Over the weekend, the exchange rate fluctuated between a low of 19.00 and a high of 19.92, currently trading at 19.62.

Alsea agreed to sell its Burger King business in Spain, consisting of 54 restaurants, as part of its strategy to simplify its brand portfolio and improve profitability. The transaction is subject to regulatory approvals.

Fibra Prologis announced the results of its tender offer and reciprocal subscription to acquire up to 100% of Terrafina’s real estate trust certificates (CBFIs). Prologisreceived signed acceptance letters for 606,549,920 TerrafinaCBFIs, representing 77.14% of Terrafina’s CBFIs in circulation. The offer settlement will take place on August 6.

Cemex signed an agreement to sell its operations in the Dominican Republic for approximately $950 million. The transaction includes the export business to Haiti.

Corporate News

• Nvidia and Super Micro Computer plummeted more than 14% each, while Advanced Micro Devices lost 6%. As of Friday’s close, Nvidia was more than 20% below its highs, while Super Micro had already lost nearly half its value.

• Megacap technology stocks also sold off during premarket trading, with Alphabet, Meta Platforms, and Amazon falling more than 6% each. Microsoft lost 5%. Tesla sank 11%, while Apple shares dropped nearly 8.5%.