The Day at a Glance | August 7 2020

The Top

· Inflation accelerates in Mexico in July: 3.62% annual.

· Employment data in the US exceeds estimates but confirms a slowdown in the labor market`s recovery.

· Chinese exports grow due to greater global demand.

· The US once again imposes a 10% tariff on Canadian steel to protect its industry; Canada threatens to respond.

Economic environment

Inflation in Mexico linked three consecutive months on the rise, after the INEGI confirmed a 0.66% monthly rate of inflation in July (3.62% annual). This is the largest increase seen in the month of July in at least the last 10 years. The rise in energy prices remained solid (3.9% monthly) and boosted the non-underlying index to its highest level since November 2019. Prices of goods (0.64% monthly) also maintained an upwards trend and once again were the component that had the greater incidence on the underlying index, which increased 0.4% monthly to an annual 3.85%; its highest level since April 2019. The rise in inflation is expected to be offset in the medium term by an important contraction in demand due to the pandemic. However, current figures will reinforce some of the central bank`s Governing Board members` cautionary approach when defining how much interest rates will be cut in the following months.

Employment figures in the US confirm the creation of 1.7M new jobs during July, figure slightly above the estimated 1.6M by the consensus. With this, the rate of unemployment went down to 10.2%. The most important increases in employment were seen in the leisure and hotel sectors (592 thousand), food and beverage services (502 thousand) and government (302 thousand). The figures reflect an improvement boosted by the reopening. Salaries decelerated slightly to 4.8% (vs 4.1% e.). The data reinforces the optimism concerning the recovery`s solidity in recent months but also shows signs of it slowing down improvements as time moves forward. The high level of unemployment keeps medium term risks threatening economic growth and reinforces the opinion that a greater fiscal stimulus is necessary. Legislators and the Administration still have not reached an agreement concerning the approval of a new package as more recent news suggests there is a hostile environment regarding negotiations.

Chinese exports continued to grow during July, in midst of the global economy`s reopening. Chinese exports grew at an annual rate of 7.2% in July, greatly exceeding analysts` estimates (0.9%) and showed an increase in shipments to the US (12.5%). Data suggests an improvement regarding global demand. However, imports contracted (-) 1.4% annually (vs -0.6% e.), which is a sign of persistent weakness in China`s recovery. There are still doubts about the sustainability of the recovery regarding exports given that new export orders remain weak and that the recovery will be different and slower at a worldwide level.