The Day at a Glance | December 15 2021

The Top

*A greater slowdown in China was confirmed during November.

*Retail sales in the U.S. increased less than expected during November (0.3% monthly vs 0.8%e.).

*FED will make a monetary policy decision this afternoon (1:00 pm Mexico City time).

*ECB maintains expected inflation under 2% in 2022.

*Inflation in the United Kingdom exceeds 5%, its highest level in a decade.

*China`s “healthiest” real-estate company`s (Shimao) bonds collapse; fear of contagion in the real-estate sector increases.

Economic environment

Slowdown continues in China. The most recent economic data in China disappointed after persistent weakness in the real-estate sector and less consumption due to COVID-19 outbreaks in the country was observed. Investment slowed down to 5.2% this year (vs 5.4%Fe.), after a 4.6% annual decrease in infrastructure investment caused by the real-estate crisis. Sales of new homes and construction of new homes on behalf of real-estate developers logged a 20% annual decrease in November. The data has raised doubts regarding the recent measures carried out by authorities in order to back the sector; even though Beijing has asked banks to facilitate credit for the purchase of homes and has eased restrictions for investment, the measures don`t seem to have been enough to counter the weakness. Retail sales also disappointed by increasing 3.9% at an annual rate (vs 4.6%e.) during a month where consumption was expected to show strength as the “Singles Day” season and other purchasing festivities tend to boost figures. Automobile sales decreased for a fifth consecutive month while spending on restaurants receded. It`s believed that the virus`s new waves suppressed consumption during November. The only positive piece of news was industrial production, which increased slightly to 3.8%annual thanks to the production of pharmaceuticals and electronics; despite contractions in industries linked to construction, such as steel and cement, which decreased up to 20% in the last year. More aggressive stimuli are expected to be carried out in order to revert current trends.

FED decision. This afternoon, the Federal Reserve`s Open Market Committee will come together to decide on the purchasing program`s withdrawal. The FED is widely expected to double the pace at which the program is being withdrawn (at 30 billion monthly dollars), which would lead the purchases to come to an end in March-April. Additionally, markets will focus on the bank`s new macroeconomic estimates. Members are expected to move increased interest rates expectations forward to 2022, with an average of 2 increases of 25bp each, and 3 increases in 2023. Regarding inflation, a modest increase is expected to be made; the rate is expected to set at 2.5% in 2022 while the unemployment rate is forecasted to decrease to 3.7%. Investors will be focused on any comments made about the reduction in the bank`s balance as a tool to adjust financial conditions in the future. Lastly, Jerome Powell will hold a press conference half an hour after the statement`s release. Powell is expected to use less of an aggressive tone with respect to recent speeches. He is also expected to highlight that inflation hasn’t spun out of control and reaffirm that the end of the purchasing program doesn’t necessarily entail an immediate increase in interest rates.