The Day at a Glance | December 7 2021

The Top

*Exports and imports in China increased at a fast pace in November.

*Biden threatens Russia with new sanctions in case it decides to invade Ukraine; he will have a call with Putin today.

*The Federal Government made a 3,500 million dollar contribution to PEMEX in order for the company to reduce its costs and debt.

*Private consumption increased 0.9% in September (8.2% annual) in Mexico; investment decreased (-) 1.6% (+10.8% annual) in the same month.

*IMF backs an ultra-accommodative stance on behalf of the ECB; inflation will be weak in the medium term.

*Housing prices in the United States logged their largest quarterly increase since 2006.

*South Africa reports that Omicron infections are not severe; this calmed market concerns revolving around the virus.

Economic environment

China`s exports and imports increased more than expected during November. The most recent data on China`s trade balance confirmed record figures in dollars for exports and imports. Exports increased 22% annually and amounted to 326 billion dollars; while imports logged a 32% annual increase and reached 254 billion. Both figures exceeded estimates in an environment of firm global demand and domestic recovery in production in light of less disruptions among electrical networks. The increase in exports is explained in good part by seasonal factors, especially the demand for goods during the festive season. The surprise in imports seems to come from greater demand of raw materials, with production picking up its pace after blackouts the last few months and stimuli on behalf of local governments to increase investment in infrastructure. Exports are still a driver for growth in China and has not weakened despite expectations of it becoming more moderate towards the end of 2021. At the moment, the government has reintroduced stimuli in the internal market in order to avoid a strong slowdown after the contraction in the local real estate market.

Federal Government makes a large contribution to PEMEX. Mexico`s government announced that it injected 3,500 million dollars into PEMEX as part of a plan to support the state-owned company. The resources will be used for the purchase of bonds with short and medium term maturities, or an exchange for more long term debt in an attempt to improve the company`s debt profile (especially its foreign debt). The measure is very similar to that taken in previous years, even though the Ministry of Finance and Public Credit acknowledged that it will bring other measures forward to aid the company when it reformulates its business plan. Lastly, the Ministry guaranteed that the aid doesn’t affect the budget for 2022 or public finances. However, the aid that the company needs from the Federal Government will continue being necessary if PEMEX`s profitability doesn’t improve; which turns this into a medium term risk for public finances.