The Day at a Glance | February 1 2023

Pemex issued bonds worth 2 billion dollars, which will be used to refinance debt.

*In the US, the ADP`s private sector National Employment Report indicated that 106 thousand jobs were created in January, its lowest reading since January of 2021; this was 74 thousand jobs less than expected. 

*This morning, the INEGI informed that its manufacturing orders index for January set at 51.6 points and remained in expansionary territory for the 30th consecutive month. Additionally, the Global Indicator on Business Confidence set at 44.3 points, which implies an annual 7.6 unit decrease; the drop is attributed to a fall in confidence in all four of the sectors that make up the indicator.

*The Mortgage Bankers Association in the US informed that mortgage applications decreased 9% in the week ending January 27th.

*The US consumer confidence index receded in January and fell short of estimates (109) with a 107.1 reading. The decrease (108.3 prev.) is due to a deterioration in consumers` economic outlook for the next twelve months. 

*The US cost of labor index logged a 1.0% increase in the 4Q22, which implies a marginal slowdown from the previous 1.2%, easing inflationary pressures.

*The Eurozone`s preliminary inflation figure in January logged a monthly -0.4% decrease (vs 0.1%e.), with which annual inflation set at 8.5%, its lowest reading since May of 2022.

*The Eurozone`s unemployment rate increased slightly to 6.6% in December (vs 6.5% prev.).

*The Eurozone`s final manufacturing PMI in January remained unchanged at 48.8 points.

*President Biden will meet with Kevin McCarthy, speaker of the House of Representatives. They will talk about the debt ceiling. No significant progress is expected to be made due to a lack of concrete proposals on behalf of both sides in this first meeting. 

*The Ministry of Finance and Public Credit will auction government securities on Thursday, February 2nd. This will consider the exchange of shorter term D and F Bonds for longer term Bonds. 

*The Federal Reserve will reveal its monetary policy decision at 1:00pm Mexico City time. It`s expected to carry out a 25bp increase and set the reference rate at 4.75%.

Economic environment

Pemex placed bonds in international markets to settle its financial obligations. The Ministry of Finance and Public Credit reported that on Tuesday the state-owned company carried out a bond issuance worth 2 billion dollars with a ten-year maturity, which will be used to refinance its liabilities without an increase in its debt balances. The statement did not detail the coupon rate of the instrument, but it was mentioned that demand was higher than 10 billion dollars, equivalent to a demand ratio of 5 times the placed amount and allowed a 50bp reduction compared to the initial indicative rate. We consider that high demand is mainly associated with the Federal Government’s support for the state-owned company, not the oil company itself, which has been losing money and has financial obligations worth 105 billion dollars as of 3Q22, with maturities of up to 6 billion dollars in the first quarter of 2023. Although the operation provides (partially) resources for the state-owned company to meet these obligations, which is positive in every sense (even opening the door to a new issuance due to high demand); it is important to keep in mind that the Federal Government’s support for the state-owned oil company may negatively impact the perception of public finances.