The Day at a Glance | January 10 2023

hiked 5.8% annual in October.

*Federal Reserve Officials indicated that the upcoming inflationary data will help decide if the next interest rate increase will be more moderate (25bp).

*December´s wage data in Mexico will be made known today; the previous figure set at 8.2% annual. Additionally, Banxico will auction securities.

*The North American Leaders Summit kicked off on Monday and will end on January 11th. The SRE stated it will focus on: Diversity and inclusion; environmental issues and climate change; competitiveness with the rest of the world; migration and development; health and security.

*Through a letter, the private sector – represented by the Corporate Coordinating Council, the US Chamber of Commerce and the Business Council of Canada, requested all three governments resolve the differences that exist concerning the USMCA. 

Economic environment

The monthly recovery in construction and purchase of machinery and equipment boosted Gross Fixed Investment during October. Gross Fixed Investment increased a monthly 1.4%, mostly due to a 2% hike in spending in construction and 0.8% in machinery. In a disaggregate manner, residential construction (1.9%), non-residential (2.3%), and spending on national machinery and equipment (3.3%) logged solid monthly progress. For its part, spending on machinery and equipment logged moderation for a second consecutive month (0.2%). Overall, the recovery seen in Gross Fixed Investment continued through October, with accumulated spending increasing 5.5% for the January-October period with respect to the same period of the previous year. However, current levels of Gross Fixed Investment are still way below those recorded during the pre-pandemic period. Regarding private consumption, there was a -1.8% monthly contraction in imported goods along with a 0.7% increase in services – a 0.2% figure was logged in October. With this, consumption increased 5.8% at an annual rate, which was mostly explained by the base comparison, and still increasing through the fourth quarter of 2022. 

Rate increases, terminal rate and how long the increasing rates cycle are still being discussed within the FED´s Open Market Committee. On Monday, Mary Daly (San Francisco FED) and Raphael Bostic (Atlanta FED) pointed out that the upcoming inflationary data will help decide if the next interest rate increase will be more moderate (25bp). For now, both a 25bp and a 50bp increase are options; but in case Thursday´s inflationary figures confirm a “cooling down” of the economy like the employment figures showed, this could lead members of the Open Market Committee to lean towards carrying out a 25bp increase. Additionally, Bostic pointed out that he considers it necessary for the rate to reach a 5%-5.25% range in order to bring down inflation. Even though it´s evident that the Committee continues discussing the terminal rate – as well as how fast it´s approaching – there doesn´t seem to be a consensus regarding how long a restrictive stance will have to stay in place for inflation to return to its 2% target. In this sense, Bostic showed he was leaning towards more of a restrictive stance than the rest of the FED´s officials by commenting that his base scenario doesn´t include any rate decreases in 2024; while most officials expect the rate to set below 4.5% next year. Lastly, on Tuesday, Chair of the Federal Reserve, Jerome Powell, will speak at the Banking Symposium in Sweden; he is expected to give greater guidance about the FED´s future decisions.