The Day at a Glance | January 11 2021

The Top

· Industrial production increased 1.1% in Mexico during November.

· FED would consider decreasing its purchasing program this year if the recovery is firm.

· Markets start to take interest rates rises in 2023 into consideration.

· Economic indicators: Inflation in China accelerates during December, boosted by food prices (0.2% annual).

Economic environment

Data published by the INEGI this morning confirmed a 1.1% monthly rise in industrial activity in Mexico during November. At an annual rate, activity set 3.3% under its level recorded in November of 2019. Industrial activity expanded mostly in the construction sector (2.2% monthly), but a standstill was recorded in manufacturing (0%) and in mining (0.1%), with the lowest monthly growth figures since May; meanwhile, public services recorded a contraction (-2.3%). At an annual rate, all sectors remain in contraction, even though manufacturing (-1.2% annual) and mining (-2.5%) have performed the best. In the January-November period, industrial services recorded a 10.7% contraction compared to the same period of the previous year. The industries that recorded the largest contractions in the period are textiles (-32.5%), clothes manufacturing (-35.4%), manufacturing of leather goods and construction of civil engineering works (25.6%). The data confirms the recovery`s loss of momentum in the industrial sector at the end of 2020. The recovery is expected to regain strength in 2021, especially in export-oriented industries once the US economy is boosted by new fiscal stimuli in the first semester of the year and by the distribution of vaccines in the second.

Members of the Federal Open Market Committee assured that they consider reducing the asset purchasing program`s volume if economic recovery is strong in 2021. Charles Evans of the Chicago FED and Raphael Bostic of the Atlanta FED assured that they would agree with backing up a reduction in the asset purchasing program`s volume in financial markets on behalf of the central bank towards the end of 2021 – but only if the economy is showing enough strength. In contrast, Vice Chairman of the FED Richard Clarida said that he doesn’t expect to see changes in the program in 2021. Currently, the FED buys bonds from the US Treasury at a rate of $120 billion monthly dollars as a way to back markets in midst of the crisis due to the pandemic. Markets, on their part, have started to discount greater levels of inflation and growth in the next years given the aggressive monetary and, above all, fiscal stimuli. Upwards adjustments regarding interest rates in the US are starting to be taken into account in the money market; meanwhile, in sovereign debt markets, the 10 year Treasury bond reached a 1.1% rate, its highest level since the start of the pandemic. Both factors have boosted the dollar`s recovery since the end of last week.