The Day at a Glance | January 22 2021

The Top

· PMIs confirm a deeper contraction in Europe during January.

· Inflation in Mexico accelerates more than expected in the first two weeks of 2020 (0.51% vs 0.34% e.).

· Republicans` opposition towards President Biden`s fiscal proposal grows.

· Iran announces that it will increase crude oil production in close to 3.9 million daily barrels (vs 1.99M in December 2020).

· The German government cuts its growth estimates for 2021 (3% vs 4.4% prev.).

· Economic indicators: PMIs expected to be published in the US (manuf. 56.5 e. vs 57.1 prev.; serv. 53.6 e. vs. 54.8 prev.).

Economic environment

Leading economic activity indicators published by IHS/Markit confirm a contraction in the European economy during January. The European Composite PMI set in contractionary territory (47.5), dragged by low performing services (45) amidst new quarantines and government efforts to control COVID-19`s spread. The services sector recorded the second largest setback in activity since May, while manufacturing activities slowed down but remained in expansion (54.7) and are the economy`s best performing industry. The data points towards a highly likely recession in the region during the 1Q21. The contraction will be much smaller than that observed in the second semester of 2020, thanks to the resilience seen in manufacturing, demand for exports and less aggressive confinement measures; although a new recession seems inevitable. Activity contracted more than it did in December, and February`s figures could still be weak as most European countries are still under strict confinement measures. Employment fell for an eleventh consecutive month and confidence among employers deteriorated slightly, even though the manufacturing sector remains optimistic about the next 12 months. The economy is expected to return to growing figures quickly starting in the 2Q21, boosted by vaccine programs and monetary & fiscal stimuli carried out since 2020.

The Consumer Price Index recorded a greater than expected rise in Mexico during the first half of January, according to INEGI figures. Prices increased in the economy, boosted by energy prices, which increased 2.91% during the period; their highest rise since October. The rise was mainly recorded in low octane gasoline prices (3.26%) and domestic LP gas (5.33%). With this, non-underlying inflation increased 1.37% despite seeing more moderate variations in fruits & vegetables (0.62%). General inflation was 0.51% biweekly and rebounded to a 3.33% annual rate, which is the highest rise in inflation for the first half January since 2017. Underlying inflation (the less volatile component) increased 0.24% in the two week period and stabilized at 3.83% annual. Commodities recorded a 0.39% rise in their prices, while services prices remained practically stagnant (0.06%). The data confirms a slight rebound in inflation after the extraordinary fall in prices seen in November; however, this doesn`t change expectations of seeing greater cuts in interest rates on behalf of the Central Bank of Mexico in the following months.