The Day at a Glance | Jul 22 2022

• 

The Top

*Inflation in Mexico for the first half of July slightly exceeded estimates (8.16% annual vs 8.11%e.).

*Europe`s economy receded during July and confirmed fears of a global recession.

*Russia and Ukraine reached an agreement to release 18 million tons of wheat, corn, and other crops to the rest of the world.

*US clarifies that sanctions on Russia don`t apply regarding food trade, which is why Russian grains and fertilizers will return to the global market.

*Kenneth Smith and Ildefonso Guajardo estimate that Mexico could lose between 10 and 30 billion dollars in trade because of the dispute with the US.

*Inflation in Japan increased to a 2.2% annual rate in June.

Economic environment

Inflation in Mexico continues to increase. Consumer prices continued to increase in Mexico after inflation logged a 0.43% (vs. 0.39%e.) rise in the first half of July and set at an annual rate of 8.16%. The underlying component also increased more than estimated (0.34% vs. 0.31%e.) and set at an annual 7.56%, its highest level since December of 2000. The largest increase was logged in the underlying component as it recorded overall structural inflation in the country: Commodities increased 0.38% biweekly, while prices among services like restaurants increased (0.51%; fondas and taco stands 0.43%) along with a rise in tourist services (4.44%) and air travel (6.03%) due to the holiday season. In the underlying component, agricultural goods (1.22%) contributed more to inflation than energy (1.02%). The persistent rise in the underlying component will likely keep the Central Bank of Mexico in a restrictive cycle.

Europe`s economy receded. July`s timely PMI`s in Europe confirmed a contraction in the block`s economic activity. The Composite PMI dropped to 49.4  (vs 51e.) while estimates forecasted a slight expansion (figures below 50 point out there was a contraction; expansion above 50). This is the first contraction in economic activity since 2021, when confinement measures were implemented during the second wave of the virus and affected economic activity. The data points out that the Eurozone finds itself in a moment of slow economic growth and could even be at the start of an economic recession. The economy is expanding at its slowest pace in 17 months due to a greater deterioration in the manufacturing sector (49.6 vs 51e.) and stagnation in the services sector (50.6 vs 52e.). In both sectors, a decrease in demand was noticeable – as well as greater pessimism concerning future expectations. In the manufacturing sector, the strong decrease in sales is causing an unprecedented increase in inventories, according to a report published by S&P Global. As the economy finds itself in a full slowdown and the ECB is starting to carry out an increasing interest rates cycle, the risks of a recession in the Eurozone are considerable.