The Day at a Glance | Jul 27 2022

The Top

*The US Federal Reserve is expected to increase the interest rate in 75bp today.

*IMF once again cuts global growth estimates (3.2% 2022 vs 3.6% prev.); warns of a possible global recession.

*Mexican exports increased 1.31% in June (20.2% annual), imports hiked 5.95% (31.7% annual).

*Mexico`s trade balance deficit reached 12,944 million dollars in the first half of 2022.

*Biden and Xi will have conversations on Thursday in light of a deterioration in China-US relations due to Pelosi`s possible visit to Taiwan.

*S&P modifies Italy`s sovereign debt perspective from “positive” to “stable” after Mario Draghi`s resignation.

Economic environment

FED decision. This afternoon (1:00pm Mexico City time), the Federal Reserve will make a monetary policy decision in which it`s expected to increase the interest rate in 75 base points and set it at 2.5%: It`s highest level since 2019. If the increase meets market expectations, this would be the second consecutive 75bp increase with which the current interest rate increase cycle would turn into one of the most aggressive ones since the 1980`s, when Paul Volcker was head of the FED. Nevertheless, the FED`s press release or conference is expected to show signs that the central bank will start to slow down the pace of interest rate increases starting in September – after signs of a weakening economy in the last few weeks, which have increased risks of a recession and a retreat of raw material and energy prices that could contribute to easing inflationary pressures. Markets will stay focused on any signs given by the FED with respect to September`s meeting, in which the pace of interest rate increases is expected to become more moderate (50bp); although it`s estimated that the FED will reiterate that interest rate increases will continue to depend on economic data. In any case, Chair of the FED, Jerome Powell, will seek to maintain the central bank`s commitment to control inflation and have it converge to the 2% medium-term target level. 

IMF cut its global growth estimates. The International Monetary Fund cut its global growth estimates for a third consecutive time; it now expects growth to set at 3.2% in 2022 (vs 3.6%e. prev.) and 2.9% in 2023. The IMF confirmed that the global economy finds itself on the brink of a recession only two years after the last one caused by the pandemic, considering that many of the risks taken into account in previous disclosures have materialized and are weighing on economic growth (escalation of the war in Ukraine and sanctions on Russia, greater than expected slowdown in China, new COVID-19 waves and inflation). The IMF expects that interest rate increases will particularly affect economic growth in 2023 and forecasted higher inflationary figures for 2022, with the consumer price index at a global level reaching 8.3% this year, its highest level since 1996 (vs 7.4%e. prev.). The largest cut in growth estimates was made for the US (2.3%e. vs 3.7%e. prev.) due to decreased consumption and less favorable financial conditions. China`s forecasts were also cut (3.3%e. vs 4.4%e. prev.) along with Europe`s (2.6%e. vs 2.8%e. prev.). In Mexico`s case, growth in 2022 was revised upwards to 2.4% (vs 2%e. prev.) but was considerably cut to 1.2% for 2023.