The Day at a Glance | July 10 2020

Contraction deepens in May regarding Mexico`s industrial production

Figures published by the INEGI confirmed a greater contraction in industrial production in May. Industrial activity contracted (-) 1.8% compared to April and maintained an annual rate of (-) 29.7% (seasonally adjusted; -30.7% original figures). Data confirms that activity remained depressed for two consecutive months, and according to leading indicators, a recovery is expected to occur in June. Construction (-10.2% monthly; -35.9% annual) and manufacturing (-3% monthly; -35.6% annual) were the most affected activities given the continuation of mitigation measures in the country. Figures exceeded analysts` contractionary estimates and promise downwards revisions in the future concerning the country`s economic growth; especially if the recovery is not strong in June. The economic contraction during the 2Q20 could exceed a (-) 20% quarterly setback. Other data published by the INEGI today also confirmed that there was persistent weakness in the tourism sector during May. Income from international tourists set at (-) 69.3% under what was seen in 2019 and total spending of visitors contracted (-) 92% annually; bad news for the industry that attracts the third largest amount in foreign currency. For this sector, no immediate recovery is expected.

COVID-19 clouds oil market perspective: IEA

The International Energy Agency published its monthly report on the global oil market today. The agency revised its demand estimates upwards for 2020 to 92.1 million daily barrels (vs 91.7 mdb prev.) after an intense upsurge in demand for gasoline during the reopening of economies in May and June. The agency expects to see a gradual recovery in market conditions, since, along with the fall in demand there has been an important setback in production as well, which reached its lowest point in the last 9 years in June. This causes a better balance between supply and demand, which could bring stability in prices of crude oil. For September, the agency expects general demand to recover and the demand for gasoline in the aviation industry to remain depressed. As for production, July could mark a turning point in recovery. However, the IEA has warned that the recent acceleration of cases at a global level suggests that the virus has not been controlled and that estimates are still at risk of being revised downwards.

Historical setback in financial assets withheld by the FED

The United States Federal Reserve`s balance sheet fell under $7 trillion dollars for the first time in the last two months and recorded its greatest weekly setback in 11 years. Just last week, assets contracted $88.3 billion dollars ($250 billion in the last month). The setback is due to the decreasing use of emergency facilities in markets that were implemented by the central bank (especially repo transactions and dollar SWAPS), a sign of normalization after stressful periods in March and April. The FED is not expected to withhold access to these liquidity facilities in the short run, despite low demand.

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