The Day at a Glance | July 16 2020

The Top

· China shows growth: 3.2% in 2Q20.

· No surprise regarding the ECB`s decision.

· Economic indicators: Jobless claims in the US stayed at 1.3 million (1.25M e.), while retail sales grew above estimates in June (7.5% vs 5.5% e.).

· OPEC+ agrees to ease production cuts regarding crude oil and bets on an economic recovery: from 9.6 mdb to 7.7 mdb starting in August.

· Mexico`s Central Bank could generate 500 billion pesos in operating remnants this year, which is good news for public finances in 2021: IMEF.

Economic environment

China gets back on the road towards growth; it recorded an expansion that exceeded estimates in the second quarter of the year. Official figures confirmed a 3.2% annual growth rate regarding China`s GDP for the 2Q20 (vs 2.5% e.), reversing a 6.8% contraction in the first quarter. Growth was mainly boosted by the industry, whose production increased 4.8% with respect to last year, but consumption remained weak (retail sales -1.8% vs 0.5% e.). Compared to 2019, the first semester of 2020 recorded a (-) 1.6% contraction (industrial production -1.3%; retail sales -11.4%; investment -3.1%). Fiscal and monetary stimulus played an important role in the recovery, and given the results, it’s likely that they will remain moderate moving forward. June`s data on consumption suggests that the domestic market`s weakness could be overcome soon, as a solid, double-digit rate of growth was recorded in most sectors. Additionally, the rate of unemployment was slightly reduced to 5.7%. Nevertheless, the barriers that the Chinese economy faces are worth considering, as it must also face animosity from its largest trading partner (US) and a pandemic that has still not been controlled at a global level. At the moment, the Chinese government has endorsed its commitment to comply with the trade deal with the US, despite recent sanctions due to political issues.

The European Central Bank (ECB) makes no changes during its monetary policy meeting

Interest rates and asset purchasing programs remained unchanged by the ECB this morning while the central agency continues to monitor the Europeans economy`s development. The bank again committed itself to keeping its purchasing programs and stimuli flexible in order to counter the pandemic`s effects on the European block`s economy, this in addition to keeping the refinancing rate at 0% and rates on deposits at -0.5%. The ECB expects interest rates to remain at these levels, or even lower until inflation meets its 2% objective; something that is not expected to occur until 2022. The Euro did not react to this news, which lacked a surprising factor. Christine Lagarde, President of the ECB, called again for wide fiscal stimulus that could help sustain employment and businesses. Lagarde recognized that there was a solid economic recovery during June, but it remains in its early stages and has been different among countries and industries. The risks that growth faces are still skewed downwards.

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