The Day at a Glance | July 18 2024

The Top

• The European Central Bank kept its interest rates unchanged while not providing any signs regarding its upcoming decisions.

• US President Joe Biden is facing increasing pressure to resign, while his opponent, Donald Trump, is expected to accept his nomination at the Republican convention today.

• Initial unemployment insurance claims in the US rose from 223,000 to 243,000 in the week ending July 13^th. 

• The International Monetary Fund says the US should raise taxes and wait until the end of 2024 to cut interest rates.

• On Thursday, Chinese leaders reiterated their broad economic policy goals, from modernizing the industrial sector to expanding domestic demand and curbing debt and real estate sector risks, without detailing the steps for implementation.

• European Commission President Ursula von der Leyenwas elected for a second term after promising to create a continental “defense union” and stay the course on Europe’s green transition while easing its burden on the industrial sector.

Economic Environment

The European Central Bank kept its interest rates unchanged while not providing any signs regarding its upcoming decisions. Today, the ECB decided to maintain itsrefinancing, lending, and deposit rates at 4.25%, 4.50%, and 3.75%, respectively. The ECB announced it would maintain the reduction in its pandemic emergency purchase program (PEPP) balance sheet at a pace of 7.5 billion euros and stop reinvesting principal payments once the year ends. Regarding inflation, the Central Bank mentioned that – in line with its expectations – the inflation outlook is being affected by high wages, while domestic pressures remain high, service inflation is elevated, and general inflation is likely to stay above the target level for the next year. Thus, the European Central Bank emphasized that it is not committed to any predetermined rate cut path and that all decisions will be data-driven. In a press conference, ECB President Christine Lagarde stated that there is still noconsensus concerning the next decision, which is scheduled to take place in September.

Markets and Companies

The S&P 500 and Nasdaq are trading higher after decliningyesterday. Markets are digesting the second-quarter 2024 corporate earnings reports as well as company outlooks. Throughout 2024, the market has been driven by the rise of large-cap technology companies, though recently, there has been a notable increase in mid and small-cap stocks, boosted by expectations of interest rate cuts being carried out in September. In Europe, stock markets are up as they absorb the European Central Bank´s latest monetary policy decision, which kept interest rates unchanged, as expected, citing ongoing inflationary pressures. In Asia, markets recorded negative figures.

In the debt market, the yield on the 10-year Treasury bond stands at 4.17%, recording an increase as the market absorbs comments from various Fed members indicating that an interest rate cut may be near, though this would depend on inflation trends.

Regarding commodities, oil prices are declining after reports showed US crude inventories decreased last week. Meanwhile, gold continues to increase amidst growing expectations of a Federal Reserve interest rate cut in September.

In Mexico, the IPC is trading higher, standing at 53,781.0 points. The peso-to-dollar exchange rate is at 17.79 after closing at 17.69 yesterday.

Yesterday afternoon, Femsa announced it reached an agreement with Mill Point Capital to divest its refrigeration and food service equipment operations, Imbera and Torrey, for a total of $8,000 million MXN.Although the amount represents around 1% of Femsa’s total revenues for 2023, the transaction marks an additional step in the execution of the Femsa Forward plan. The transaction is subject to regulatory approvals and other customary conditions, and is expected to close in the coming months.

Arca Continental published its 2Q24 results this morning. Net sales increased by +4.7% (+8.7% excluding exchange rate effects), and the consolidated volume remained stable compared to 2Q23 (+0.1% excluding large water jugs). At the profit level, EBITDA increased +7.5% year-on-year, and the margin stood at 20.7%, reaching the highest margin in the last 7 years.

At the end of 2Q24, Fibra Prologis reported an occupancy rate of 98.4%, with revenues increasing by 11.5% year-on-year, and by 19.2% when measured in dollars. Funds from operations (FFO) increased by 21.6% year-on-year, which we consider to have a positive implication.

Corporate News

• Domino’s Pizza reported mixed quarterly results. Comparable unit revenues showed slightly less growth than expected, though profits exceeded expectations. The company’s shares fell by about 11%.

• United Airlines shares showed a rebound after reporting a 23% year-on-year profit growth; however, its profit guidance for the current quarter fell short of expectations.

• According to media reports, Warner Bros is considering various actions to boost the value of its shares, including spinning off its streaming service.