The Day at a Glance | July 24 2020

The Top

· China orders the US Consulate in Chengdu to close.

· Europe continues to show recovery during July.

· The Mexican economy contracted 21.6% annually during May.

· Republicans postpone publishing the fiscal proposal until Monday; they do not reach agreement with the White House regarding its details.

· Economic indicators: US PMIs are expected to show expansion (51.5 e. manuf.; 51 e. serv.).

Economic environment

China responded to US actions and ordered the American Consulate in Chengdu to close, after the US Department of State ordered the Chinese Consulate`s closure in Houston for suspicion of espionage and interference in internal affairs. The Chinese Foreign Ministry assured that the action is legitimate and necessary. Chengdu is the capital of Sichuan and the American consulate in the region has been fundamental for following up on geopolitical events in Tibet. China accused it of being a threat to its national security and interfering with its internal affairs, a justification similar to the US. China`s decision to close Chengdu`s consulate over Hong Kong`s or Shanghai`s shows its intentions of limiting its negative effects regarding the escalation of diplomatic tensions. Nevertheless, it confirms a sensitive deterioration in the relationship between the two.

The European economy has once again showed economic expansion during July, according to the most recent figures published by IHS/Markit. The composite index reached all-time high levels in a little over two years (54.8), with just as strong expansions in manufacturing (54) and services (55.1). The data reflects the normalization in economic activity in the region and shows a slight improvement in demand, as new orders seem to show growth since February. This is a promising start for the 3Q20 and a sign of a firmer recovery. However, the loss in employment reached its highest levels in manufacturing since 2009, and showed only a slight improvement in the services sector; overall, 4 consecutive months of setbacks in employment have been recorded. It`s feared that the recovery has lost its momentum, as many companies still have negative expectations moving forward, with doubts of a demand that remains weak even compared to the pre-pandemic period, which increases uncertainty about a sustained recovery. Next week the 2Q20 GDP will be published, which is expected to show a (-) 12% contraction in the European block.

The Mexican economy recorded a deeper contraction in May, according to INEGI figures, which showed a (-) 2.6% monthly setback in the Global Indicator of Economic Activity (IGAE, for its initials in Spanish). The annual contraction was greater than expected (-21.6%e) and confirms downwards revisions concerning growth estimates for 2020. Primary activities were the only ones that recorded growth (1.6% monthly, 2.5% annual), while the industry (-1.8% monthly; -29.7% annual) was the most affected, and the service sector contracted more deeply (-3.2% monthly; -19.1% annual). The figures show that the virus`s negative economic impacts extended to May and worsened with respect to what was seen in April, even though June is expected to show recovery. The speed of a recovery will greatly depend on the US activity`s revival, with expectations of a slower recovery regarding the domestic market due to the absence of fiscal stimuli, an increasing level of unemployment, and a relatively low level of consumer confidence. According to the most recent INEGI surveys, a little more than 15 million Mexicans saw their incomes decrease because of the pandemic.