The Day at a Glance | July 24 2024

The Top

• Inflation rose to 5.61% in the first half of July due to increases in volatile items.

• Eurozone PMI´s show that the European block´s recovery faded in July.

• According to a Reuters poll, Vice President Kamala Harris gained a marginal two-percentage-point lead over Republican Donald Trump after President Joe Biden ended his re-election campaign.

• The Bank of Japan is likely to discuss raising interest rates when it meets next week and reveal a plan to halve bond purchases in the coming years.

• Oil prices rose on Wednesday but remain near their lowest levels in six weeks, with few signs of the fuel consumption increase that´s usually seen at this stage of the Northern Hemisphere summer.

Economic Environment

Inflation rose to 5.61% in the first half of July due to increases in volatile items. INEGI reported that the National Consumer Price Index for the first half of July showed a bi-weekly change of 0.71%, well above our estimate and the consensus at 0.42% and 0.47%, respectively. Annually, general inflation in the first half of July was 5.61%, higher than the 5.17% logged in the second half of June and the 4.78% recorded in the first half of June. Meanwhile, core inflation, which excludes the most volatile items, like energy, agricultural products, and government tariffs, grew by 0.18% in the first half of July, very close to our estimate (0.16%) and the consensus forecast (0.19%). Annually, core inflation was 4.02% in the first half of July, below the 4.08% recorded in the second half of June and the 4.17% logged in the first half of June. By components, goods set at 3.08% year-on-year (previous 3.24%) and services at 5.17% year-on-year (previous 5.12%). Regarding the most volatile items, i.e., non-core inflation, an annual rate of 10.64% was reported for the first half of July, compared to -0.97% year-on-year in the same biweekly period of 2023. Additionally, INEGI announced that starting with the data for the first half of August, the index will be updated with the new basket and its weightings. The rise in inflation in the first half of July is mainly due to increases in tomatoes, LP gas, and onions, as these contributed 30 basis points out of the 71 that the index increased during the biweekly period, so we cannot rule out a future reversal in these prices since they are highly volatile. In any case, core inflation continues to decline, although the services component remains very high.

Eurozone PMI´s show that the European block´s recovery faded further in July. The Eurozone´s composite PMI stood at 50.1 points in July, lower than June´s 50.9 figure and recorded a five-month low. In a disaggregated manner, the manufacturing PMI set at 45.6 points, below the estimated 46.3, marking 16 consecutive months below the 50-point threshold. Meanwhile, the services sector index recorded its lowest level in four months, dropping from 52.8 points in June to 51.9 in July. Overall, business activity in the Eurozone stalled in July as the block’s economic recovery continued to fade.

Markets and Companies

Main stock indices in the US are down, as they digestquarterly reports from Tesla and Alphabet, mega-cap companies that saw a drop in their stock prices after releasing their results. So far, about 20% of the companies in the S&P 500 have reported, with 80% exceeding earnings expectations. In Europe, stock markets were trading lower, assimilating corporate reports. Today, numbers from Deutsche Bank, BNP Paribas, and Santander are expected.

In the debt market, the yield on the 10-year Treasury bond stands at 4.22%, logging a decline from yesterday, as investors await the inflation figure to be published this Friday.

In Mexico, the IPC is down and stands at 53,675.8 points.

As for the exchange rate of the peso against the dollar, it stands at 18.38 after closing at 18.15 yesterday.

Alsea reported its results yesterday afternoon, with revenues increasing by 2.3%, driven by a 9.0% growth in same-store sales, although unfavorable exchange rate effects were observed. Pre-IFRS16 EBITDA grew by 7.6%, although net profits fell to $157 million, compared to $475 million the previous year.

Liverpool published its 2Q24 results yesterday afternoon; it was a positive report. Revenues increased by 9.8%, driven by good merchandise availability and an effective commercial strategy. EBITDA grew by 6.7%, although the margin declined by 50 basis points, while net profit increased by 32.2%.

Femsa published its 2Q24 results this morning. Revenues increased by 12.2% year-on-year due to growth in most business units. In terms of profits, Adjusted EBITDA increased by 16.7%, and the margin advanced by 60 basis points.

Chedraui will report its 2Q24 results this afternoon. We expect moderate results with a 6% revenue increase in Mexico driven by a positive same-store sales indicator. In the US, a sequential improvement in revenues is expected due to more moderate exchange rate effects. At a consolidated level, we anticipate a 4% revenue increase and a low to mid-single-digit increase in EBITDA, maintaining the EBITDA margin in line with 2Q23.

Walmex will publish its 2Q24 results this afternoon. We anticipate that Walmex will report mid-single-digit revenue growth in Mexico, possibly surpassing the comparable ANTAD indicator. In Central America, same-store sales growth will be partially offset by unfavorable exchange rate effects, estimating around a 6% increase in revenues and EBITDA, with stable margins compared to 2Q23.

Gfnorte reported a 13.2% year-on-year growth in its loan portfolio during 2Q24, while the financial margin before provisions increased by 12.0% year-on-year and net profit by 7.1% year-on-year. The report was practically in line with expectations. At the MIN level, pressure was observed due to the impact of the valuation of the UDIS position in the pension business. The ROE for the quarter remained high at 23.3%.

Corporate News

• Alphabet’s shares declined after it released its quarterresults. The company reported better-than-expected earnings, but YouTube’s advertising revenue fell short of expectations.

• In 2Q24, Tesla’s earnings set below the consensus estimate. 

• AT&T’s shares rose after the company reported a 3% increase in the number of mobile phone subscribers.