The Day at a Glance | July 31 2020

The Top

· Recovery in China accelerates in July.

· Europe contracts (-) 12.1% in the 2Q20.

· Trump suggests delaying November elections; decision will be made by Congress and seems highly unlikely.

· No signs of progress in negotiations regarding a fiscal package in the US.

· Economic indicators: Preliminary figures show an acceleration in inflation in Europe at an 0.4% annual rate in July; meanwhile in the US inflation accelerated 0.8% annually (PCE, June).

Economic environment

Economic recovery in China showed acceleration in July, according to official PMIs. The boost came above all from manufacturing (51.1), which exceeded analysts` expectations due to an acceleration in construction. In the non-manufacturing sector there was a marginal deceleration (54.2) and the indicator maintains itself in firm expansion. With this, the composite indicator accelerated to 54.1 in July (vs 53.4 in June) and linked 3 consecutive expansionary months. The upturn in construction is due to heavy investments in infrastructure carried out by the government to back the economy. The industrial sector has continued to be the main source of the recovery since March.

The European economy recorded a historic contraction in the 2Q20, after official figures showed a (-) 12.1% quarter over quarter setback in the block`s GDP after the closure of businesses and the voluntary confinement measures carried out to contain the virus. The economy contracted (-) 15% annually, a fall larger than expected by analysts (-13.9%e.). Spain was the most affected country and recorded a (-) 22.1% annual contraction while France and Italy recorded (-) 13.8% and (-) 17.3% contractions, respectively. Monetary and fiscal authorities have tried to boost a fast recovery with aggressive stimuli, but new COVID-19 outbreaks and the solvency of businesses threaten to delay this. The most fragile economies are the ones that depend highly on the tourism sector, such as Greece, Spain and Italy, while in the long run a high rate of unemployment threatens to become a burden for the European block`s economy. If sustained, the recent appreciation of the Euro (11% vs the dollar since May) could also lead to less dynamic manufacturing exports.