The Day at a Glance | July 8 2021

The Top

*Inflation in Mexico recorded a 5.88% rate in June, close to estimates (5.86% e.).

*The Chinese economy is weaker than expected, authorities prepare new stimuli.

*US shows concerns regarding Mexico`s energy policy in a trilateral meeting.

*ECB increased its inflationary target to 2% and pointed out that it will temporarily allow larger growth in prices.

*This morning, the Central Bank of Mexico`s meeting minutes will be made public.

*Japan declares state of emergency due to the delta variant`s spread; it will not allow spectators to attend the Olympics.

*Virus in Europe could impede a recovery in France, Spain and Italy; the tourism industry could be affected.

Economic environment

Inflation in Mexico accelerated slightly above estimates during June. Inflation surprised markets less than in previous months with an annual 5.88% rise in June and a 0.53% monthly increase; practically in line with the estimated 0.51%. Nevertheless, merchandise (0.65%) and services (0.48%) logged their largest monthly increase in the year and set underlying inflation at 4.58% annual (0.57% monthly). Energy prices (0.71%) and agricultural goods (0.05%) had marginal increases during the moth, which helped the figure barely exceed estimates. Persistence in underlying inflation will continue being a main concern for the Central Bank of Mexico throughout the rest of the year. This morning, the Governing Board`s most recent meeting minutes will be made public. Markets will look for signs of future rises in interest rates this year after the bank surprisingly decided to prevent changes in inflationary expectations and a greater diversion regarding the expected trend in inflation.

Beijing is concerned about China`s growth. Chinese authorities have issued a press statement through the State Council, in which they revealed that they are preparing new stimuli for the economy as growth figures in the following months could be disappointing. Growth in China has become more moderate in 2021, but it appears to be decelerating more than expected, which has forced authorities to change their rhetoric regarding the need for stimuli. China`s deceleration has also raised red flags for other economies in the world that left the pandemic behind after China did – and that show a slower recovery at a worldwide level. Beijing pointed out that companies could need additional funding to continue their recovery while the central bank prepares to cut capital requirements among banks in order to boost credit once again. The news, along with an accelerated spread of the delta virus at a global level, has renewed risk aversion among markets.