The Day at a Glance | June 17 2021

The Top

*The risk of inflation being more persistent than we thought exists: Jerome Powell, Chair of the FED.

*The dollar strengthens at a global level after members of the FED revealed that two upwards adjustments could be made to interest rates in 2023.

*A 24.8% annual rate of growth is estimated in Mexico during May, according to the Timely Indicator of Economic Activity.

*September could be too soon to start discussing the withdrawal of stimuli: Philip Lane, ECB Chief Economist.

*Inflation in Europe was confirmed at 2% annually during May, boosted by services and energy.

*Initial jobless claims surprisingly increased in the US (412 thousand vs 359 thousand e.).

Economic environment

The FED has raised concerns for inflation and monetary normalization to occur sooner than expected. Yesterday, the United States Federal Reserve surprised markets with a message of less monetary laxity in the future. Despite the bank not carrying out any changes in its monetary stance, maintaining interest rates at 0%-0.25% and the asset purchasing program at its current rhythm, most of the FED`s members estimate that the rise in interest rates could occur in 2023, sooner than what was suggested in previous statements. The FED`s officials` average forecast points towards two increases in interest rates – of 25bp each – in 2023, something that has led markets to move their expectations of monetary normalization forward. Additionally, in a press conference, Chair of the FED Jerome Powell acknowledged that discussions will start in the following months in order to define a strategy to withdraw stimuli, especially regarding the bond purchasing program; even though he reiterated that they would send clear signs to the market before carrying out any decision. Lastly, Powell also talked about inflation. Even though the FED continues to consider that the recent acceleration in inflation is due to temporary factors, he acknowledged that disruptions in productive and supply chains could generate more persistent pressures on prices than originally expected, which is the risk of sustained inflation cannot be discarded. He assured that the FED is prepared to increase interest rates if necessary in order to contain inflation. The dollar then appreciated strongly at a global level.

Firm recovery in the Mexican economy after a year of the pandemic`s start. According to the Timely Indicator of Economic Activity (IOAE for its initials in Spanish), made public by the INEGI, the Mexican economy is expected to increase 24.8% annually in May. The data suggests that there is a faster recovery in the industrial sector – it`s recovery is estimated to set at 36.4% annually; while services are expected to grow at a rate of 19.8%. Month over month, growth in May is forecasted at 0.5%. Industrial activities could record a (-) 0.2% contraction with respect to April, while the recovery in services is expected to accelerate slightly with respect to the previous month (0.4%). The IOAE is the INEGI`s recently designed indicator – in order to give more timely data regarding the economy`s growth and seeks to give monthly GDP estimates three weeks after each month`s end. The indicator is constructed though econometric models that are fed by available data for the month in question.