The Day at a Glance | May 12 2021

The Top

*Inflation in the United States exceeded estimates in April: 4.2% annual (0.8% monthly).

*European Commission increases growth estimates for the EU from 3.8% to 4.3%; the economy would reach pre-pandemic levels at the end of the year.

*IEA warns that the demand for oil could exceed supply in the second half of the year despite the gradual normalization production by OPEC+.

*Industrial production grows 0.7% during March in Mexico (1.5% annual); manufacturing (3% m/m) and services (4.9%) lead growth.

*Credit supply slows down more than expected in China (1.47T yuan vs 1.6T yuan e.); Central Bank seeks to reduce debt and financial risk.

*Tensions in the Middle East escalate; Palestinians shoot missiles at Tel Aviv, Israelis respond by bombing Gaza.

*Non-payment of corporate bonds in the local Chinese market grows to record levels (15.5 billion dollars); government reduces financial backing for companies that don`t represent any systematic risk.

Economic environment

Inflationary figures in the US exceeded estimates and revived fears of inflationary risks. The Consumer Price Index surprised by recording a 0.8% monthly rate of growth (vs. 0.2% e.), which led the annual rate to 4.2% (vs. 3.6% e.). What was surprising is the fact that the rise in underlying inflation was also important and the rebound was not only centered in energy resources, nor in a low base comparison effect. Underlying inflation grew 0.9% monthly (vs 0.3% e.) and set at an annual rate of 3% (vs. 2.3% e.). Energy resources were the only ones to record a decrease during the month (-0.1%), but the rest of the components logged increases. The most notable ones were seen in the underlying component: Goods increased 2% month over month (used automobiles 10%), transportation services 2.9% (services 0.5%). The market`s reaction was strong as the dollar appreciated, stock indexes receded and interest rates increased. The data backs the idea that inflation could not just be temporary and that the FED should act ahead of time; even though confirmation of this trend for the following months will be necessary.

The European Commission revised its growth estimates upwards for the European economic block. The Institution forecasts a 4.3% rate of growth for 2021 (vs. 3.8% prev.) by incorporating the positive effects of the European Recovery Plan. The implementation of the package worth 800 billion euros will help the European Union`s GDP return to pre-pandemic levels at the end of the year, before previously estimated. Nevertheless, for economies such as Spain, France and Italy`s, a return to pre-pandemic levels is not expected until 2022. For this year, a rate of growth higher than 4% is expected to be logged for the European block. The Recovery Plan is expected to contribute 1.2% to GDP growth in 2021 and 2022 and will boost public investment to its highest level in a decade. The recovery will also be backed by vaccine programs: Around 29% of Europe`s population has received at least one dose of the vaccine. The European Central Bank will update its own growth estimates in June.