The Day at a Glance | May 13 2020

Powell will give speech in Washington

Jerome Powell, Chairman of the Federal Reserve, will present his outlook regarding the US economy this morning through a Pearson Institute for International Economics webcast. His comments will come out in an important moment for the world`s largest economy, after the softening of confinement measures in most of the country`s states and resuming economic activities. The attention will focus on the recovery`s quickness that can be expected and the risks of new outbreaks. It`s expected that Powell will once again call on the government for greater fiscal stimuli, after unemployment has reached such high levels. Investors will also be focused on any signs of any future monetary policy, particularly regarding the possibility of seeing negative interest rates in the United States. In markets, there has been speculation on whether or not the FED will set negative interest rates before January of 2021, which is something similar that is happening in Japan and Europe. Nevertheless, Powell has repeatedly opposed the implementation of negative interest rates due to their harmful effect on the banking sector and credit expansion. Instead, he has preferred implementing tools that make use of the central bank`s balance (purchasing programs) and fiscal support on behalf of the government. In fact, Powell has not been the only one in the FED that has called for greater fiscal stimulus; various members of the FED have warned about the possibility of a long-term massive number of bankruptcies and unemployment if the government`s efforts are not enough to protect the economy from the virus`s impacts. The problems revolving around a growing deficit and debt would be secondary, according to the FED, as the most important part is preventing a more devastating economic blow. For the time being, Democrats have proposed a new $3 trillion dollar package; this was received with great skepticism by Republicans, as they show concerns about the deficit and debt.

AMLO will present a plan to reopen the economy

Mexican President Andres Manuel López Obrador will present the guidelines to reopen the Mexican economy this morning, once the peak is reached regarding the SARS-COV-2 virus. The plan will focus on reactivating the automotive sector, whose supply chains are strongly integrated with production in the United States. The General Health Council has approved the designation of the following sectors as essential: automotive, railway, aerospace, mining and construction – this is something that could have these sectors resume activities as soon as next week. The need to resume activities comes from – not only pressure on behalf of the US – but also from the goal of avoiding a greater economic cost because of the pandemic. In the last month and a half alone, close to 753 thousand jobs have been lost in Mexico, according to IMSS (Mexican Social Security Institute) figures. In April up to 555 thousand jobs were lost, the greatest loss since records exist. What stands out is that tourist regions were the most affected by unemployment, with Quintana Roo, Baja California Sur and Guerrero leading the loss in jobs. Of the 32 federal entities, 26 recorded contractions in employment; the most affected activities were construction (-15%) and mining (-5.5%). It`s expected that bad data will be seen in May due to the persistence of confinement measures and low demand.

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