The Day at a Glance | May 17 2022

The Top

*Klaas Knot, member of the ECB, backs a 25 bp increase in European interest rates in July, but doesn’t discard a 50bp increase.

*Retail sales in the United States increased 0.9% during April.

*Europe´s economy grew more than initially estimated in the 1Q22 (0.3% q/q vs 0.2% prev.); employment increased 0.5%.

*India bans wheat exports to guarantee food security in the country; the price of wheat increased to its highest level since March.

*Russia announced easing in capital controls: It increased limits on international transactions.

*Economic indicators: Industrial production figures will be made known in the US (0.4%e., Apr.).

Economic environment

Expectations of aggressive monetary normalization in Europe.In comments made in the last few hours, Klaas Knot, member of the ECB´s Governing Board, became the first member of the central bank to suggest that a 50bp interest rate increase is on the table for July´s meeting. Even though the Dutch member backs a more moderate increase (25bp), the fact that he doesn´t discard a more aggressive hike starts to increase expectations of higher rates in the Eurozone. The Euro appreciated 0.8% in light of the news and markets are taking into account an increase of up to 106bp by December of 2022 (vs 86bp last week). The comments made reveal a fast change in the stance taken by members of the ECB in order to contain inflation. Knot´s comments echoed statements made by other members of the ECB that have started to announce the possibility of interest rate increases starting in July, including the ECB´s President, Christine Lagarde.

Retail sales increased in the United States. The most recent data on retail sales suggests that US consumer spending maintains a strong growth trend despite inflation. Retail sales increased 0.9% month over month in April, in line with estimates; while March´s figures was revised upwards (1.4%). Excluding the most volatile components, sales increased up to 1% month over month. Growth in sales was widespread – the largest increases were seen in shops (4% monthly), motor vehicles (2.2%), e-commerce (2.1%), and food (2%). Demand for goods seems to remain strong despite high inflation, which has affected commodities. According to recent data made known by the FED, a large part of spending is financed by credit as savings continue to slow down from the record high levels seen during the pandemic.