The Day at a Glance | May 19 2022

The Top

*The ECB`s minutes confirmed there is concern of inflation and monetary normalization that will start soon.

*The cost of financing public debt in Mexico surpassed the expected amount by 2% in the 1Q22 in light of higher interest rates.

*Economists cut growth estimates for China to 4%; its worse scenarios forecast a mere 2% rate of growth in 2022.

*China is having conversation with Russia to buy oil for strategic reserves.

*Indonesia will lift palm oil export restrictions starting Monday.

*China wars that the US backing Taiwan could lead to a dangerous situation.

*Economic indicators: Existing home sales in the US will be made known (5.65M vs 5.77M prev.).

Economic environment

ECB meeting minutes. The European Central Bank`s meeting minutes (Apr 14th) showed concern among its members regarding high inflation. Because of this, conversations were focused on how fast and strong monetary conditions would be adjusted in future meetings. A consensus has been reached regarding the withdrawal of stimulus, but it`s still being debated how fast the process should be carried out. On one hand, several members argued in favor of fast and decisive actions in order to prevent inflationary expectations from continuing to increase, with the risk of an un-anchoring of said forecasts. In this sense, the asset purchasing program would come to an immediate end and would allow interest rate increases to be made in the short term. Other members argued for a more patient stance – in favor of a more gradual monetary normalization process. The proposition considers a slower process that would take the interest rate to a neutral level without implementing a restrictive monetary policy. Some estimates presented in the meeting suggest that the neutral rate remains in negative territory, which suggests that the rise in rates should not be very aggressive. Overall, members are worried about the uncertainty regarding the neutral rate, an undefined and un-observable factor that increases the difficulty in the decision to carry out a monetary normalization process. With inflation set at record levels (7.4%), several members have confirmed in recent weeks that they are leaning towards increasing rates in July, which means that the end of the asset purchasing program could be announced in the ECB`s next meeting – and the start of the increasing rates cycle would be announced right after. The meeting, scheduled to take place on June 9th, will be crucial in this sense; in addition to new macroeconomic forecasts that the ECB will make public.