The Day at a Glance | November 25 2020

The Top

· ECB warns European banks may need more bad-loan provisions.

· Retail sales grew more than expected in Mexico during September (2.7% monthly vs 2%e.).

· 33.1% growth was confirmed in the US economy during the 3Q20.

· Economic indicators: Jobless claims in the US surprise to the upside for a second consecutive week (778k vs 730k e.).

Economic environment

The European Central Bank published its Financial Stability Report, in which it assured banks in the region they should increase bad-loan provisions in order to buffer for potential credit losses once government aid given because of the pandemic comes to an end. According to the ECB, the provisions are less than those seen in other crises and those seen among US banks as a result of the low profitability among European banks and lower credit risk after liquidity injections were carried out. The concern is regarding difficulties to pay off acquired credit; which could put pressure on banks. The ECB is worried about the exaggerated appraisals of some financial assets as well as the latent risk of seeing important corrections among these assets` prices in case the pandemic lasts longer than expected or has more adverse effects than anticipated. The ECB`s warnings replicates those of the FED and the IMF regarding risks in the financial system. Lastly, the immediate financial risks of a possible disorderly Brexit are mostly contained for the ECB once the European Commission has allowed clearing houses in the UK to temporarily access the European market for the settlement for derivative transactions.

INEGI figures confirm a 2.7% monthly expansion in retail sales during September, figure above the 2% estimated by the consensus. With this, retail sales remain (-) 8% below what was logged in the same month of 2019. Sales linked 5 consecutive months of expansion and send a signal of a persistent recovery in consumption. Revised GDP figures for the 3Q20 will be published tomorrow as no important changes are expected regarding the estimate (12% quarterly; -8.6% annual).