The Day at a Glance | October 2 2020

The Top

· Donald and Melania Trump test positive for COVID-19.

· Employment figures disappoint in the US (661k vs 859k e.).

· IMEF confirms less weakness in the Mexican economy in September.

· Democrats approve a $2.2 trillion fiscal package with no bipartisan deal in sight; the likelihood of such an agreement is low.

· The virus`s spread at a worldwide level impacts oil prices: WTI sets under $37.

Economic environment

President of the United States Donald Trump and First Lady Melania Trump confirmed last night that they tested positive for COVID-19 after Hope Hicks, one of Trump`s advisors, confirmed having been infected. The President and his wife will remain in quarantine and start their recovery process. The President`s doctor has assured that Trump can continue with his regular activities in confinement, under surveillance by the White House medical team. Markets reacted; risky assets receding in the early morning. In case the President`s health deteriorates, Vice-president Mike Pence would assume the executive power until the President can resume. This news adds more uncertainty to the election and the political situation in the US and will force Trump to suspend campaign activities in the following weeks. Other than this, there is still a lack of a fiscal agreement between Republicans and Democrats, which threatens to leave the US economy without any further stimulus during the 4Q20; this could lead to a more aggressive slowdown. Recently published figures show an important drop in savings among American households after confidence in the second stimulus incentivized them to spend aggressively during the summer. This is far from being positive news for consumption.

The amount of jobs created in the US during September set below estimates, which suggests there is a more aggressive slowdown regarding the labor market`s recovery. The economy created 661 thousand new jobs during the period, which is considerably lower than the estimated 859 thousand. With this, the unemployment rate fell to 7.9% from 8.4% last month. The labor market`s recovery is maintained, however, at a slower pace; the number of jobs created in September is the lowest since May. August and July`s figures were revised upwards (+145 thousand). The permanent loss of jobs increased in 345 thousand to 3.76 million in total; the participation rate also set below estimates (61.4% vs 61.9% e.), which is a sign of a lack of incentives in the United States to look for employment. This is not a positive report in light of the start of the last quarter of 2020 as there is still a lack of agreement between Republicans and Democrats, which threatens to leave the US economy without a fiscal stimulus during the 4Q20. Figures published yesterday showed income has taken a hit as well (-2.7%) along with American household savings (14.1% of disposable income in August vs 17.7% in July) after unemployment aid programs came to an end and confidence in the second stimulus incentivized maintaining spending during the summer, despite lower income. Savings recorded their lowest level since May, which is far from encouraging news for consumption in the 4Q20 in light of the absence of greater fiscal stimulus and a slower recovery in the labor market.

Leading iMEF indicators confirmed improvement in the Mexican economy during September. The manufacturing index set at 46.4 (vs 45.5 prev.), even though it remained in contraction for the 16th consecutive month. Adjusting this indicator by company size, the indicator now shows expansion. More positive figures were seen in the non-manufacturing sector, whose activity increased to 49.3 (vs 46.7 prev.) and got closer to expansive territory; even though it linked 8 consecutive months of contraction. The data confirms the economy`s recovery during the 3Q20, even though at a moderate rate. Larger companies are also recoverin, according to the IMEF report.