The Day at a Glance | October 21 2022

  • Rettail sales in Mexico surprisingly receded during August, a sign of a weakenining economy (-0.4% m/m; 4.7% annual). 
  • Markets expects ECB interest rates at 2.5% in March of 2023. 
  • US Treasurey bonds reached 4.31% and bond prices have decreased the most since 1984. 
  • Repulblicans could cut economic aid to Ukraine in case intermediary elections are won. 
  • Ex British Finance Minister, Rishi Sunak, leads the list of Liz Truss`s substitutions as Prime Ministers. 
  • Unemployment claims in the US dropped to their lowest level since September; reflect a strong labor force. 
  • The Biden Administration explores the possibilities of increasing restrictions regarding the artificial intelligence software intelligence exports and tech exports components to China. 

Economic environment 

A negative surprise. Mexico`s retail sales in August logged a surprising (-) 0.4 monthly contraction in August, contrary to expectations of a 0.3% rate progress. At an annual rate, sales have increased 4.6%, way above the estimated 6.1%e. If retail sales recovered their pre-pandemic sales in the first months of 2022, the last four months have logged stabilizations and August`s figures seem to confirm a weakness in consumption. Even though one month isn`t enough to determine a trend, figures reinforce the idea that the second half of 2022 will be much less optimistic regarding Mexican growth. 

Interest rates in Europe. According to a Bloomberg Survey, most economists expect the European Central Bank to increase the interest rate in 75bp in the central bank`s next meeting (Oct 27), and would add another 50bp in its December`s meeting, with which the European deposits rate would reach 2.5%. This would imply the fastest rates in the ECB, even despite the highly likelihood of a recession in the Block. 2/3rds of the surveyed economists consider that the ECB has reacted too late with respect to the upwards inflationary figure and should catch up to the short-term aggressive interest rates. Most members consider that a recession in the Eurozone should be enough to stop the central bank`s actions. Once it reaches 2.5%, the ECB could reconsider its rate increases. The ECB could also consider withdrawing liquidity from markets through a reduction in its balance sheet; something that economists expect to begin in the first quarter of 2023. Even though most don`t believe that the ECB will withdraw more than 30% of its current investments without causing adverse effects on markets. 

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