The Day at a Glance | October 23 2020

The Top

· European economy contracts during October due to the virus.

· Retail sales in Mexico grow under estimates during August.

· No signs of a fiscal agreement in the US before the elections; Trump slightly improves his chances of winning after the political debate.

· Economic indicators: PMIs in the US are expected to be published this morning (manufacturing 53.4 e., services 54.6 e.).

Economic environment

Data regarding the European economy shows a general contraction in economic activity during October. The virus`s outbreaks in the European continent have significantly affected the economy`s recovery during October and confirmed that a large part of the activity fell during the period (Composite PMI 49.4 Oct. vs 50.4 Sept.). The strength in the manufacturing sector (57.8), which reached its highest level of activity in the last 32 months, was overtaken by an important contraction in the services sector (46.2, its lowest level in 5 months) and led the economy to record its first contraction since June. This data increases the likelihood of seeing a new contraction in the European economy in the 4Q20; the difference between sectors was a phenomenon seen throughout the entire region. Employment and price sub-indices continue to show trends of jobs being cut and deflationary pressures on the block`s economy, even though at a slower pace compared to what was recorded in April. The contraction in the economy during October was limited and is far from being comparable to what was seen in the 2Q20, but it reinforces the idea that greater stimulus carried out by the ECB will be necessary as expectations anticipate increasing mitigation in November.

Retail sales in Mexico increased a monthly 2.5% during August, according to INEGI figures. Sales remained (-) 10.1% under what was seen in the same month last year. Both figures set below estimates (3.5% e. monthly; -9.7% e. annual) and confirmed a slower than expected recovery in consumption. Retail sales have showed an important yet slowing recovery since June. It`s considered that this is one of the economy`s components that will take longer to recover given the virus`s impacts on employment and income as well as the absence of fiscal stimulus in the country.