The Day at a Glance | Sep 30 2022

The Top

*Inflation in Europe exceeded estimates and increased to a record, double-digit level (10% annual vs 9.7%e.).

*China`s economic recovery loses momentum; PMI`s point towards an improvement in manufacturing but a setback in services.

*Putin signed documents to annex Eastern Ukrainian territories.

*(PCE) inflation surprised to the upside in the United States during August (6.3% annual vs 6%e.).

*Most members of the ECB backed a second consecutive 75bp interest rate increase in October.

*Presidential elections will be held in Brazil on Sunday.

*Japan will have allocated 19.7 billion dollars in its intervention in the exchange market.

Economic environment

Inflation keeps increasing in Europe. The inflationary problem in Europe keeps intensifying, according to the most recent Consumer Price Index reading, which set at 1.2% monthly and reached a record 10% annual rate (9.7%e.). This is the fifth consecutive occasion in which inflation exceeds estimates and September`s surprise will maintain pressure on the ECB to continue carrying out aggressive interest rate increases. Once again, inflation among energy and food prices led the rise, but underlying inflation maintained its growing trend and reached a historical 4.8% and confirmed that inflation is now widespread. Broken down by country, inflation surprised to the downside in Spain (9.3%) and France (6.2%), but was greater than expected in Germany (10.9%) and Italy (9.5%). In light of persistent inflationary pressures, several of the ECB`s members have backed continuing to increase rates to avoid inflation from becoming structural. This has also increased the likelihood of a recession occurring in the region, with the conflict in Ukraine still prevailing and risks of seeing higher energy prices during the winter.

China`s recovery loses momentum. The world`s second largest economy`s recovery seems to have lost momentum, according to official PMI`s. Manufacturing activities showed improvement during the month and left contractionary territory (50.1), with production in the sector expanding for the first time since June as a consequence of recent stimulus and less power cuts. However, the non-manufacturing PMI slowed down considerably (50.6), with the first contraction being logged in the services sector since May (48.9), a sign that restrictions implemented due to COVID-19 outbreaks and the energy sector`s crisis keep affecting local demand. The data suggests there was improvement with respect to the 2Q22, but the recovery doesn’t show signs of strength (3.5% annual e. 3Q22), which maintains expectations of slow growth in China.