The Day at a Glance | Sep 9 2022

The Top

*Inflation in China increased less than expected during August (-0.1% m/m; 2.5% annual).

*FED will continue acting decisively: Powell; market considers a 75bp increase in the next meeting with an 86% probability.

*ECB members open to the possibility of carrying out another 75bp increase in October.

*SHCP submit the 2023 Economic Package to Congress; infrastructure and social programs remain as priorities.

*Demand for oil in China could decrease for the first time since 2002 due to the impact of recent confinements: Reuters.

*EU Energy Ministers will meet to define an emergency plan due to the scarcity of natural gas, they will discuss rationing, price limits and government support.

Economic environment

Energy crisis in the EU. This Friday, European Union energy ministers will meet in Brussels to define an emergency plan in efforts to sort the natural gas scarcity in the region before winter. Among the proposals are setting a price limit on imported natural gas prices (from Russia and any other part of the world), backing liquidity for power generating companies, temporarily suspending transactions in markets for energy derivatives in Europe, and rationing electricity during peak hours. The most controversial proposal is the one that considers setting a price ceiling on gas, which has been criticized by various members of the EU as it doesn`t directly solve the problem. Regarding rationing energy, the measure could be partially implemented as current inventory levels are sufficient and climate forecasts for October and November suggest that there will not be an extraordinary demand that would prevent high inventory levels to continue towards winter. Europe entering a recession and a decrease in demand could also contribute to rationing. 

Inflation in China decreases. Consumer prices in China surprised markets by logging a (-) 0.1% drop in August and set at a 2.5% annual rate, under the estimated 2.8%. The decrease in prices in raw materials and less consumption due to confinements are behind the drop. Something that stands out is that inflation for producers also slowed down strongly by logging a 2.3% annual rate (vs 4.2% prev.; 3.2%e.). Weakness in data is positive as it confirms the notion that inflation is not a problem in China, but proves that there is weakness in the country`s domestic market. Low inflation gives the PBoC room for maneuver to increase monetary stimulus that will allow the country to exit the deep economic slowdown; although it`s likely that the central bank will avoid aggressive stimulus in order to maintain the Yuan stable, as China`s currency has receded 8% vs the dollar so far this year.