The Day at a Glance | September 11 2020

The Top

· The United Kingdom signed a free trade agreement with Japan as Brexit negotiations are at risk of failing.

· China will sanction American diplomats in retaliation for similar measures by the US.

· Credit grew in China more than expected during August, which feeds expectations of a firm recovery in the economy.

· Economic indicators: Inflation in the US accelerates (11.3% vs 1.2% e.).

Economic environment

Inflation in the US continued to accelerate in August and linked three consecutive months of recording an upwards trend, a sign of a persistent recovery after a setback due to the pandemic. The Consumer Price Index recorded a 1.3% annual rate of growth (0.4% monthly), its highest level since last March. The largest increases were seen in prices of used automobiles (5.4%) and energy resources (2%), with underlying inflation also showing an acceleration to 1.7% annual (0.4% monthly). Other than energy resources and used automobiles, the rest of the components maintain very moderate increases (most of them under 0.3% monthly), with contractions in electricity (-0.2%), foods outside the household (-0.1%) and medical goods (-0.1%). The rate at which prices recover has been moderate with respect to June and July as the recovery is approaching its limits after the economy`s reopening. Next week the Federal Reserve will have a monetary policy meeting, which is expected to give new macroeconomic forecasts and a clearer guidance that links future increases in interest rates with more explicit inflation and employment levels.

The European Union has asked Boris Johnson`s British government to withdraw a local legislation proposal that goes against the agreement signed by both at the end of 2019 in less than three weeks. In recent days, the British government proposed a legislative plan that would allow government ministers decide which products that move towards the border with Northern Ireland would be subject to tariffs in case the UK abandons the European Union without a trade agreement at the end of this year. The proposal goes against an agreement reached last October to keep Northern Ireland as part of the UK, respecting regulations, tariffs and duties; especially when those goods are destined to go to the EU. Britain`s change in stance has been labelled by the EU as a lack of compliance to the original agreement and threatens to derail Brexit negotiations. Johnson`s government has not shown any intentions to comply with the European petition. This week the British pound has devalued in midst of growing risks of a disorderly Brexit at the beginning of 2021 and a higher likelihood of seeing cuts in interest rates carried out by the Bank of England to face the economic impact.