The Day at a Glance | September 12 2024

The Top

• The European Central Bank cut its deposit rate and kept its inflation estimates unchanged.

• In the US, PPI inflation came in higher than expected but remains consistent with declining inflation.

• In the week ending September 7^th, initial unemployment insurance claims in the US stood at 230,000, logging an increase of 2,000 from the previous week’s 228,000.

• The Bank of Japan should raise interest rates to at least 1% as soon as the second half of the next fiscal year, said official Naoki Tamura on Thursday, reinforcing the bank’s commitment to a gradual tightening of monetary policy.

• According to the International Energy Agency (IEA), global oil demand will grow less than previously anticipated this year, driven by China’s weakness, reinforcing the view that consumption is heading toward a plateau this decade.

Economic Environment

The European Central Bank cut its deposit rate and kept its inflation estimates unchanged. The ECB announced its monetary policy decision and updated its macroeconomic outlook. Regarding monetary policy, it lowered its deposit rate by 25 basis points to 3.50%. Additionally, the ECB announced changes to its monetary policy operational framework, effective September 18^th, highlighting that the spread between the refinancing rate and the deposit rate will be 15 basis points, while the spread between the lending and refinancing rates will remain unchanged at 25 basis points. As a result, the refinancing rate will be set at 3.65%, and the lending rate at 3.90% next week. For its macroeconomic outlook, the ECB maintained its headline inflation estimates unchanged from those presented in June, forecasting an average of 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026. The bank also noted that it expects inflation to rise again at the end of the year due to energy base effects. For core inflation, the ECB slightly raised its forecasts to 2.9% in 2024, 2.3% in 2025, and 2.0% in 2026. Regarding the Eurozone´s growth, the ECB estimates that the economy will grow by 0.8% in 2024, 1.3% in 2025, and 1.5% in 2026, slightly below previous forecasts. As for future rate movements, the ECB stated that no course is predetermined and that decisions will be entirely data-dependent, suggesting that they are closely monitoring inflation trends and awaiting better inflation readings before taking action.

In the US, PPI inflation came in higher than expected but remains consistent with declining inflation. The Bureau of Labor Statistics (BLS) released its producer price index (PPI) inflation figures for August, showing a month-over-month increase of 0.2%, slightly above the market consensus of 0.1% and last month’s 0.0% change. Core PPI inflation, which excludes food, energy, and trade services, posted a 0.3% month-over-month increase in August. On an annual basis, PPI inflation stood at 1.7% (prev. 2.1%), while core PPI was 3.3% (prev. 3.2%). Overall, US producer prices rose slightly more than expected in August amidst higher service costs, but the trend remained consistent with declining inflation.

Markets and Companies

Main US indices are logging mixed figures as investors digest new inflation data. On Thursday morning, the August PPI index was released, showing a monthly increase of 0.2% in wholesale prices, in line with expectations and recording a slight acceleration from the previous month. This data suggests a cooling in the US economy, providing some relief against earlier recession concerns. In Europe, markets reacted positively to the European Central Bank’s decision to cut interest rates again by 25 basis points, bringing the benchmark rate to 3.50%. The outlook continues to point towards a rate cut by the Federal Reserve, with a probable reduction of a similar magnitude. Asian markets also rose, with the Nikkei up 3.4%, led by a tech rally, and inflation data from India is expected soon.

In commodities, oil prices rebounded due to the impact of Hurricane Francine, now downgraded to a tropical storm, which could reduce US crude production by 50,000 barrels per day in September. Gold prices remain above their closing value.

In the fixed income market, investors are anticipating a 25-basis-point rate cut by the Fed, placing the 10-year bond yield at 3.66%, while the 2-year bond yield is at 3.64%.

Meanwhile, the Mexican market opened slightly higher, with the IPC standing at 51,244.7 points.

After the dollar closed at 19.80 pesos yesterday, it now stands at 19.82 pesos.

América Móvil reported that its subsidiary Telcel was fined $90.6 million pesos by the IFT. The sanction stems from an investigation launched in 2021 for alleged monopolistic practices in the marketing of telecommunications and mobile services in Colima, Jalisco, and Michoacán. Telcel denied the accusations and announced that it will challenge the fine using all available legal resources.

Corporate News

• US airline Alaska Air Group raised its profit forecast for the third quarter, driven by strong summer demand.

• Shares of biotechnology company Moderna fell after announcing plans to cut expenses and anticipating the launch of 10 new products this year.

• US Bancorp announced a dividend increase, along with a $5 billion share repurchase plan.