The Day at a Glance | September 20 2024

The Top

• In a unanimous decision, the Bank of Japan (BOJ) decided to keep its interest rate at 0.25%.

• China unexpectedly left its benchmark interest rates unchanged, frustrating market expectations that were prepared for greater stimulus after the Fed cut the federal funds rate by 50 bps earlier this week.

• China’s gasoline imports rebounded to three-month highs in August, while export volumes for fuel supply fell to five-month lows.

• According to a Reuters survey, most economists believe the US Federal Reserve will cut the federal funds rate by 25 basis points in both November and December.

• UK retail sales increased more than expected in August, and July’s growth was revised up, official figures showed on Friday.

• The International Grains Council (IGC) lowered its forecast for 2024/25 global wheat production, with a downgrade for the European Union largely offset by an improved outlook for Australia.

• Oil prices fell on Friday but are set to post gains for a second consecutive week following the start of the Fed’s rate-cutting cycle and the decline in global reserves.

Economic Environment

In a unanimous decision, the Bank of Japan decided to maintain its interest rate at 0.25%. The decision came amidst a recovery with some signs of weakness, as exports and industrial production remained stagnant, and private consumption continues to record a slight upward trend, despite rising prices. Similarly, residential investment was relatively weak, and public investment stagnated. In terms of prices, the consumer inflation rate (CPI excluding fresh food) stood in the 2.5% – 3.0% range, as services continued to rise, reflecting recent wage increases, while inflation expectations moderately increased. Regarding economic activity, the BOJ estimates that the economy will continue to grow above its potential. Looking ahead, the BOJ believes it´s necessary to pay attention to the development of financial and foreign exchange markets, as well as their impact on Japan´s economy, particularly on corporate behavior regarding wage and price increases. It´s estimated that currency behavior could have greater impacts than in the past. All in all, the statement was perceived by the market with a dovish bias, as it suggests that the Bank of Japan is in no hurry to raise interest rates in an environment characterized by a high level of uncertainty.

Markets and Companies

Main US stock indices edged down slightly, though they are on track to close the week with gains. In contrast, European markets are trading in negative territory, dragged down by declines in the automotive and tech sectors. Mercedes plummeted after lowering its 2024 forecast due to weaker demand in China. On the other hand, UK retail sales exceeded expectations with a 1% monthly increase in August. In Asia, markets mostly closed higher, led by the Nikkei 225, driven by the strengthening yen and the Bank of Japan’s announcement to keep its interest rate at 0.25%. Similarly, China decided not to change its benchmark lending rates.

In the commodities market, oil prices logged a slight drop but are set to close the week with gains. US crude inventories fell to their lowest level in a year, while optimism in the Chinese market is limited due to the economic slowdown. In contrast, gold prices reached an all-time high of $2,609 USD per ounce, fueled by the start of the Fed’s rate-cutting cycle, with forecasts expecting further cuts by year-end.

In the fixed income market, US bond yields rose on Friday, reflecting a better adjustment to the Fed’s 50-basis point cut. The 10-year bond yield settled at 3.74%, while the 2-year bond yield stood at 3.62%.

On the domestic front, stock markets are trading lower, with the IPC standing at 52,843.4 points. 

After fluctuating between 19.48 and 19.07 during the week, the exchange rate is trading at 19.38.

Fibra Shop announced a prepayment of 290 million pesos on its syndicated loan, originally for 2.45 billion pesos.Fibra Shop has made prepayments totaling 600 million pesos, leaving a remaining balance of 1.85 billion pesos on this loan. As a result, the debt-to-assets ratio decreases to 41% from 42%.

Corporate News

• US apparel and footwear company Nike announced the retirement of its CEO, John Donahue, with company veteran Elliott Hill set to take over the role.

• Logistics company FedEx dropped more than 13% after reporting a significant decline in profits and lowering its full-year guidance.

• US energy company Constellation Energy announced the reactivation of its nuclear plant at Three Mile Island to supply energy to Microsoft for its data centers.