Aurelia Butler

The seasonally adjusted S&P Global (NYSE:SPGI) Mexico Manufacturing Purchasing Managers’ Index (PMI) fell to 48.5 in July from 52.2 in June.Aside from a brief hiatus in May and June, Mexico’s PMI has lingered below the 50-point threshold that separates growth from contraction since March 2020. It hit a record low of 35.0 in April 2020 during the initial enactment of the country’s COVID-19 containment measures.The data showed a July drop in factory orders and lower sales, with pressure from drought, input shortages and inflation.The drop in manufacturing output also prompted a marginal drop in employment for the first time in four months.”Companies are now reporting trepidation over their financials, a factor which restricted input buying and led to the non-renewal of temporary contracts,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.Business confidence also dropped, with almost one-quarter of those polled predicting output levels would continue to fall in the coming 12 months, De Lima added.”Solvency concerns, alongside supply-chain constraints, the war in Ukraine and acute price pressures stifled business confidence in July.”Mexico’s central bank announced a record interest rate increase last month if an effort to control inflation, with more hikes expected. More

But policymakers must also contend with cooling economies, with U.S. post-COVID job creation possibly topping out and a gas supply crunch potentially throwing Europe into recession. Here is your week in markets from Dhara Ranasinghe, Karin Strohecker and Sujata Rao in London; Kevin Buckland in Ottawa and Lewis Krauskopf in New York. 1/ WINTER IS COMING Even as Europe confronts record-high temperatures, gas shortages have got officials bracing for a cold, dark winter.Russia’s Gazprom (MCX:GAZP) has cut flows through the Nord Stream 1 pipeline to a fifth of capacity, and the EU is urging members to curb usage and store gas for winter.European gas prices are up almost 200% so far this year and the longer this shock continues, the worse economies will fare. With Germany’s mighty industrial complex accounting for 36% of the country’s gas demand, business activity is slowing there and consumer confidence has hit record lows. Eurozone recession may arrive by early-2023, JPMorgan (NYSE:JPM) warns. European gas prices soar European gas prices soar: https://tmsnrt.rs/3vjIvjT 2/BOE-ING The Bank of England started early, but has raised rates in smaller steps than its peers which are tightening policy in 50, 75 and even 100 basis-point increments. But a half-percentage point rise to 1.75% is possible on Aug. 4, which would be the biggest since 1995.JPMorgan and HSBC are among those predicting a 50 bps move. While only three BoE policymakers favoured 50 bps at the last two meetings, data since then has shown inflation reaching 9.4%, a 40-year high. It could hit 12% by October – six times the BoE target.Governor Andrew Bailey has pledged to act forcefully if needed. Yet, given the BoE sees barely any UK economic growth before 2025, a Reuters poll forecasts, by a slim margin, the BoE will stick with 25 bps. The bank must then contend with the risk that a smaller hike triggers a sterling selloff, further fanning inflation. Under pressure: https://tmsnrt.rs/3oBbVWN 3/ U.S. JOBSA barrage of Federal Reserve rate hikes is slowing U.S. house price growth and forcing consumers to tighten their belts. Friday’s non-farm payrolls data will show whether it is also impacting the red-hot employment market.Given the Fed now favours a data-dependent approach over explicitly guiding markets on policy, the jobs figures and other numbers due over the next eight weeks until the next Fed meeting, carry added importance.Employers are already becoming less enthusiastic on taking on staff, with corporations from Tesla (NASDAQ:TSLA) to Goldman Sachs (NYSE:GS) warning of slower hiring.Analysts polled by Reuters estimate 255,000 jobs were added last month, following June’s forecast-beating print of 372,000. A far smaller number may bolster the view that the Fed has reached “peak-hawkishness.” [L1N2Z8227] Job market recovery: https://tmsnrt.rs/3S5L3M1 4/HIGHER DOWN UNDERTraders have eased off bets on a 75 bps Australian rate hike at Tuesday’s Reserve Bank meeting. But with inflation at the hottest in 21 years, a half-point hike looks like a done deal.    Latest data showed consumer prices climbing at a 6.1% annual pace, more than double the 2-3% target, and double the pace of wage growth. And Treasurer Jim Chalmers warns it will get worse before it gets better.RBA Governor Philip Lowe has indicated rates, currently at 1.35%, will rise toward a “neutral” level of at least 2.5%, though markets expect them to top out at 3.75%.Initially wrong-footed by flaring inflation, Lowe has overseen three consecutive hikes since May – the most aggressive action in decades. That tardiness, and the way it communicated its intentions, have prompted a government probe into RBA policies and governance. RBA looks for a path back to inflation target: https://tmsnrt.rs/3vlX46p 5/BRAZIL BREATHERThe four countries investors once grouped under the BRIC umbrella – Brazil, Russia, India and China – were always vastly different. That divergence shows up these days even in their relative monetary policy direction.Uber-hiker Brazil, which jacked up rates by 1,125 basis points since March 2021, is expected to keep the benchmark at 13.35% when policymakers meet on Wednesday and leave it there for the remainder of 2022 before easing in 2023. Meanwhile for India, a late entrant in the current round of global monetary policy tightening, the only way is up. The central bank intervened heavily in recent weeks to lift the rupee from a succession of record lows. A Reuters poll predicts Indian policymakers, who meet on Thursday, will lift rates from the current 4.90% by another three-quarters of a percentage points by end-year. BRIC policy rates: https://tmsnrt.rs/3JcL8ti More

BUENOS AIRES (Reuters) – Argentina’s incoming economy chief, the crisis-racked country’s third in a less than a month, may be its last best chance to right a sinking ship, or at least avoid further deterioration ahead of a high-stakes election next year.A Thursday cabinet reshuffle engineered by President Alberto Fernandez followed days of frenzied rumors over whether Silvina Batakis, named minister just a month ago after the shock resignation of longtime economy steward Martin Guzman, could survive. The job of tackling growing unrest in South America’s second-biggest economy after Brazil now falls to Sergio Massa, a congressional leader for the ruling Peronist coalition, who will oversee economic, as well as industrial and agricultural policy beginning next week.”It seems like their last chance,” said political analyst Andres Malamud, referring to government officials’ so far unsuccessful efforts to reign in sky-high inflation, over-spending and a plunging peso currency.Malamud described recruiting Massa for the expanded role as “more like a desperate bet than a reasoned one,” adding that cutting a widening fiscal deficit and rebuilding confidence must be top priorities.Massa told reporters on Friday that he will announce some new measures next week, though it remains unclear what they will be.Fernandez’s bitterly divided center-left coalition hopes Massa’s arrival will calm financial markets. The initial response was positive on Friday, with the stock market clawing back some losses.The government – and some observers – also hope he can help calm growing social unrest.”It seems to me that Massa and his skills can contain the street protests a little better,” political analyst Jorge Giaccobe said.The country, especially the capital Buenos Aires, has seen near-constant protest marches calling for measures such as a universal basic income or just more aggressive action to contain surging consumer prices.Giaccobe thinks more modest expectations should guide Massa.”It’s one thing to fix a problem, but another thing to not make things worse,” he said, as the government eyes a tough 2023 re-election battle.Batakis last week traveled to Washington to assure nervous finance officials including leaders of the International Monetary Fund (IMF) that the government remains committed to its $44 billion debt deal with the lender.The president sought to bolster his new “superminister” in posts on social media on Friday, touting Massa’s “vision, capacity and experience.”But political needs may ultimately complicate Massa’s ability to strike the right balance since any spending cuts, or other potentially painful fiscal medicine, could further damage a government that already finds itself backed into a corner. “In Argentina, there are two types of balance: political and economic, what suits the ruling class versus economic logic,” said economist Natalia Motyl.”Everything depends on which side prevails.” More

The chief executive of Esprit Holdings struck an upbeat tone as the company embarks on a global expansion, predicting the worst is over for fashion retail despite soaring inflation and supply chain pressure. William Pak said the fashion house was staging an ambitious comeback by returning to the US, Australia and mainland China, with new outlets opening in Shanghai and Los Angeles by early next year.Esprit, a Hong Kong-listed fashion retailer that reached its heyday in the 80s and 90s, recorded its first profit in five years with a HK$381mn ($48.5mn) net income.Part of its new strategy has been to distance itself from fast fashion giants such as Zara, H&M and China’s Shein and focus on producing more expensive, higher quality clothing. “This year is potentially the bottom of the retail market,” Pak told the Financial Times in an interview at the company’s Hong Kong headquarters on Friday. “We need to get to the front of this and not wait and be reactive”. Pak said indicators like the June US producer price index, which tracks the prices businesses receive for their goods and services, was a sign “that inflationary pressures will be easing soon”.The company said it hopes to win over China’s Gen Z population, with more localised products catering to the “China-chic” patriotic trend.The HK$3.3bn ($420mn) group, founded in 1968, had risen to become one of the world’s most recognisable brands, but had struggled to compete with fast fashion retailers.Over the course of the past decade, Esprit was forced to exit markets in North America, Australia and Asia. It shut hundreds of outlets as its chief executive admitted the brand had “lost its soul”. Most retail sales at Esprit last year came from Europe, with more than one-third of its stores in Germany. Part of its changing strategy is to reduce the number of fashion collections it releases each year and increase apparel quality. The fashion retailer, which moved its headquarters to Hong Kong last year, has gradually returned to Asia since February by launching online-only stores in South Korea, Hong Kong, mainland China, Taiwan, the Philippines, Singapore and Thailand. Physical stores are set to open in the US, Canada, Australia, Hong Kong and mainland China after a pop-up outlet was opened this year in South Korea.Its mainland China expansion comes as fast fashion titles are leaving the country under its tough zero-Covid regime.

Inditex, the parent company of Zara, is withdrawing its brands including Bershka, Pull & Bear and Stradivarius after closing physical outlets, while American Eagle Outfitters closed its ecommerce stores.“We can create a local specific capsule for mainland China once we do open. We can do the designs locally as well,” said Pak about China, where Esprit once boasted over 300 stores.Pak said the company has “no specific target” in terms of the revenue distribution in mainland China and Asia, but will see the markets growing “prudently” on its path to win back customers. More