Weekly Reports
Weekly Market Report
In the United States, in the run-up to a new decision by the Federal Reserve at the end of the month regarding the reference rate (currently in the range of 5.25%-5.5%), expectations will be on the June PCE inflation data, which represents the preferred measure for the Fed's decisions, and on the estimate of economic growth for the 2nd quarter, for which +1.7% annualized is expected. While the baseline scenario is for higher interest rates to prevail for longer, which keeps global fixed income yields attractive with maturities shorter than 3 years looking more suitable for conservative investors, an eventual Donald Trump victory in the November presidential election could extend this high rate scenario in the face of higher inflationary pressures. In this environment, Treasury yields widened across all maturities during the week, with the 1-year bond at 4.87%, the 3-year at 4.28% and the 10-year at 4.24%. Regionally, 10-year dollar sovereign bond yields in Brazil and Mexico ended at 6.26% and 5.53%, with no significant changes for the week.
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International
The week's focus in the United States will be on the release of the Personal Consumption Expenditure (PCE) price index -the Federal Reserve's benchmark for monetary policy decisions- with expectations of +2.5% year-over-year increases and +2.6% in the measurement without food and fuel. In addition, the 1st estimate of the Gross Domestic Product (GDP) for the 2nd quarter will be released, for which a +1.7% annualized growth is expected, while the corporate results season continues. In the Eurozone, the sectoral Purchasing Managers' Indices (PMI) for July will be released.
The European Central Bank (ECB) left the monetary policy rate unchanged at the current 4.25%, in line with expectations. The head of the entity, Christine Lagarde, confirmed that the next decisions will be based on the results so far, avoiding committing to a predetermined path. In this context, the yield of the 10-year German Treasury bond closed at 2.47%, while the euro closed at 1.09 per dollar.
In the United States, retail sales -an indicator of activity- for June were unchanged on a monthly basis, compared to the -0.3% expected; while they registered +2.3% y-o-y, slowing down the pace of increases for the third consecutive month. Meanwhile, industrial production was above expectations, rising +0.6% monthly and +1.6% year-on-year, the latter being the best performance since November 2022.
In this context, U.S. Treasury bond yields widened across the entire curve during the week. Thus, the 1-year went from 4.85% to 4.87%, the 3-year from 4.23% to 4.28% and the 10-year from 4.18% to 4.24%. Meanwhile, investment grade corporate bonds (ETF LQD) closed with an average yield of 5.4%. Meanwhile, equity indices closed lower for the most part, with the exception of the Dow Jones, which rose +0.7%.
With the Q2 corporate balance sheet season underway, Goldman Sachs, Bank of America, Morgan Stanley, Novartis ADR, Taiwan Semiconductor, Netflix, Johnson and Johnson and Abbott Labs, among others, reported higher than expected earnings per share (EPS) and revenue; meanwhile, BlackRock and American Express, beat EPS but not revenue estimates. This week, reports from Microsoft, Alphabet, Amazon, Tesla, Visa, Coca-Cola, Lockheed Martin, General Electric, IBM, Reckitt Benckiser ADR, among others, are expected.
Regional
The week's focus in Brazil and Mexico will be on inflation for the first fortnight of July, with the latest data showing increases versus the previous period of +0.4% +0.5%, respectively. Additionally, in Mexico, economic activity and retail sales for May will be released.
Regarding Latin American sovereign debt performance, 10-year dollar bond yields in Brazil and Mexico moved from 6.27% and 5.50% at the end of the previous week, to the current level of 6.26% and 5.53%, respectively.
In Brazil, economic activity grew +1.3% y-o-y in May, beating the market estimate (+1.1%) but slowing compared to April. On a monthly basis, it posted +0.3%, in line with expectations, accumulating +2% for the year. In this environment, the Bovespa index ended the week with a -1% decline.
Weekly Market Report
In the United States, June inflation slowed for the third consecutive month, coming in below expectations. Specifically, it registered year-on-year increases of +3% and +3.3% in the measurement without food and fuel, leading the market to estimate two cuts in the reference rate (currently in the range of 5.25%-5.5%) for this year, with a greater probability that the first one will take place in September. Although the Federal Reserve (Fed) has confirmed that it will remain cautious when deciding to relax monetary policy, this fact marks a change in market expectations, which had expected a first adjustment in November. Nevertheless, the outlook of higher rates for longer continues to favor global fixed income, as high and more attractive yields can be expected for bonds of excellent credit quality in general, with the short end being the most desirable and the most attractive for conservative investors. In this environment, Treasury yields compressed across all maturities during the week, with the 1-year bond at 4.86% and the 10-year at 4.18%. Regionally, the June consumer price index posted year-on-year increases of +4.2% in Brazil and Chile, below expectations in both cases, and +5% in Mexico, beating expectations.
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International
The week's attention in the United States will be focused on the publication of June retail sales, with an estimated -0.2% monthly decline, and industrial production for the same month, which is expected to increase by +0.4%. On the other hand, the European Central Bank (ECB) will hold its monetary policy meeting, and it is expected that the reference rate will remain at the current 4.25%. In the Eurozone, the final inflation estimate for June will be released.
In the United States, June inflation decelerated again for the third consecutive month, coming in below expectations in all measurements. Specifically, it came in at -0.1% and +3% y/y, versus estimates of +0.1% and +3.1%, respectively; while the non-food and non-fuel measure came in at +0.1% month-on-month and +3.3% y/y, when +0.2% and +3.4% were projected in each case.
With retail prices showing a downward trend in recent months, despite the strength still shown by the labor market and activity data showing some weakness, the Fed's implied interest rate futures estimate 2 cuts in the benchmark rate (currently in the 5.25%-5.5% range) this year, with a first adjustment in September.
In this scenario, U.S. Treasury bond yields showed significant compressions along the entire curve during the week. Thus, the 1-year went from 5% to 4.86%, the 3-year from 4.39% to 4.23% and the 10-year from 4.28% to 4.18%. Meanwhile, Investment Grade corporate bonds (ETF LQD) ended with an average yield of 5.4%. Equity indices closed positive, with the Dow Jones index closing with +1.6%, followed by the S&P 500 with +0.9%.
The corporate balance sheet season for the second quarter has begun, with Goldman Sachs, Bank of America, Morgan Stanley and Novartis ADR, among others, reporting this week. Overall, earnings per share are expected to rise +8.8% y-o-y and revenues +4.6%.
Regional
The week's focus will be on the publication of economic activity in Brazil and Peru for the month of May, with the latest figures showing year-on-year growth of +4% and +5.3%, respectively.
In Brazil, June inflation posted +4.2% y-o-y, accelerating for the second consecutive month, and +0.2% monthly, both lower than expected (+4.4% and +0.3%, respectively). Meanwhile, retail sales -a proxy for activity- in May rebounded +8.1% y-o-y versus the +4% estimated, and +1.2% monthly, exceeding the -0.9% expected. As a result, the exchange rate declined -0.6% to 5.4 reais per dollar during the week.
On the other hand, in Mexico, the June consumer price index rose +5% y-o-y and +0.4% monthly, above market expectations of +4.9% and +0.2% in each case. It is worth noting that prices have been accelerating since March, which has led the Central Bank to maintain the reference rate at 11% at its meeting at the end of June.
In Chile, retail prices rose +4.2% y-o-y in June, slightly below the +4.3% estimated by analysts' consensus; while they fell -0.1% m-o-m, versus 0% expected. In this context, the exchange rate fell -3.3% on a weekly basis.
Regarding the performance of Latin American sovereign debt, 10-year dollar bond yields in Brazil and Mexico moved from 6.60% and 5.80% at the end of the previous week, to the current level of 6.27% and 5.50%, respectively.
