Mexico’s Ministry of Finance will present the 2027 Economic Package today, with deeper fiscal consolidation expected to be its central focus amid weak growth and mounting spending pressures. Attention will center on how the government plans to reconcile this adjustment with rising pension expenditures, debt-servicing costs, social programs, and Pemex’s financing needs, without a comprehensive fiscal reform.

Our Take More than the announced targets themselves, the package’s credibility will depend on the composition and feasibility of the adjustment. For markets and rating agencies, it will be crucial to see a path capable of stabilizing debt, together with clearly defined support for Pemex, as a consolidation plan based on favorable assumptions or unsustainable spending cuts would keep perceptions of fiscal risk elevated.

China’s exports rose 25.0% year over year in August to $401.44 billion, driven by demand for technology and artificial intelligence-related products. Imports increased 28.2% to $282.36 billion, while the trade surplus widened to $119.09 billion. During the first eight months of the year, the cumulative surplus reached $805.5 billion.

Our Take The external sector continues to be one of the main pillars of the Chinese economy, in contrast with still-weak domestic demand. However, the size of the surplus and the strong increase in shipments to the United States could intensify trade tensions and raise the risk of additional restrictions, meaning this momentum is unlikely to come without costs.

German exports fell 0.8% month over month in July to €138.2 billion, their first decline in six months, although they rose 6.1% from a year earlier. The decline was concentrated in shipments to the European Union, China, and the United Kingdom, while exports to the United States increased 19.1%. The trade surplus widened to €21.3 billion, mainly due to a 5.7% drop in imports.

Our Take The widening trade surplus provides a weaker signal than the headline figure suggests, as it was driven by the sharp drop in imports rather than stronger exports. The rebound in shipments to the United States offset softer demand from Europe and China, but the recovery in Germany’s external sector still looks uneven and vulnerable.

The Japanese economy grew 0.4% quarter over quarter in the second quarter, above the initial 0.3% estimate, while annualized growth was revised from 1.1% to 1.4%. The revision reflected a smaller-than-expected 0.9% contraction in business investment, while private consumption remained flat and the external sector contributed 0.5 percentage points to growth.

Our Take The revision confirms that the Japanese economy retains growth momentum despite weakness in consumption and investment. Although the expansion remains heavily dependent on the external sector, the figure reduces the case for delaying monetary policy normalization and strengthens the possibility that the Bank of Japan will raise rates again in September.

Following this weekend’s U.S. bombing of Iranian oil tankers, today’s attack by the Houthis, who are backed by Iran, on Saudi Arabian energy facilities adds another layer of escalation, leaving more than 70 people injured. Brent is once again approaching $100, and prices are not expected to ease as long as the Strait of Hormuz remains blocked and shipping disruptions in the Red Sea persist.

Our Take The scenario from a few months ago, when markets were counting on a peaceful solution that would at least restore some degree of normality to the region by year-end, is fading, strengthening the case for crude oil to once again break above the $100 threshold.

Corporate news

Novartis shares plunged as much as 10% after the Swiss pharmaceutical company suffered its third clinical setback in a week. The latest disappointment involved del-desiran, an experimental treatment for myotonic dystrophy that failed to meet the primary endpoint in a Phase III trial and was acquired as part of the $12 billion purchase of Avidity Biosciences. The result increased concerns over the strength of its drug pipeline.

ASML secured commitments from the world’s leading chipmakers to use its latest semiconductor manufacturing equipment. TSMC expects to introduce it into mass production of advanced chips beginning in 2030, while Intel expanded its collaboration with the Dutch company. The agreements strengthen ASML’s outlook in the development of technology for increasingly advanced semiconductors.

Tamarack Valley Energy agreed to acquire Headwater Exploration for C$10 billion (US$7.24 billion), in a transaction that adds to the recent wave of consolidation in Canada’s oil sector. The deal reinforces the industry’s consolidation trend and seeks to capitalize on economies of scale in an increasingly competitive energy market.

The “to-do list”

  • Monitor developments in the U.S.-Canada trade dispute, after Trump threatened on Monday to ban the sale of Bombardier jets in the United States.

  • Keep an eye on the rebound in commodity prices. Copper hit a record high for a second consecutive session, while European natural gas is approaching a three-year high.

  • The yen is approaching its strongest level of the year against the dollar, a development that warrants close monitoring.

  • Follow the U.S. Treasury’s $58 billion auction of three-year notes, ahead of the 10- and 30-year offerings.

  • Remember that today marks another anniversary of the 200-peso banknote entering circulation as legal tender in Mexico in 2008.

Quote of the day…

“In a trade war, both sides lose; the only difference is who loses more.” — Milton Friedman