Minutes from the Federal Reserve's latest monetary policy meeting, published yesterday, Wednesday, showed that concerns over inflation have deepened, with several policymakers willing to raise interest rates and many arguing that higher borrowing costs would be necessary if inflation fails to decline toward the central bank's 2% target.

Our Take

The minutes reinforce a more hawkish tone from the Fed, showing that several participants still view further rate hikes as a possibility if inflationary pressures persist, with bullish implications for Treasury yields and the U.S. dollar.

The People's Bank of China kept its Loan Prime Rates (LPR) unchanged on August 20, at 3.00% for the one-year maturity and 3.50% for five years or longer, marking 15 consecutive months without changes and in line with market expectations. The seven-day reverse repo rate, the main benchmark for monetary policy, also remains unchanged since the May 2025 cut.

Our Take

The central bank does not appear to be in a hurry to lower benchmark rates or the reserve requirement ratio, so monetary policy rates are expected to remain stable throughout the rest of 2026. The pause comes despite weaker-than-expected July economic data, including declines in industrial production and retail sales.

Germany's Producer Price Index (PPI) increased 3.0% year over year in July, up from 1.8% in June, marking four consecutive months of gains and its strongest growth since April 2023. On a monthly basis, the PPI rose 1.1%, above the 0.9% expected by analysts.

Our Take

The sharp rebound in German producer prices reinforces signs of a possible resurgence in inflationary pressures, particularly due to higher energy and intermediate goods costs.

Later today, at 9:00 a.m., the minutes from Banco de México's latest monetary policy meeting will be released, during which the Governing Board decided to keep the overnight rate unchanged at 6.50%, a decision widely anticipated by the market. The main change in the statement was the adjustment to the expected inflation path, as the central bank postponed convergence toward the 3.0% target from the second to the fourth quarter of 2027.

Our Take

The focus will be on gaining greater insight into the arguments that led the Governing Board to change the inflation convergence timeline. In addition, the minutes could provide new signals regarding the central bank's forward guidance and help confirm whether the current pause in the monetary policy cycle will be extended for longer.

Corporate News

Walmart's report points to a slowdown in U.S. consumer spending, with comparable sales in the country growing just 2.6%, below expectations and representing the company's weakest growth in more than six years. Although revenue increased 5.9% to $187.94 billion and e-commerce grew 24%, consumer caution, particularly amid higher gasoline prices, pressured store sales. Walmart slightly raised its full-year outlook, but provided weaker-than-expected guidance for the third quarter.

Alibaba's report shows strong momentum in demand for artificial intelligence services, with revenue growing 9% and cloud and AI-related computing services increasing 45%. However, heavy investment in AI infrastructure, which drove capital expenditures up 75%, pressured profitability and resulted in a 38% decline in adjusted earnings.

The completion of Santander's acquisition of Webster for $12.5 billion significantly strengthens its presence in the U.S., where the bank now has eight million customers and $327 billion in assets. The transaction is expected to generate $800 million in synergies and increase earnings per share by 7% to 8%, further consolidating the U.S. as one of the group's key markets.

The to-do list

  • Follow Banxico's minutes at 9:00 a.m. The market will be looking for the arguments behind the delay in inflation convergence to the fourth quarter of 2027.

  • Monitor signs of a slowdown in U.S. consumer spending following Walmart's report, particularly trends in store traffic.

  • Tonight, prepare cochinita pibil tacos with pickled red onion and habanero, one of the most iconic dishes in Mexican cuisine.

  • Spend 30 minutes jumping rope or jogging at home, one of the most efficient forms of cardio when time is limited and the week is taking its toll.

Quote of the day...

"Don't count the days, make the days count."

— Muhammad Ali