The political race is heating up in the United States, and it is really embarrassing to see the contenders’ lack of quality and credibility.
President Biden seems to be deteriorating by the hour and commented while visiting the Maui fire disaster that provoked a general booing, even insults from attendees, and even the Democratic media began to doubt his competence. Speaking publicly with people who lost family members in the fire, he said he sympathized with them, as he had a similar situation 20 years ago when he had a kitchen fire and nearly lost his Corvette and his cat.
On the other hand, the evidence of corruption against his son Hunter is multiplying and already shows Biden’s participation in the “business” with China, Romania, Russia, etc., where the then vice-president also profited.
On the Republican side, there were new criminal charges against Trump, who was booked into jail in Atlanta for an alleged attempt to change the results of the 2020 election. It seems that nothing affects him to the extent that he had the luxury of not attending the first debate of the other eight contenders for the Republican nomination for the 2024 election, given that the polls put him ahead of the second place, Florida Governor De Santis, by more than 30 percentage points.
The United States suffered a downgrade of its sovereign debt rating to AA+, a symbolic move without great significance but meaningful in how political disputes affect the country’s economic stability, as was seen in the controversy over the increase in the country’s debt limit.
Only nine countries remain with AAA ratings: Australia, Singapore, Denmark, Germany, Luxembourg, Norway, Canada, Holland, and Sweden.
Today’s August employment report was released, and although unemployment rose to 3.8%, creating 187,000 new jobs was above expectations. It is obvious that the Fed’s interest rate hikes have failed to cool the economy and inflation, although they have been partially successful. The Fed’s fight will still last many months or years, as the head of the Central Bank reaffirmed the intention to return to a 2% annual rate hike at any cost.
On a positive note, productivity, i.e., goods produced per unit of labor, has reversed its negative direction and, by improving, is helping to combat inflation.
Although many companies disagree, remote work is still solid, with more than 40% of workers, except those working on production lines, still not physically attending the office. One study found that effective work is 7.7 hours a day in person and only 5.2 hours when remote.
An interesting survey indicated that 55% of Americans oppose continuing economic support for Ukraine in its war with Russia, and only 39% say they care about the outcome of that war.
Mexico has already defined that Xóchitl Gálvez will be the candidate for the Frente Amplio, and I feel that the selection was the right one. However, I do not see her much chance of success in the June election, where I believe Claudia will be the opponent.
The political machinery of Morena, having 22 governors who influence a lot of what happens at the state level, the 33 million checks sent every month, and the control of the government’s money are factors that I do not think Xochitl can overcome.
In addition, I am not sure that the low-level PRIista would vote for someone from the PAN, similar to the way an America soccer fan would never cheer for the Chivas, even if they were told to do so by the management.
The country’s economy has sent mixed signals, but it cannot be said that Mexico is in bad shape since growth, which looked weak, has rebounded. The year should end between 2 and 3%, with an inflation rate of 4.66%, better than the expectations for the United States and other first-world economies.
First, Let us list the positive things reported in Mexico during August.
- Remittances were up 8%, a significant increase, but it does not translate into much more income when converted to pesos with the currency so strong.
- Tax collections of 154 billion pesos in 7 months, 6% above the same period in 2022.
- Good reports from INEGI and Coneval, where economic level inequality has improved slightly, and poverty was reduced from 43% to 36% of the population, with extreme poverty dropping from 9% to 8%. On the other hand, the same report pointed to a deterioration in education and health. At the same time, data was given on income, where the quarterly average is $4,080.00, while that of the poorest is $783. The real growth of average income, i.e., after inflation, between 2016 and 2023 was only 0.6%.
- During the first half of the year, foreign direct investment was 29 billion dollars, 5.6% better than in 2022, although most were in financial investments rather than creating new factories.
- ANTAD, an organization that groups retail companies such as supermarkets, self-service stores, etc., reported an increase in retail sales.
- The Supreme Court of Justice again demonstrated its independence from the executive by authorizing INAI to make decisions with only four commissioners, as there have been three vacancies for many months, and the most important resolutions require a quorum of 5 members.
Turning to the negative news:
- Reports from airlines and hoteliers indicate a slowdown in the number of domestic and foreign travelers.
- One report found that, despite increasing investment, consumption contracted due to a lack of liquidity in the financial system. Employment in the private sector fell by almost 1%, reversing a series of positive months.
- Treasury revenues declined 0.1% in Q2 and more than 1% in August, mainly due to PEMEX’s problems, which suffered setbacks such as fires, spills, etc., making July and August the worst months for production in more than ten years.
- Q2 industrial production report was the worst since June 2018.
- One issue that seems very serious was the reduction of flights per hour at the Mexico City airport (the old one) from 52 to 43. The President said it would avoid congestion at a decaying airport that requires immediate repairs, but the response from the airlines was quick in anticipation of being affected by the reduction in flights. This reminds us of the importance of the Texcoco airport, which was never completed, and allows us to anticipate the problems to come due to insufficient air communication.
It is worthwhile to talk a little about China, where the economic miracle of 40 years seems to be over. The massive investment in construction and infrastructure based on subsidized credit is no longer sustainable, and the enormous amount of empty houses puts a lot of pressure on Xi’s government.
How many more airports can be built when there is already one every 34 miles? How much more can be lent to the third world when 66% of loans are in default?
The new restrictions imposed by the United States on technological investment in China and the tariffs that continue to affect exports to many countries have caused exports to fall by 14.5%, and with lower income, imports have fallen by 12.1%. One of the country’s defenses against tariffs is to devalue the yen, which has lost 8% of its value so far this year.
Infrastructure financing companies, a kind of parallel banking, are in a terrible economic situation, and the government has indicated that it will no longer support them. This is a significant brake for the growth of a country that reached a 10% annual GDP growth and today is fighting for that number not to be negative.
Interestingly, we believe that remittances from the United States to Mexico are enormous ($61 billion annually), while remittances to China are $111 billion annually.
The birth rate in China is 1.09 per year compared to 1.26 in Japan, and we already know that the Japanese economic crisis has been going on for 15 years, mainly because its population is shrinking.
It is interesting to comment on what is happening in Russia, where the economy has contracted 9% since the beginning of the war, the ruble is at its lowest point in history, and Putin’s distance from his people is increasing, fighting a senseless war, and with huge losses. At the same time, the dictator’s strength is seen in the elimination of Prigozhin, the leader of the Wagner group of mercenaries who attempted a coup just a few months ago, shooting down the plane he was traveling in.
Israel’s economy remains strong despite the judicial crisis that does not seem to be improving and reported a 3% growth in the second quarter, above the 2.4% expected.
Fitch affirmed the investment grade of A+ despite commenting that the political crisis could make them change their mind.
Inflation slowed to 3.3%, mainly due to the impact of lower commodity prices, and is expected to end the year at 3%.
The Shekel has lost strength, but the government does not want it to fall further, as this is inflationary, so interest rates are not expected to fall in the near future.
August was a bad month for international stock markets; bonds declined slightly as interest rates rose, and only high-yield and emerging market instruments showed slightly positive results.
The dollar rallied against advanced currencies, and the peso showed a lot of strength until the government indicated that it would limit its participation in a long-standing currency stabilization program, which caused the peso to slide from $16.70 to $17.08.
Gold continued with little movement around $1,965, and bitcoin rallied, rebounding to nearly $28,000 as the court blocked the ban on trading it on the exchange, but in just three days, it was back to $25,500 levels.
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