Mexico Interest Rate

The Bank of Mexico lowered its key rate by 50 bps to 8.50% on May 15th, as annual inflation eased to 3.93% in April and the domestic economy registered a modest 0.2% quarter-on-quarter expansion after earlier weakness. 

The release indicated that the Board could continue calibrating similar 50 bps cuts, anticipating that the disinflation process will allow a further easing cycle while maintaining a restrictive stance. 

However, the central bank remains cautious amid elevated global uncertainty—ranging from US trade tensions to geopolitical conflicts—that could either reignite inflation via peso depreciation or deepen the economic slowdown. 

While progress towards the 3% inflation target is on track, with forecasts pointing to convergence by the third quarter of 2026, members underscored the importance of a flexible policy framework to manage inflation expectations and preserve financial stability, particularly given the peso's recent appreciation. 

source: Banco de México

US Retail Sales

US retail sales rose by 0.1% mom in April 2025, following an upwardly revised 1.7% surge in March. 

The modest gain suggests consumers scaled back spending in response to a wave of tariff announcements in early April, yet the result still exceeded market expectations for no change. 

Biggest increases were seen in sales at food services and drinking places (1.2%), building material and garden equipment supplies dealers (0.8%), furniture (0.3%) and electronics and appliances stores (0.3%). 

On the other hand, the largest decreases were recorded at sporting goods, hobby, musical instrument, & book stores (-2.5%), miscellaneous store retailers (-2.1%), gasoline stations (-0.5%), clothing (-0.4%), health and personal care (-0.2%) and general merchandise stores (-0.2%). 

Meanwhile, sales excluding food services, auto dealers, building materials stores and gasoline stations, which are used to calculate GDP, were down 0.2%, below an upwardly revised 0.5% gain in March and forecasts of a 0.3% rise.

source: U.S. Census Bureau

US Producer Price Inflation MoM

US producer prices fell by 0.5% in April 2025, following a revised flat reading in March and defying market expectations of a 0.2% increase. 

This was the first decline in the PPI since October 2023 and the sharpest drop since April 2020, during the early aftermath of the COVID-19 outbreak. 

The decline was largely driven by a 0.7% fall in service costs, the largest since data collection began in December 2009, primarily due to a 1.6% decrease in margins for trade services, suggesting businesses may be absorbing some of the impact from higher tariffs. 

Prices for final demand services excluding trade, transportation, and warehousing fell 0.3%, while transportation and warehousing services dropped 0.4%. 

Meanwhile, goods prices were flat in April, as a 1.0% decrease in food costs and a 0.4% decline in energy prices offset other components. 

On a yearly basis, the PPI inflation eased to 2.4% in April, the lowest since September 2024 and slightly below forecasts of 2.5%. 

source: U.S. Bureau of Labor Statistics

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China Inflation Rate

China's consumer prices dropped by 0.1% year-on-year in April 2025, maintaining the same pace for the second month and matching market expectations. 

It marked the third consecutive month of consumer deflation, weighed by the combined effects of ongoing trade tensions with the US, weak domestic demand, and persistent employment uncertainty. 

Non-food prices were flat after the prior 0.2% rise, as increases in housing (0.1% vs 0.1% in March), healthcare (0.2% vs 0.1%), and education (0.7% vs 0.8%) were offset by a sharper drop in transport cost (-3.9% vs -2.6%). 

On the food side, prices saw their smallest fall in three months, amid a sharp rebound in fresh food costs in the face of extreme weather, supply chain disruptions, and the impact of trade barriers.

Core inflation, which excludes volatile food and fuel prices, rose 0.5%, holding steady for the second month. 

On a monthly basis, the CPI edged up 0.1%, reversing a 0.4% drop in March and recording the first increase in three months. 

source: National Bureau of Statistics of China

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UPDATE: US Dollar

The US dollar index climbed toward 101 on Friday, poised for its third consecutive weekly gain as improving global trade sentiment and fading expectations of imminent rate cuts supported the greenback. 

The rally was fueled in part by President Donald Trump's announcement of a preliminary trade deal with the UK, the first since the US imposed sweeping tariffs last month. 

Trump also suggested that additional agreements could follow and hinted at a potential easing of tariffs on China, depending on the outcome of upcoming trade talks in Switzerland. 

On the monetary policy front, Federal Reserve Chair Jerome Powell dismissed the idea of a preemptive rate cut in response to potential economic fallout from tariffs. 

Powell also warned of elevated risks to both inflation and unemployment, signaling caution before adjusting policy further. 

The US Dollar posted its strongest gains this week against the Euro, New Zealand Dollar, and Australian Dollar.

US Consumer Inflation Expectations

US consumer inflation expectations for the year ahead were unchanged at 3.6% in April 2025, the same as in March, holding at 2023-highs. 

Year-ahead commodity price expectations increased for gas (+0.3 percentage point to 3.5%), medical care (+0.8 percentage point to 8.7%), college (+2.4 percentage points to 9.1%), rent (+1.8 percentage points to 9%) and home prices (0.3 percentage point to 3.3%). 

In contrast, year-ahead expected price of food decreased by 0.1 percentage point to 5.1%. Meanwhile, inflation expectations for the three-year horizon rose to 3.2%, the highest reading since July 2022 while inflation expectations for the five-year ahead horizon decreased by 0.2 percentage point to 2.7%. 

source: Federal Reserve Bank of New York

FOMC Rate Change Probability

The treasuries market is pricing in a 96.8% chance of no interest rate change by the FOMC this week, Wed May 7.

US Existing Home Sales

Existing home sales are scraping at multi-decade lows, and have shown no meaningful signs of recovery.

The only other time in recent history when homebuyer demand was this low was the 2007-2012 housing crash.

That downturn produced a 25% decline in home prices. In contrast, this downturn has yet to see national prices drop.

US Economy Update

Non Farm Payrolls

The U.S. economy added 177,000 jobs in April 2025, a slowdown from the downwardly revised 185,000 in March, but significantly surpassing market expectations of 130,000. This figure aligns closely with the average monthly gain of 152,000 over the past 12 months, despite growing uncertainty surrounding President Donald Trump's aggressive tariff policies. Job growth was primarily seen in sectors such as health care (+51,000), transportation and warehousing (+29,000), financial activities (+14,000), and social assistance (+8,000), while federal government employment experienced a decline (-9,000). source: U.S. Bureau of Labor Statistics

Unemployment Rate

The US unemployment rate was at 4.2% in April 2025, the same as in March and in line with market expectations. The number of unemployed individuals increased by 82,000 to 7.165 million, while employment grew by 436,000 to reach 163.944 million. The labor force participation rate also edged up to 62.6% from 62.5%, and the employment-population ratio to 60% from 59.9%. Additionally, the U-6 unemployment rate, which includes those marginally attached to the labor force and those working part-time for economic reasons, decreased to 7.8% in April from 7.9% in the previous month. source: U.S. Bureau of Labor Statistics

Factory Orders

New order for US manufactured goods surged by 4.3% from the previous month to $618.8 billion in March of 2025, accelerating from the downwardly revise 0.5% increase from the previous month and loosely in line with market expectations of a 4.5% jump. It was the sharpest increase since July of last year as clients expedited orders of goods before the aggressive tariffs by the White House kicked in during April and forced factories to raise prices. Orders surged in durable goods industries (9.2% to $315.7 billion), carried by transportation equipment (27.1% to $124.6 billion), while softer increases were noted in primary metals (1.1% to $27.9 billion), fabricated metal products (0.1% to $37 billion) and machinery (0.1% to $37.8 billion). On the other hand, orders fell for computers and electronic products (-1.3% to $25.4 billion). source: U.S. Census Bureau

US Job Growth Exceeds Expectations

The U.S. economy added 177,000 jobs in April 2025, a slowdown from the downwardly revised 185,000 in March, but significantly surpassing market expectations of 130,000.

This figure aligns closely with the average monthly gain of 152,000 over the past 12 months, despite growing uncertainty surrounding President Donald Trump's aggressive tariff policies. 

Job growth was primarily seen in sectors such as health care (+51,000), transportation and warehousing (+29,000), financial activities (+14,000), and social assistance (+8,000), while federal government employment experienced a decline (-9,000). 

source: U.S. Bureau of Labor Statistics

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US Unsold Homes

The number of unsold completed single-family homes jumped 31,000 year-over-year in March, to 119,000, the highest since July 2009.

Unsold completed homes for sale have TRIPLED over the last 3 years.

As a share of housing starts, unsold homes jumped to ~12%, the highest since 2012.

By comparison, at the height of the 2008 Financial Crisis, this percentage was as high as 45%.

This all comes as housing demand continues to weaken due to elevated mortgage rates and near-record home prices.

US Bank Unrealized Losses

U.S. Banks are currently facing $482 Billion in unrealized losses, an increase of 33% from the prior quarter.

Central Banks Are Acquiring Gold

World central banks are diversifying their reserves:

• Foreign holdings of Treasuries as % of US government debt have fallen to ~23%, the lowest in 22 years.
• The percentage is down ~11 percentage points over the last 9 years.
• At the same time, gold holdings as a % of global international reserves have hit ~18%, the highest in 26 years.
• The share has risen ~8 percentage points since 2015.
• China has been one of the biggest buyers of gold over the last few years.
• Since the beginning of 2023, China's gold reserves as a % of total foreign reserves have doubled to 7.1%.

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Asset Bubbles

 

US Consumer Sentiment

Gold Market Analysis

• Large funds have been reducing their Net Long positions in Gold since Feb 2025. 
• Managed Money has been reducing their Longs while increasing their Shorts, with a slight increase in Spreads.
• The Gold ETF $GLD experienced a huge outflow of $1.3 Billion on Tuesday, the largest outflow in 14 years!

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