Itaú BBA - Market Conditions Index - Market conditions continues to improve in April

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Market Conditions Index - Market conditions continues to improve in April

May 2, 2016

The market conditions in Brazil continued to improve in April, drove by the improvement in commodities prices.

Please see the attached file for all graphs. 

The market conditions in Brazil continued to improve in April. The Itaú Unibanco Market Conditions Index[1] (IU-MCI) increased from 1.29 at the end of March to 2.12 at the end of the month (Chart 1). The improvement observed in recent months was reflected in the three-month moving average, which went from -0.82 to 0.41, returning to positive territory for the first time since April 2014 and indicating a slightly expansionary market environment.

The improvement in the month was driven by the commodity prices subcomponent, which rose from 0.77 at the end of March to 1.78 at the end of April (Chart 2). Metal and energy commodity prices drove the improvement in the period. The moving average also improved to 0.23 in April from -0.75 in March.

The Brazilian financial variables subcomponent slightly improved to 2.07 in April, from 1.91 at the end of March (Chart 3). The 4.4% appreciation of the BRL and the 26-bp decline in the country risk (measured by the five-year CDS) were the highlights. The recent improvement was reflected in the three-month moving average, which rose to 0.64, from -0.69 at the end of March.

In order to analyze the factors behind the recent improvement in the Brazilian market, we have regressed the Brazilian financial variables subcomponent into a market conditions index, built from peer countries’ data[2] (see regression in Table 1 in the Appendix). Chart 4 shows that the recent improvement relates both to factors that affected Brazil and its peers, as well as to idiosyncratic factors.

Laura Pitta



[1] The IU-MCI measures the market conditions in Brazil and is also a good leading indicator of the country's economic growth, according to econometric exercises. The index consists of two sub-components: the first one is composed of Brazilian financial variables - interest rates, exchange rates, country risk measures - and the second is composed of commodity prices. A result above zero means that market conditions are expansionary, and below zero, contractionary.

[2] We consider the exchange rates and stock exchange indexes for 12 peer countries (Australia, Chile, Canada, Mexico, South Africa, Turkey, India, Russia, Peru, Indonesia, Malaysia and Thailand).


 

Please see the attached file for all graphs. 


 



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