Itaú BBA - Market Conditions Index - Market conditions deteriorate further in December

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Market Conditions Index - Market conditions deteriorate further in December

December 29, 2016

The Itaú Unibanco Market Conditions Index (IU-MCI) worsened to -0.03 from 0.44 in November.

Please see the attached file for all graphs.

Market conditions deteriorate further in December. The Itaú Unibanco Market Conditions Index[1]  (IU-MCI) worsened to -0.03 from 0.44 in November. Despite this outcome, the three-month moving average rose from 0.39 to 0.57, reflecting previous months’ developments.

The Brazilian financial variables subcomponent declined to -0.19 in December from 0.46 at the end of November. The 5% drop in the iBovespa index explains the movement. As a result, the three-month moving average slipped to 0.85, from 0.94 in November.  

In order to analyze the factors behind the recent behavior in the Brazilian market, we have regressed the Brazilian financial variables subcomponent onto a market environment index built from peer countries[1]’ data (see Table 1 in the Appendix). The chart below shows that most of the recent deterioration is related to idiosyncratic factors affecting Brazil.

In the face of declining prices of agricultural and metal commodities, the commodity prices subcomponent also worsened in December, recoiling to 0.06 from 0.36 in November. Despite this, the moving average somewhat improved, reaching 0.34, up from 0.05 in November.


 


 

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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