Itaú BBA - Market Conditions Index - External uncertainties lead to deterioration in market conditions in Novem

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Market Conditions Index - External uncertainties lead to deterioration in market conditions in Novem

diciembre 1, 2016

The Itaú Unibanco Market Conditions Index declined to 0.44 from 0.75 in October. This deterioration was driven by external uncertainties.

Please see the attached file for all graphs.

Market conditions deteriorated in November. The Itaú Unibanco Market Conditions Index[1]  (IU-MCI) declined to 0.44 from 0.75 in October. This deterioration was driven by external uncertainties. Despite this result, the three-month moving average remained stable at 0.39.

The Brazilian financial variables subcomponent went from 0.96 at the end of October to 0.46 in November. The highlights were a 6% currency depreciation, a 30 bps increase in country risk as measured by the 5-year CDS, and a 4.7% drop in the Bovespa index in the period. As a result, the three-month moving average lightly slipped to 0.95, from 1.06 in October.

  

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[2] ’ data (see Table 1 in the Appendix). The chart below shows that most of the recent deterioration is related to factors that affected both Brazil and its peers, underscoring the influence of external uncertainties.

The commodity prices subcomponent displayed volatile behavior and ended the month at virtually the same level posted in October. The three-month moving average remains close to zero, showing that recent movements in commodity prices are close to the historical average.


 


 

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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