Itaú BBA - Market Conditions Index - Market conditions worsen in April

Macro Vision

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Market Conditions Index - Market conditions worsen in April

mayo 4, 2017

The decline owes to both a drop in commodity prices and worsening financial variables (mostly due to the former).

Please see the attached file for all graphs.

Brazilian market conditions deteriorated in April.  The Itaú Unibanco Market Conditions Index[1]  (IU-MCI)  fell to -0.45 from -0.10. The decline owes to both a drop in commodity prices and worsening financial variables (mostly due to the former). The three-month moving average was stable at around 0.47, highlighting the fact that, despite the month’s deterioration, market conditions remain in expansionary territory.

Looking at the IU-MCI breakdown, the Brazilian financial variables subcomponent dropped to 0.24 in April from 0.45 at the end of March. The three-month moving average was stable at 1.02.

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 the recent movement stems largely from factors related to peer countries.

The commodity prices subcomponent ended April at -0.63, from -0.29 in the previous month. The decline was widespread in agricultural, energy and metal prices. The moving average consequently fell to 0.13 from 0.28 in March.


 

Lourenço Paiva



[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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