Natixis Emerging Markets - FCI

Natixis has newly developed a financial-conditions index (FCI) for emerging market economies (Natixis EM - FCI). Natixis provides similar indices for European economies (Nat-FCI) and for greater Asia (NXMCI). The Natixis EM-FCI is a weighted average of the real policy rate (or overnight rate) and the first principal component of five financial variables: CDS spreads, the slope of the local currency curve, the local 10-year bond yield less the 10-year US treasury yield, the quarterly equity return s i n the local stock market index and the VIX. Empirically, the NATIXIS EM-FCI displays a loosening in financial conditions in Q2 2019, well in advance of the US Fed cutting its policy rate. Further, the magnitude of the drop in the index indicates that financial conditions are loosening quickly and significantly. Financial conditions have been looser in Asia than in the rest of EM. In LatAm , the index suggests that conditions are ever so slightly in tightening territory, at least for now. Financial conditions in EMEA (Europe, Middle-East, Africa) are i n clear tightening territory.