LONDON & NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: Fitch Fundamentals Index - U.S. (3Q14)
The Fitch Fundamentals Index (FFI) fell to -1 from zero for 3Q14 representing widening CDS spreads, a cooling housing market and slowing bank improvement, but remained in broadly neutral territory.
"The FFI quarter-over-quarter CDS score turned negative on declining risk appetite that ended an eight-quarter run during which CDS spreads consistently tightened. The risk of tightening U.S. monetary policy drove the trend during the quarter," said Jeremy Carter, Fitch Ratings Managing Director. "Gradually rising interest rates against a backdrop of solid growth would have only a limited impact on corporates, but a rapidly rising interest rate with higher inflation and unemployment could prompt rating changes."
CDS Spreads Widen on Interest Rate, Global Growth Concerns
The FFI CDS component score fell for the first time in two years to -5 from zero quarter-over-quarter, while year-over-year it fell from +5 to zero. The prospect of tighter US monetary policy contributed to the decline during the quarter.
On the other hand, weak macro data from Germany and Japan, and a potential slowdown in China, highlight concerns over global growth, which could filter through to the U.S. economy. While this potentially may lessen the pressure on interest rates, such a possibility could negatively affect corporates, potentially pushing spreads wider.
Mortgages Weaken as Housing Cools
The FFI mortgage component score fell to zero from +5 quarter-over-quarter on the recent cooling of the housing market and rise in mortgage delinquencies.
The rate of home price growth over the last several years was unsustainable. We are likely entering a period of slower and more typical house price growth.
Banks Improvement Stagnates
The FFI banking component score fell to -10 from -5 quarter-over-quarter as a result of slowing improvement in the sector.
Risks related to a possible interest rate rise may present earnings and asset quality problems, especially if rates rise quickly.
Fitch Fundamentals Index
The Fitch Fundamentals Index (FFI) tracks changes in credit fundamentals across key sectors of the U.S. economy. Analyzing the relative strength or weakness of the index or its sub-components can provide insight into how conducive conditions in the U.S. are towards economic growth.
The trend in potential drivers or constraints on economic growth or decline is indicated by the relative strength or weakness of the FFI, ranging from +10 to -10. The FFI's components include mortgage and credit card performance, corporate defaults, high-yield recoveries, Rating Outlooks, EBITDA and CapEx forecasts, banks, the CDS outlook, and transportation trend. Released quarterly, the FFI relies primarily on proprietary Fitch-sourced data.
To learn more about the FFI, please visit 'www.thewhyforum.com/ffi'.
Fitch Ratings is a leading provider of credit ratings, commentary and research. Dedicated to providing value beyond the rating through independent and prospective credit opinions, Fitch Ratings offers global perspectives shaped by strong local market knowledge and deep credit market experience. The additional context, perspective and insights we provide help investors to make important credit judgments with confidence. For more information, visit 'www.fitchratings.com'.
Fitch Group is a global leader in financial information services with operations in more than 30 countries. In addition to Fitch Ratings, the group includes Fitch Solutions, an industry-leading provider of credit risk products and services, and Fitch Learning, a preeminent training and professional development firm. Fitch Group is jointly owned by Paris-based Fimalac, S.A. and New York-based Hearst Corporation.
Additional information is available at 'www.fitchratings.com'.