OREANDA-NEWS. The U. S. Fitch Fundamentals Index dropped to -3 in 2Q16 from -2 the previous quarter as a pattern of weakening credit quality, mostly in the corporate finance space, took its toll, says Fitch Ratings. Six of the index's 10 components remain in negative territory, three of those strongly so. The index is now at the lowest level since 3Q09.

"A key driver has been pressure in certain corners of the corporates area, leading to subdued growth expectations, higher defaults, and sharply lower recoveries, which at $0.20 on the dollar, are among the lowest that Fitch has seen," says James Batterman, Group Credit Officer, Fitch Ratings.

The index's components for corporate defaults, high yield recoveries and the CDS outlook all remained at -10, the lowest score, in 2Q. Concerns over global growth and commodity prices persisted, pushing the corporate capex forecast indicator into negative territory while the corporate EBITDA forecast indicator, although still positive, was less so than the prior quarter. Average corporate capex growth stands at just 2%, as companies weigh the costs and benefits of new investment.

The index's mortgage performance score was the only component to remain in strongly positive territory as prime mortgage delinquencies remain low.

U. S. 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, which ranges from +10 to -10. The FFI's components include mortgage and credit card performance, corporate defaults, high-yield recoveries, rating actions and Outlooks, EBITDA and CapEx forecasts, banking sector health, the CDS outlook, and transportation trends. Released quarterly, the FFI relies primarily on proprietary Fitch-sourced data.