Vulnerability latest publications
The search for yield and looser monetary policies across the board, favor sovereign spreads compression, despite a worsening global outlook, poorer incoming data and balance of risks, and the lack of improvement of fiscal disequilibria.
Just as current medicine cannot predict exactly when someone will suffer a stroke or cancer, economic science cannot predict precisely when the next recession, financial crisis or sovereign default will occur.
Against a background of increasing concerns on economic cycle strength and uprise of global trade tensions, the central banks' more dovish tone helps that financial tensions and global risk aversion remain bounded.
Global Risk Aversion experienced high volatility during the quarter, which was reflected mainly in equity markets, but not in sovereign CDS or emerging currencies markets. The improvement seen since the beginning of the year was favoured by the Fed's announcement of a more patient stance in its interest rate policy.
Many individuals and households experience moments of financial difficulty, prompted either by a personal shock, such as losing a job, or an economy-wide shock, such as a recession. Financial resilience is key for consumer welfare and the formal financial system plays an important role.
The bet of financial markets on ratings downgrades remain for countries where agencies have already taken recent actions (Argentina, Italy, Turkey). A bias towards a slower Fed's normalization process is supportive for EM ratings; however, protectionism (and its impact on China) is the main risk ahead for EM assets
The increased synchronization and depreciation of Emerging Market's currencies due to both Fed normalization process and, in some cases, idiosyncratic vulnerabilities uprise, have not become a full sell-off across geographies and assets. Beyond markets ups and downs, the resumed leverage trend is a concern for some countrie…
During May we have seen the first overall increase in CDS spreads since Nov-2016. However, the recent turmoil in EMs has merely impacted on Global Risk Aversion (GRA). Our newly developed indicator of EM FX synchronization indicates that the recent depreciation in EM FX rates has had a relatively low level of synchronizatio…