Argentina has gone through a series of downgrades and upgrades after falling into a technical default due to the announcement of postponing payments on its short-term debt and other measures. Other rating agencies changes continue to be concentrated on Emerging Markets (EM).

Noteworthy compression of sovereign spreads across the board. Median sovereign CDS has reached its lowest level since 2008. Greece and Portugal CDS have reached levels not seen since 2009, before EU Periphery's sovereign crisis erupted.

The tightening of sovereign spreads have reduced downgrade pressuresand intensified upgrade pressures across the board, especially in EM Europe and EU Periphery. Markets are highly positive on Portugal and Thailand.

Financial stress increased sharply in August across the board, after two months of relaxation. The spike has been more intense in USA, Europe and LatAmwith a new jump in equities' volatility in and a surge in interest rates tensions in US, lead by the escalation of trade tensions and disappointing economic data.

Sovereign CDS spreads in LatAmand EM Asia continue widening their gap with respect to our estimated equilibrium spread level, driven by the search for yield, as markets seem to be ignoring their fiscal vulnerabilities.

High financial vulnerabilities such as excess private leverage and housing prices continue to be concentrated in some advanced economies, especially in northern European countriesand countries from the Anglosphere(Canada, Denmark, Belgium, Netherlands, Sweden, Australia) and in China in EM. However, those same advanced economies tend to show rather low fiscal vulnerabilities.

Meanwhile, financial vulnerabilities have been decreasing throughout all other regions, such as Turkey, HK and several EM economies, who until recently showed important disequilibria. In contrast, fiscal vulnerabilities seem to be high and either worsening or not improving throughout most regions, specially in LatAm, and to a lesser extent, in EM Asia.


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This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) Research Department on behalf of itself and its affiliated companies (each a BBVA Group Company) for distribution in the United States and the rest of the world and is provided for information purposes only. The information, opinions, estimates and forecasts contained herein refer to that specific date and are subject to changes without notice due to market fluctuations. The information, opinions, estimates and forecasts contained in this document have been gathered or obtained from public sources believed to be correct by the Company concerning their accuracy, completeness, and/or correctness. This document is not an offer to sell or a solicitation to acquire or dispose of an interest in securities.

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