In this edition of Instant Insights, our key takeaways from recent articles include the following: our midyear outlooks for global banks and IT spending, our take on the CrowdStrike update issue, outstanding green, social, sustainable and sustainability-linked bonds, and our Climate Transition Assessments. We dive into biofuel regulations, takeaways from the Asia-Pacific edition of our Global Emerging Markets Conference 2024, repeat defaulters in emerging markets, North American auto suppliers, European housing markets, the next European Commission's policy choices, European telecoms, the U.S. health care industry, insurers in Japan, Cambodian banks, Australia's build-to-rent initiative, the impact of AI bots on customer experience outsourcers, and the effect of European election results' on sovereign debt and ratings. We also feature Emerging Markets Monthly Highlights, ESG In Credit Ratings, the global corporate default tally, China tier-one local government risk indicators, MLI's callable capital, U.S. and EMEA structured finance chart books, EMEA RMBS and ABS Monitor, legacy buy-to-let RMBS in the U.K., the sector intelligence report on leveraged finance in the U.S. and Canada, as well as state funding, and fiscal medians for not-for-profit public and private college and universities in the U.S.

For our midyear updates on corporate and infrastructure sectors across Asia-Pacific, Europe, and North America, see "Industry Credit Outlook Update 2024".

S&P Global Ratings periodically updates this article, which contains an edited compilation of key takeaways from our most up-to-date thought leadership organized by sector, region/country, and publication date (see table 1).

Table 1

Key Takeaways From Our Most Recent Reports

Credit conditions

1. Global Credit Conditions Q3 2024: Soft Landing, Fragmenting Trajectories, July 1, 2024

• Resilience: Most economies have seen solid growth in 2024 so far, and upgrades have outnumbered downgrades among corporates, financial institutions, and sovereigns. But this may prove a high point because we expect growth to slow in the year's second half while rates remain elevated. Regional differences in the pace of cuts will produce rate divergence globally, which could add to volatility and capital outflows to higher-yielding locations.
• Defaults to slowly subside: The descent through next March will be slower than the recent rise in defaults. Softer economic growth and still high interest rates will pressure low-rated corporates in consumer-related sectors and emerging markets. Over time, companies are refinancing more and more debt at noticeably higher rates, squeezing businesses' headroom.
• Geopolitical risks to the fore: A worsening geopolitical landscape, a more severe economic downturn, a longer-than-expected period of high rates, and growing threats to global trade could derail our base case and lead to weaker business activity and market liquidity.

2. CreditWeek: How Are Risks To Credit Conditions Evolving At Midyear?, July 11, 2024

• A worsening geopolitical landscape, the possibility of an economic downturn, a longer-than-expected period of high borrowing costs, and growing threats to global trade are the top risks that could derail our base case for global credit conditions.
• Most economies have seen solid growth so far this year—and ratings upgrades have outnumbered downgrades among corporates, financial institutions, and sovereigns.
• But current market performance may prove to be a high point. While long-awaited monetary-policy easing has begun in some advanced economies, the U.S. Federal Reserve remains on hold for now, and some emerging markets are dialing back their easing as a result. We expect growth to slow in some major economies in the second half of this year, while rates remain elevated. Regional differences in the pace of cuts will produce rate divergence globally, which could add to volatility and capital outflows to higher-yielding locations, according to our Credit Conditions Committees.

3. Credit Conditions Asia-Pacific Q3 2024: A Trade Showdown Unfolds, June 25, 2024

• China vs West. The trade conflict between China and the West is unfolding. We expect our rated China portfolio can absorb the direct impact from recent shots fired in the China-West trade dispute. However, intensifying tariffs could drag China's industrial production-led economic recovery, and potential retaliatory tariffs by China would widen the global impact. Such escalations could hit business activity and growth in export-centric Asia-Pacific. The region's growth should stay at 4.5% over 2024-2026.
• Confidence dragging in China. Property sales and home prices are declining despite bolder stimulus, underlining very weak Chinese confidence. While strong manufacturing in the first quarter of this year lifted our 2024 growth forecast marginally to 4.8%, prospective conditions remain somber. We therefore see the China slowdown risk as high, but unchanged.
• Walking a tight rope. A strong U.S. dollar is depressing Asian currencies. For importers and households, this can translate into costlier offshore debt borrowings and imported inflation. To stem capital outflows, the region's central banks are maintaining high interest rates. Onshore financing channels generally remain cheap and available, so far.
• Gathering clouds. Asia-Pacific's credit conditions look stable. Our Asia (ex-China and Japan) credit cycle indicator (CCI) signals a credit recovery in 2025, but China and Japan see risks of a credit correction. Surprise election outcomes globally could cause shifts in political orientations and dilute policy predictability, causing volatility. The region's net rating outlook bias has deteriorated to negative 2%.

4. Credit Conditions Emerging Markets Q3 2024: Policy Uncertainty May Hinder Resilience, June 25, 2024

• Credit conditions across emerging markets (EMs) continue improving amid resilient economic activity, supported by solid domestic demand, and improving global trade and financing conditions. The second half of the year could be challenging, as political noise from U.S. elections could sour investors' appetite for EMs' debt.
• Policy uncertainty could exacerbate existing risks. Policy uncertainty will be a key factor late in the year and into 2025 as U.S. elections play out and new administrations in key EMs begin to execute their plans. Political noise could dampen investor sentiment and cause episodes of liquidity shortfalls or capital outflows. High borrowing costs will remain a key risk, as the Federal Reserve has pushed forward its plans for rate cuts, slowing monetary easing in EMs.
• Expected resilience in economic growth for the rest of the year should maintain rating stability in 2024. Nevertheless, the potential for volatile financing conditions during the second half of the year could turn rating trends toward the negative territory.

5. Credit Conditions Europe Q3 2024: Keep Calm, Carry On, June 25, 2024

• Overall: Our base-case view on the economic and credit outlook for Europe has not fundamentally changed from April. We expect growth will gradually pick up, even as the disinflation trend continues, and enable the European Central Bank (ECB) to return to a neutral policy stance by the third quarter of 2025.
• Risks: Geopolitical risk--primarily related to potential spillovers from the wars in Ukraine and Gaza--represents the main systemic risk, although Europe's de-risking from China carries its own perils. The principal macro tail risks include a protracted period of slow growth or interest rates that remain higher for longer than we expect.
• Ratings: Ratings performance remains balanced, with lower-rated borrowers benefiting from improving financing conditions, including market access. Pockets of risk remain particularly where fixed rate debt matures for overleveraged borrowers--typically in the 'CCC' category. Credit losses within the banking sector will likely normalize from a low level, while a few negative rating actions could emerge in residential mortgage-backed securities (RMBS) and auto asset-based securities (ABS). April's downgrade of Altice France S.A. (CCC+/Developing/--), which is present in 98% of European collateralized loan obligations (CLOs) that we rate, did not have any material rating impact on those CLO transactions.

6. Credit Conditions North America Q3 2024: A Brighter Outlook, Laden With Risks, June 25, 2024

• Overall: Borrowers in North America could enjoy more favorable credit conditions if the U.S. economy settles into a soft landing and the Federal Reserve begins to ease monetary policy. However, credit deterioration could linger with interest rates likely staying high for longer than we previously anticipated.
• Risks: On top of the downside risk posed by prolonged high financing costs, input-price pressures persist, and commercial real estate losses could worsen amid cyclical and secular headwinds. U.S. elections could lead to market volatility and policy uncertainty.
• Ratings: The region's net outlook bias was negative 10.2% as of June 11, with telecom, consumer products, and chemicals having the highest negative bias. We expect the U.S. default rate to fall slightly to 4.5% by March after peaking in the third quarter.

Artificial intelligence

7. Credit FAQ: AI Bots Are Here, So How Will Customer Experience Outsourcers Cope?, July 17, 2024

• Artificial intelligence (AI) has rapidly gained attention as a potentially powerful tool to turbocharge operating efficiency in delivering customer service.
• Companies have started to implement the technology in hopes of cutting costs, handling larger volumes per agent, providing faster response times, replacing agents with Gen AI-powered bots, and enhancing customer satisfaction.
• In contrast, the pace of adoption of these solutions also faces barriers such as the high cost of the technology, client concerns about data privacy and security, and global regulatory risks.

Autos

8. Credit FAQ: Inflation, China, And EV Transition Risks Casts Long Shadow On North American Auto Suppliers, July 22, 2024

• Headroom for most North American auto original equipment manufacturer (OEM) suppliers is tight as companies grapple with a combination of low volume growth, less-than-full recovery from inflation, and--for companies with powertrain, electronics, and software exposure--increased spending on research and development (R&D) and capital expenditures (capex).
• Suppliers are counting on additional client compensation to offset inflation but OEMs expect suppliers to share their cost-reduction efforts.
• Disruption from Chinese OEMs within China will make the Chinese market difficult for suppliers as market shares shift rapidly.
• The slowdown of vehicle electrification introduces new challenges in terms of balancing electric vehicle (EV) investment against volatile volumes, and renegotiation on pricing and volumes. It also presents opportunities in the form of a longer ICE tail to fund the transition as well as expanded hybrid EV (HEV) business.

Corporates

9. EMEA Investment Holding Companies: Conservative Leverage Underpins Stable Outlooks, July 11, 2024

• In EMEA, we rate 10 investment holding companies (IHCs), of which eight are in our investment-grade category.
• Most of these IHCs have loan-to-value (LTV) ratios comfortably within the thresholds for the respective ratings.
• The ratings on 80% of the IHCs are on a stable outlook, making the outlook bias on the sector stable. We think this stems from the IHCs' diverse asset portfolios as well as the companies' relatively conservative financial policies.
• Over the past three years, we have not observed many rating transitions of more than two notches. The few downgrades and upgrades were mostly related to company-specific factors such as portfolio rotation or increased leverage from investment activity, or shareholder remuneration alongside asset price deterioration. Some rating changes have followed a sovereign rating action when the rating on an IHC is capped by the sovereign's creditworthiness.
• IHCs with ratings in our 'A' category or higher typically have portfolios with assets across diverse industries, a very high share of listed assets, and strong asset creditworthiness (in our investment-grade category). They also operate in stable jurisdictions, enjoy robust dividend inflows, stick to strict LTV targets, and sustain very low leverage.

Credit trends and market liquidity

10. Emerging Market Re-Defaulters' Business Overhaul Plans May Be Falling Short, July 18, 2024

• In 2023, roughly 33% of emerging market (EM) defaults occurred among companies that had previously defaulted. In 2024 year to date, that percentage rose to 60%. (We define as re-defaulter an issuer which defaulted more than once. The count of defaults for this analysis starts in January 2008.)
• The proportion of re-defaulters was highest in Latin America. Reasons for that aren't necessarily owed to country risks but perhaps more due to fewer financing options for distressed issuers that opted to launching debt exchanges in order to avoid grueling bankruptcy processes.
• Re-defaulters generally exhibit low economic value added and EBITDA interest coverages (signaling business underperformance), as well as liquidity strains. These factors cause price discounts on its bonds.
• In the majority of cases, re-defaulters perform debt exchanges to gain time to turn around their operations, but conditions don't improve as much or as fast as needed. As a result, profitability of re-defaulters doesn't pick up after the first default.

11. Default, Transition, and Recovery: 2023 Annual European Corporate Default And Rating Transition Study, July 15, 2024

• The corporate default tally in Europe increased to 30 in 2023 from 17 in 2022.
• All defaulters with active ratings at the start of the year (27) were assigned speculative-grade ratings, with 22 in the 'CCC'/'CC' category.
• Despite upgrades outnumbering downgrades in 2023, the proportion of issuers rated 'B-' or lower remained historically high as of Dec. 31, indicating some credit risk persisting into 2024.

12. Default, Transition, and Recovery: Defaults Drop In June, July 17, 2024

• Global defaults in June decreased to nine from 14 in May.
• With 78 defaults, the global corporate default tally is well-above its five-year average, but below this point in 2023.
• The default debt amount in Europe rose to $3.2 billion, making it the highest monthly defaulted debt amount reported since August 2023.
• By sector, one-third of the June defaults came from the health care sector and distressed exchanges continue to be the primary reason for defaults (56%).

13. Ratings Performance Insights Q2 2024: An Uneasy Optimism, July 15, 2024

• Rating actions: The positive trend in rating actions from the first quarter continued in the second quarter as upgrades outpaced downgrades in all major regions. The banking, media and entertainment, and consumer products sectors led upgrades in most regions. Over half of the bank upgrades in the second quarter came from Australia, where a strengthening of regulatory and governance standards, simplified business models, and advances in risk management have reduced industrywide risks.
• Rating bias: All four major regions saw their negative bias (the percentage of issuers with negative outlooks or ratings on CreditWatch negative) drop from the first quarter, a positive indicator for future rating trends. The aerospace and defense sector saw the largest quarter-over-quarter increase in negative bias--it rose over five percentage points, to 17.5%. Four issuers in the sector had negative outlook changes during the quarter due to delayed recovery of expected cash flow and slowdowns in new contract awards. The chemicals, packaging, and environmental services sector continues to struggle, with prolonged customer destocking and lower consumer spending. It now leads all sectors in negative bias, at 24.4%. Sovereigns saw the greatest drop in negative bias in the second quarter (down 4.3 percentage points, to 7.7%). This was mostly due to several positive outlook revisions.
• Corporate defaults: Defaults were up 11% in the second quarter compared with the first quarter. While the U.S. continues to lead defaults (47), Europe is at its highest year-to-date default level since 2008 (22). About 60% of the defaults in Europe this year have come from four sectors: media and entertainment (four defaults), homebuilders/real estate (three), consumer products (three), and forest products and building materials (three). We expect the U.S. and European trailing-12-month speculative-grade corporate default rates to reach 4.50% and 3.75%, respectively, by March 2025.

14. Sukuk Market: The Calm Before The Storm?, July 15, 2024

• Total sukuk issuance reached $91.9 billion at midyear 2024, which is a similar performance to last year but with a substantial upward trend in foreign currency-denominated issuances.
• We maintain our 2024 global sukuk issuance forecast of $160 billion-$170 billion, including foreign currency-denominated issuance of $45 billion-$50 billion.
• Adopting the Accounting and Auditing Organization for Islamic Financial Institutions' (AAOIFI's) Sharia Standard 62 could reduce issuance volumes over the medium term if it materially alters the nature and risk characteristics of sukuk instruments.

Cross-sector

15. High Stakes And Fascinating Times For Asia's Emerging Markets, Panelists Say, July 18, 2024

• The stakes are high as Asian emerging markets (EMs) pick up steam, say panelists at a recent S&P Global Ratings event.
• Supply chains are shifting, creating new opportunities, fostering more intraregional investments, but also complicating the macro-credit picture.
• Panelists also discussed India's strong growth path and which markets stand to gain from China's strengthening outward investments.
• The region's currencies should end the year slightly stronger than they are now. Nonetheless, higher-for-longer global interest rates could risk capital outflows for Asia's EMs.

16. Asia-Pacific Sector Roundup Q3 2024: Trade Tensions To Drive A Bigger Wedge, June 26, 2024

• Uneven growth. We expect Asia-Pacific growth to hold up this year, but to be uneven across geographies and sectors. Most emerging markets should still see robust growth, even as we lowered our 2024 forecast for Thailand, Vietnam, and the Philippines. China's industrial production-led growth continues, but the country is grappling with soft demand. In Japan and Australia, elevated inflation and interest rates are eroding households' real income and balance sheets.
• Delays on fiscal consolidation. Local government spending could remain elevated in China, Australia and New Zealand, leading to growing debt levels. In China, the protracted property downturn is pressuring local and regional governments' (LRGs) revenues, and could slow their deleveraging.
• Refinancing challenges to rise. Most central banks in the region could delay policy rate cuts, following the U.S. Federal Reserve, leading to costlier offshore borrowing. Onshore financing is still available, but lenders could turn selective towards riskier sectors. Among the vulnerable sectors are real estate (e.g., in China and Vietnam), and households stretched most by high rates and cost pressures (e.g., in Australia, New Zealand, and Korea where unemployment is also rising).
• Deteriorating outlook bias. The net rating outlook bias for Asia-Pacific issuers slid to negative 2% as of end-May. The bright spots that we have noted previously, such as gaming, remain as such. However, pressures are growing on others. The chemicals, real estate, and transportation cyclical sectors have the largest negative outlook percentages.

17. Emerging Markets Monthly Highlights: Blurring Long-Term Outlook, July 17, 2024

• In our June economic outlook, we kept our general macroeconomic baseline largely unchanged, and we continue to expect the 2024 GDP growth to be stronger than in 2023 across most emerging markets (EMs). However, in several economies, policy-related risks have risen following elections that are generating uncertainty over reforms, fiscal trajectories, and institutional frameworks. Trade is seen to be improving, particularly in electronics-related goods. However, further improvement remains highly vulnerable to setbacks.
• Moreover, we observe a slowdown in long-term GDP growth across some EMs, mostly because of slower labor productivity and fixed investment. In an environment of high interest rates, EM Asian economies with higher domestic savings may be better positioned to finance investments and boost long-term growth prospects, than LatAm and EM EMEA. The pace of long-term GDP growth plays an important role in our sovereign ratings.
• Food inflation has been moderating in the past 12 months, but at an uneven pace across EMs. Despite some moderation, prices for several food commodities remain above pre-2022 peaks, with economies in Sub-Saharan Africa and the Middle East as the most affected.
• Financing conditions showed some regional discrepancy in terms of benchmark yield trajectories and bond market activity. Issuance was particularly strong in Hungary, Malaysia, Thailand, and Turkiye, while disappointing in Mexico and Brazil. Historically low corporate spreads keep buoying speculative grade issuance.

18. Credit FAQ: The Next European Commission's Policy Choices: A Credit Perspective, July 17, 2024

• While last month's European Parliament elections slightly weakened the centrist bloc's majority, S&P Global Ratings expects the next European Commission to continue prioritizing the EU's competitiveness and the digital and green transition, alongside defense, security, and immigration issues.
• The EU's revised fiscal rules maintain the previous upper limits for government budgetary deficits at 3% of GDP and government debt at 60% of GDP. Since the EU's energy bill is still 2.5% of GDP higher than in the U.S., further energy market integration remains key in the EU's drive to improve its overall competitiveness.
• Advancing the Capital Markets Union (CMU) could also help boost the EU's competitiveness, which is essential for Europe not only to keep pace with China and the U.S., but also to return to its long-term growth trajectory. Lastly, while we can expect some incremental changes to enhance regulatory and crisis management frameworks for banks, we do not see much political will to complete the banking union.

19. Credit Cycle Indicator Q3 2024: Bumpy Ride Ahead Of A Credit Recovery In 2025, June 20, 2024

• While our forward-looking global and regional credit cycle indicators (CCIs) continue to signal a potential credit recovery in 2025, the momentum risks stalling should business and household confidence falter.
• Divergences between population cohorts, and sectors, are deepening. Costlier debt and a slower macro could prompt corporates to tighten cost management and reduce jobs, and lenders to retract their appetite towards riskier sectors. Meanwhile, high mortgages and sticky inflation are causing households to increasingly economize on their spending, slowing demand.
• Together, these could spell margin and liquidity challenges for some corporate and household borrowers. The risk of a divergent recovery could widen the divide between winners and losers, leading to greater dissonance.

Cyber

20. Your Three Minutes In Cyber Security: New Rules Will Change EU Banks' Management Of Third-Party Provider Risk, July 16, 2024

• New regulation is set to improve European banks' resilience to cyber security failures at software, services, or systems supplied by external companies, known as third-party providers (TPP).
• The EU's Digital Operational Resilience Act (DORA) will impose a new risk management framework that demands increased monitoring and reporting of TPP cyber risk.
• That could necessitate changes to relationships (and contracts) to facilitate greater banking oversight of TPP, which are often core to banks operations and central to open banking initiatives.

21. CrowdStrike Update Issues Highlight The Perils To Global IT Systems From Interdependency And Concentration, July 20, 2024

• The wide-scale disruption caused by the software update launched by CrowdStrike Holdings Inc. highlights the risks to the global IT ecosystem arising from the interdependency of critical systems and software.
• This event also underscores the concentration risk arising from the dominance of a few key vendors in the global IT ecosystem.
• Typically following an event like this, whether malicious or not, credit risks tend to rise from revenue loss and reputational damage, and longer term many companies will continue to incur costs to respond to and remediate impacted IT systems and business processes.
• With growing digitization, S&P Global Ratings believes these incidents may become more commonplace. Therefore, the ability of organizations to recover quickly and restore operations will be more paramount. Typically, defined business continuity and well-tested disaster recovery plans can mitigate the risk.

Economics

22. Economic Outlook Asia-Pacific Q3 2024: Exporters And EMs Are Outperforming, June 24, 2024

• We raised our 2024 China GDP growth forecast to 4.8%, from 4.6% but see a sequential slowdown in the second quarter. Also, the combination of subdued consumption and robust manufacturing investment will weigh on prices and profit margins.
• In the rest of Asia-Pacific, export-intensive economies will see growth improve this year while those that are more sensitive to higher interest rates and/or inflation will see momentum weaken. Solid domestic demand growth should help Asian emerging markets to expand robustly.
• Inflation pressure has eased in the region. But the prospect of delayed U.S. policy rate cuts is leading Asian central banks to do the same, and take other measures to protect domestic currencies. Emerging markets could be tested if U.S. rates were to rise further and capital outflows intensified.

23. Economic Outlook Canada Q3 2024: Turning The Corner, June 24, 2024

• After a sluggish growth for the last several quarters, the Canadian economy is poised to see a moderate rebound as interest-rate cuts help fixed investment turn positive.
• We forecast the Canadian economy will grow below potential for much of 2024 before rebounding in 2025 and 2026. We now expect real GDP growth of 1.1% in 2024, 1.7% in 2025, and 2.1% in 2026.
• Given subpar domestic demand, the job market will also remain sluggish with unemployment averaging 6.4% in the second half of 2024 before settling back down in the 5.6%-6.0% range in the next three years.
• With inflation broadly coming to heel, the Bank of Canada (BoC) has cut its policy rate by 25 basis points (bps) in June. We anticipate a further 75-bps cut in the second half of the year, which will get policy rate to 4.0% by year's end. We have penciled in another 125-bps easing for next year.

24. Economic Outlook Emerging Markets Q3 2024: Growth On Track, Policy Risks Rising, June 24, 2024

• Our macroeconomic baseline for EMs remains broadly unchanged from the second quarter, with most EMs' GDP growth set to be moderately stronger in 2024 than in 2023.
• A later-than-anticipated start to interest rate cuts by the Fed will contribute to slower monetary policy normalization in most major EMs, though our view on terminal benchmark interest rates remains unchanged.
• Policy-related risks have risen following electoral outcomes that generate uncertainty over reforms, fiscal trajectories, and institutional frameworks in several EMs.

25. Economic Research: European Housing Markets: Better Days Ahead, July 17, 2024

• We revised upward our housing price forecasts for 2024, especially for Belgium, Portugal, and Spain. This is because housing prices were more resilient at year-end 2023 than we expected, while housing loans recovered faster than they did in previous cycles.
• We believe the faster-than-expected recovery in housing loans mainly results from the strong European labor market. That said, unit labor costs are high by historical standards and the labor market is cooling.
• Although we think housing markets in most European countries have bottomed out, we continue to forecast a moderate increase in nominal housing prices over 2024-2027. After the rate cuts, structural factors will continue to drive housing demand, while easing supply constraints will prevent sharp price increases.

26. Economic Outlook Eurozone Q3 2024: Growth Returns, Rates Fall, June 24, 2024

• Lower energy prices have enabled the eurozone economy to return to growth and the European Central Bank (ECB) to cut rates. We expect a return to potential growth by 2025, with inflation at 2% by mid-year.
• This would permit the ECB to cut rates by 25 basis points each quarter until the deposit rate bottoms out at 2.5% in the third quarter of 2025.
• We have revised our growth forecast for Spain upward to reflect rising productivity, increased manufacturing, robust household balance sheets, and rapid disinflation, among others.
• The risks associated with a divergence between the monetary policies of the ECB and the U.S. Federal Reserve (Fed), political uncertainties in Europe, and deteriorating economic relations with China have intensified since our last projections in March 2024.
• These risks could affect business and investor confidence, financial stability, and the smooth transmission of the ECB's monetary policy to the eurozone economy. They could also translate into lower growth and higher inflation.

27. Economic Research: Q3 2024 Global Economic Update: The Policy Rate Descent Begins, June 26, 2024

• The long-awaited policy rate easing cycle has begun in some advanced economies as inflation continues to decline toward target; the U.S. Federal Reserve remains on hold for now, and some emerging markets are dialing back their monetary easing as a result.
• Our soft-landing narrative remains valid as labor markets remain tight and consumer spending on services remains robust; indeed, Europe has already landed and a recovery is taking hold.
• Our GDP forecasts are broadly unchanged from the previous round with growth in some of the more open emerging markets revised upward; the risks around our baseline include a sharp reduction in labor demand and spillovers from a strong U.S. dollar, as well as geopolitics.

28. Economic Research: U.K. Economic Outlook Q3 2024: A Cooling Labor Market Paves The Way For Rate Cuts, June 24, 2024

• The effect of higher interest rates on investment is starting to fade and terms of trade are improving, so U.K. economic activity beat our expectations at the start of the year, leading us to raise our forecast for 2024.
• However, the labor market is cooling quickly and consumers remain cautious, saving a greater share of their income than before.
• Subdued demand will eventually help tame inflation, especially in services, where inflation remains close to 6% year over year.
• We think the Bank of England will start lowering interest rates gradually starting in August, bearing in mind the long lags that monetary policy changes can have and the uncertainty over how the economy will develop. We expect 200 basis points in cuts through the end of 2025.

29. Economic Research: Diverging PMIs Point To Uncertain U.S. Growth Momentum, July 11, 2024

• S&P Global Ratings economists expect slight manufacturing growth and cooling services growth, but diverging business sentiment data is giving conflicting signals about overall U.S. growth momentum heading into the second half of the year.
• The S&P Global Market Intelligence Purchasing Managers' Indices (PMIs) suggest manufacturing may have turned a corner after several quarters of shrinking, while services are expanding steadily.
• On the other hand, The Institute of Supply Management's PMIs indicate manufacturing and services growth could be slowing.

30. Economic Outlook U.S. Q3 2024: Milder Growth Ahead, June 24, 2024

• S&P Global Ratings expects the U.S. economy to expand 2.5% in 2024 (unchanged from its March forecast) and 1.7% in 2025 (up from 1.5% in its March forecast).
• Businesses continue to face higher costs of capital, which will limit capital expenditure and hiring, and the unemployment rate will likely rise in the next two years--to 4.4% from 4.0% currently.
• We forecast inflation to cool further in the coming months, after jumping in the first quarter.
• We expect the Fed, in response to a slowdown in inflation, to start reducing its policy rate in December and then pick up the pace of easing in 2025 as economic growth slows below potential.

Environmental, social, and governance

31. Analytical Approach: Climate Transition Assessments, July 18, 2024

• This article describes S&P Global Ratings' analytical approach for providing a Climate Transition Assessment (CTA).
• A CTA is our qualitative opinion of how consistent with a low carbon, climate resilient future we expect an entity's economic activities will be once the entity's planned transition changes are realized and potential material implementation risks are considered.
• We express our opinion using a single Shade of Green ranging from Dark green to Red consistent with the principles associated with each Shade of Green described in "Analytical Approach: Shades of Green Assessments", published on July 27, 2023.

32. FAQ: Applying Our Integrated Analytical Approach For Climate Transition Assessments, July 18, 2024

• Since S&P Global acquired Shades of Green from CICERO climate research foundation, it has been working on integrating the product suite to support transparency around sustainability in financial markets.
• During 2023, we released an integrated use-of-proceeds Second Party Opinion (SPO) Analytical Approach that combined elements of the existing methodology of Shades of Green with S&P Global Ratings' Analytical Approach.
• We are now releasing our Climate Transition Assessment (CTA), which is our qualitative opinion of how consistent with a low carbon, climate resilient (LCCR) future we expect an entity's economic activities will be once the entity's planned transition changes are realized and any implementation risks are considered. The CTA similarly integrates elements of existing analytic approaches from S&P Global Ratings and Shades of Green.

33. Climate Transition Assessment Description For The Nasdaq Green Designations, July 18, 2024

• A Climate Transition Assessment (CTA) is our qualitative opinion of how consistent with a low carbon, climate resilient future we expect an entity's economic activities will be once the planned transition changes are realized and potential material implementation risks are considered.
• Analytical outputs from CTAs are used to assess alignment of companies with the Nasdaq Green Equity Principles and to determine if companies meet the requirements for either the Nasdaq Green Equity Designation or the Green Transition Designation.
• The Nasdaq Green Equity Principles are aligned with the World Federation of Exchanges Green Equity Principles guidelines.

34. ESG In Credit Ratings Q2 2024: Governance Factors Drive Quarter’s ESG-Related Rating Actions, July 18, 2024

• There were 42 rating actions related to environmental, social, and governance (ESG) factors in the second quarter, up from 35 in the first quarter, a 20% increase--with negative actions continuing to outpace positive ones.
• Governance factors remained the primary driver in the second quarter, representing 83% of ESG-related rating actions. Risk management, culture, and oversight continued to be the primary underlying ESG factor with 21 actions, up from 18 the previous quarter.
• U.S. public finance continued to be the sector with the most ESG-related rating actions in the second quarter, increasing to 24 from 21 the prior quarter, for a year-to-date total of 45 (58% of total ESG-related rating activity this year).

35. Sustainability Insights | Research: Biofuel Regulations Stoke Demand, Volatility Hits Brakes, July 17, 2024

• While biofuels have been used for decades, notably in transportation, regional and sectoral decarbonization targets and regulation can spur demand and production to another scale. Their use in existing engines and their lower carbon footprint when sustainably produced provide key competitive advantages to fossil fuels.
• Large-scale global adoption lags amid many hurdles, starting with uneven regulations, the need for further capacity investments, and broader environmental risks associated with some biofuel production.
• The regulatory landscape is rapidly evolving, and we believe this could benefit the agribusiness and refining sectors to some extent because of favorable remuneration schemes beyond top-line growth. But cost pressures on margins and profit volatility from competing feedstocks remain key risks, while increased fuel cost is an added risk for the transportation sector.
• Prospects over the next 10-15 years are positive, although the technology faces short term hiccups, and electric vehicle (EV) adoption likely will eventually reduce road transportation demand for these fuels.

36. Green, Social, And Sustainable Debt Maturities Approach $1.2 Trillion Through 2028, July 17, 2024

• S&P Global Ratings rates over $2.6 trillion in outstanding green, social, sustainable, and sustainability-linked bonds (GSSSBs), and maturities from April 2024 through 2028 have grown to $1.2 trillion. The growth in GSSSB issuance is leading to rising maturities, but we expect them to remain manageable.
• Annual maturities through 2028 peak at $307 billion in 2026, and annual issuance over the past few years has been roughly double this amount. As a result, we think the depth of the GSSSB market is more than sufficient to meet refinancing needs. What's more, over 90% of GSSS bonds are rated investment-grade.
• Green bonds represent 51% of the total GSSSB maturities through 2028, followed by sustainability bonds (22%) and social bonds (20%). Europe is the main issuing region with 41% of maturities through 2028.

Financial institutions

37. Cambodian Banks: The Struggle Is Real, July 17, 2024

• Cambodian banks will need more time to recover from COVID hits to tourism and souring property markets.
• We expect nonperforming loans will continue to increase before peaking in 2026 at 7.7%.
• Longer term, broader diversification of the Cambodia's economy could reduce risks in the banking system.

38. Credit FAQ: Bank Regulation Can Help Insulate Captive Auto Lenders, July 16, 2024

• Captive finance entities offer automakers an efficient means of offering potential buyers competitive financing options. In some cases, they come under the supervision of local banking regulators.
• Indeed, the recent reorganization of Volkswagen AG's (VW's) captive finance entities brought more of the group's captive finance entities under the regulatory supervision of the European Central Bank (ECB).

39. Global Banks Midyear Outlook 2024: Searching For Calmer Waters, July 17, 2024

• Our outlook for global banks remains steady. As of June 30, 2024, about 75% of bank rating outlooks were stable. This resilience is largely due to solid capitalization, improved profitability, and still sound asset quality.
• That said, the slow economic growth expected in the second half of the year--while rates remain elevated--presents headwinds for business volumes, asset quality, and financing conditions.
• In addition, elections (more than 70 in about 40 countries in 2024), and the Russia-Ukraine and Israel-Hamas wars bring spillover risks, including market volatility. Positively, most banks' earnings continue to benefit from high interest rates and limited credit losses.
• Commercial real estate (CRE) markets are suffering a significant downturn in some jurisdictions, especially in the U.S., China, and a few European countries. Related credit losses are increasing but should be manageable for most.
• We anticipate credit divergence to continue. Pressure will remain more pronounced for nonbank financial institutions and entities with weak funding profiles or those that are more exposed to geopolitical, political, or CRE risks.

40. Global Banks Country-By-Country Midyear Outlook 2024: Searching For Calmer Waters, July 17, 2024

• Our outlook for global banks remains steady.
• Four key risks could hit bank ratings, including (1) deviation from our economic base case, (2) greater property sector deterioration, (3) high corporate and government-sector leverage, and (4) digitalization, generative AI, climate change and cyber to challenge business models and risk management.
• This report includes our overarching view and one-page summaries for 86 banking jurisdictions.

41. Global Banks - Our Credit Loss Forecasts: Asset Quality Is Normalizing, July 11, 2024

• Across the 87 banking systems that S&P Global Ratings covers, we expect credit losses of more than $1,667 billion over the two years to end-2025. This represents an annual rise in losses of $82 billion (11%) in 2024, and a further, more modest rise of $10 billion (1%) in 2025.
• More than half of these losses--about $857 billion over 2024-2025--are from China's banking system, reflecting its sheer size in a global context. In terms of customer loans, the Chinese banking system is about 95% of the size of the G7 banking systems combined.
• Over the same period, losses in North America, Western Europe, and Asia-Pacific (excluding China) together amount to about $545 billion, one-third of the global total.
• While losses are rising in monetary terms, still-positive loan growth means that we don't expect a huge upsurge in credit losses as a proportion of customer loans.

42. Tighter Liquidity Regulations Could Help Fortify The U.S. Banking Sector, Where Liquidity Risks Still Linger, July 12, 2024

• Potential changes to liquidity regulations for U.S. banks, particularly large banks, could lead to more robust liquidity risk management over time and could lower the odds of seeing bank failures similar to that of Silicon Valley Bank.
• For now, U.S. banks continue to navigate through liquidity pressures (marked in many cases by large unrealized losses on securities and low cash holdings), including by limiting growth.
• While a rise in deposits and a slowing of the Fed's quantitative tightening have recently supported banks' liquidity, an unexpected increase in liquidity strains could lead to negative rating actions.

Health care and pharmaceuticals

43. Health Care Credit Beat: U.S. Supreme Court’s Chevron Decision Holds Mixed Implications For Industry, July 19, 2024

• The U.S. Supreme Court overturned the so-called Chevron deference principle, which had prescribed that courts should defer to an appropriate regulatory agency to reasonably interpret ambiguities in regulatory law, leveraging that agency's expertise. Federal courts will now have the lead role in determining whether agencies are properly applying regulatory laws.
• The ruling will have a mixed impact on the U.S. health care industry, though we believe collectively the net impact will be negative longer term.
• We expect this decision to increase challenges to already established rules, crowd court schedules, and stretch agency resources, extending decision times. We also expect regulations to take longer to draft and pass.
• In the near term, we are watching most closely the impact to the Inflation Reduction Act and No Suprises Act, both of which have significant impact to the pharmaceutical and health care services industries, respectively, and face litigation from industry players.

Insurance

44. Japan Insurers Credit Assessments Generally Improve Under Revised Capital Adequacy Criteria, July 17, 2024

• S&P Global Ratings has applied its revised capital adequacy criteria to Japanese insurers and reviewed our ratings on them.
• The revised criteria improved the overall capital adequacy assessment of Japanese insurers, leading us to raise the stand-alone credit profile (SACP) on five of 17 companies and upgrade one.
• The improvement in capital adequacy assessments was mainly due to the removal of various haircuts to liability adjustments as well as the impact of more explicit credit for diversification. These factors outweighed the negative effects of the change in equity-like reserves to an after-tax basis and the increase in capital charges due to higher confidence levels.

Leveraged finance

45. Market Insights: Sector Intelligence | Leveraged Finance: U.S. And Canada Summary Report, July 16, 2024

• Upgrades outnumbered downgrades among speculative-grade corporate issuers in June, with 26 upgrades and 23 downgrades, reflecting issuers' improving credit quality. The health care sector experienced the most downgrades, followed by the restaurants and retail sectors. On the other hand, the media and entertainment and leisure sectors had the most upgrades.
• The media and entertainment sector has experienced the most defaults so far in 2024 as lower-rated issuers continue to struggle with changing consumer preferences. AMC Entertainment Holdings Inc.'s weak credit measures, including its negative free operating cash flow and substantial debt burden, rendered its capital structure unsustainable. Some of the other defaults involved companies operating in subsectors experiencing secular declines. The preliminary trailing 12-month speculative-grade corporate default rate remained above its long-term average of 4.1% at 4.66% as of May 2024.
• In June, the outlook distribution for North American speculative-grade corporate ratings remained unchanged. Compared with the prior year, the mix has shifted slightly, with the proportion of stable outlooks dropping to 70% (from 72%) while the proportion of negative CreditWatch placements and negative outlooks increased to 22% (from 20%).

Media and telecom

46. European Telecoms: Sector Outlook And Hot Topics, July 18, 2024

• We expect stable telecom ratings with modest revenue, margin gains, and lower capital expenditure (capex) to generate stronger cash flow.
• The first quarter of 2024 saw a generally positive earnings and outlook for European telecoms operators--reporting a 1%-2% uptick in revenue on average.
• Our macroeconomic forecast is for a soft landing. Falling inflation will benefit margins but erode the tailwind to revenue growth.
• Approvals on mergers and acquisitions (M&A) in Spain and Italy, lighter touch wholesale regulation, and spectrum extensions have been positive. Competitive pressures could further moderate, pending additional alternative network rationalization and the regulatory review outcome of the Vodafone/Three transaction in the U.K., though we remain cautious on additional regulatory permissiveness.
• Competition remains a threat to pricing in more fragmented markets, especially those without a stable, balanced market share.

47. Indian Telcos Eye Next Phase Of Market Repair, July 11, 2024

• The Indian telecommunications industry looks set for the next phase of market repair, as it settles more stably into a three-player market.
• We believe entities will take the opportunity to embark on a much-needed focus on improving earnings and balance sheets.
• Investors will likely remain willing to amply fund the top-three players.

Public finance

48. China Tier-One Local Government Risk Indicators Chartbook, July 22, 2024

• China's local and regional governments (LRGs) are taking different paths to shore up their economies. Affluent regions are leveraging on their financing ability to push through public investments and roll out policy stimulus. Poor regions are focusing on structural transformation amid a pressing need for debt resolution.
• Tier-one LRGs' budgetary performances improved in 2023, owing to the central government's (CG) increased budgetary transfer and LRGs' tapering capex appetite amid still-weak land sales. The trend is more pronounced among the 12 highly indebted regions, which are cutting spending and have CG support skewed toward them.
• A subgroup of five special planning cities are dealing with continued capital needs for still-large infrastructure projects and still-soft revenue from land sales. This has resulted in widening deficits, diverging further away from the tier-one average. The situation could worsen if continued public investments do not translate into economic and fiscal benefits in time.
• Besides transfer support, CG also allowed the 12 highly indebted regions to issue the majority of special refinancing bonds (SRBs) in 2023 (70% of RMB1.4 trillion), to deal with hidden debt borne by local government financing vehicles (LGFVs). However, the size of issuance was insufficient to meaningfully resolve the LGFVs' debt burden and added contingent risk for the majority of these 12 LRGs via onlending to lower tiers.
• The capacity of tier-one LRGs to support their local state-owned enterprises (SOEs) has become more selective, squeezed by continued spending for infrastructure and slow revenue restoration. With SOEs' ongoing reforms bringing about more commercialized businesses, LRGs' support will be prioritized to those with large-scale policy mandates.

49. U.S. State Funding: Propping Up Public Universities In An Increasingly Competitive Landscape, July 19, 2024

• Improved state credit quality over the past few years has generally translated into more funding for higher education, benefitting public universities.
• State appropriations have increased substantially over the past few years, offsetting some of the challenges universities have faced, particularly less selective regional universities facing enrollment declines.
• State budgets are expected to remain fairly stable in fiscal 2025; however, if states' revenues are pressured, public university funding could be at risk.

50. U.S. Not-For-Profit Private College And University Fiscal 2023 Medians: Inflated Expenses, Deflated Support Contribute To Weaker Margins, July 19, 2024

• U.S. not-for-profit private colleges and universities faced ongoing demand pressure in fiscal 2023, with a median enrollment decline of 0.8%. However, those in the 'AAA' and 'AA' rating categories generated stable demand while enrollment decreases were concentrated in lower rating categories.
• Absent federal relief funding, enrollment decreases, increased tuition discounting, and inflation contributed to weaker operations in fiscal 2023, particularly for 'BBB' and speculative-grade institutions.
• While median cash and investments fell year over year, balance sheets remained stronger than they were before the pandemic.
• The median debt burden dropped slightly sector wide but increased for speculative-grade issuers.

51. U.S. Not-For-Profit Public College And University Fiscal 2023 Medians: Rising State Funding Offers Hope Amid Continued Demand Pressures, July 19, 2024

• U.S. public higher education institutions continued a long trend of weakening demand metrics in fiscal 2023, with a median enrollment decrease of 0.7%. This trend was almost evenly spread across rating categories with the exception of a small increase in median enrollment at 'AAA' rated flagship institutions.
• Freshman application metrics were down similar to enrollment trends, but public colleges and universities had more success in maintaining retention and graduation rates.
• While demand pressures and the depletion of federal relief funds translated into tightening financial performance, improved state funding allowed most institutions to maintain net operating results close to pre-pandemic levels.
• Despite some volatility in investment markets, nearly all financial resource ratios modestly improved in fiscal 2023 across rating categories.

52. U.S. Public Finance 2024 Midyear Outlook: A Cooldown Ahead, July 15, 2024

• What we're watching: Higher interest rates and inflation remain headwinds for most issuers from a debt issuance and operating and capital budget perspective. Summer storm and fire season heightens the possibility of catastrophic events that require swift response and resource allocation Federal policy uncertainty given the upcoming elections.
• Trends: Credit conditions have been mostly stable, but credit pressure has accelerated for some sectors and the outlook distribution has weakened. The U.S. economy has been remarkably resilient, but income growth has lagged spending growth so we expect consumer spending will slow. The phase-out of federal stimulus has created imbalances for some, but healthy financial reserves continue to provide flexibility.
• Rest of year expectations: Our baseline U.S. economic forecast is now for slower growth through the rest of the year with monetary policy easing unlikely until the end of the year; however, we don't expect this to disrupt credit stability for most issuers.

53. What Lifts Municipal Ratings Up: A Look At U.S. State Credit Enhancement Programs, July 11, 2024

• U.S. state credit enhancement programs provide additional security to bondholders for certain bonds that are also secured by an underlying municipal obligor, such as a school district, municipality, charter school, or higher-education institution. In addition to the intended payment source that program participants pledge to debt service, the state commits itself to paying timely debt service on behalf of the participant, should these revenues fall short.
• These programs generally have minimal changes over time, and new broad-based state credit enhancement programs are not common.
• We anticipate few changes other than to strengthen or clarify program features, as the tenure of these programs and their effectiveness in supporting market access at lower costs for local issuers is an appealing opportunity for states to provide backing. However, in the unlikely event that there is a change in program mechanics, it may affect our ratings within the program.

Real estate

54. Credit FAQ: Build To Rent: A Credit Perspective On Australia's Housing Future, July 22, 2024

• Australia aims to ramp up the supply of residential rentals to help meet chronic housing undersupply.
• This is largely an untested residential segment for the country, whose housing market is dominated by owner-occupied dwellings.
• S&P Global Ratings does not expect Australia's build-to-rent (BTR) initiative will roll out in as sweeping a way as government targets would imply. We do, however, think over time BTR could relieve housing pressure and expand the spectrum of housing on offer to tenants.

55. Brazilian Low- To Mid-Tier Homebuilders Continue To Thrive Amid Government Housing Program Changes And Rising Demand, July 16, 2024

• Changes in Brazil's federal housing program Minha Casa, Minha Vida (MCMV) have been boosting housing starts and homebuilders' sales since 2023. Given additional changes to the program implemented earlier this year, S&P Global Ratings expects the operations of low- to mid-tier homebuilders to continue expanding and improving in 2024 and 2025.
• We expect lower construction costs and deliveries of projects that suffered from supply-chain disruptions to strengthen profitability in 2024. This, along with lower interest expenses and increased mid-tier home deliveries, should bolster cash generation.
• Improved operating metrics should help reduce homebuilders' leverage, despite our expectations of debt refinancing in 2025.
• São Paulo's housing program, Pode Entrar, will help lower homebuilders' cash flow exposure. In addition, the program's structure, including delinquency safeguards, coupled with lower marketing expenses, will improve the homebuilders' operations.

Sovereigns

56. CreditWeek: What Will Recent European Election Results Mean For Sovereign Debt And Ratings?, July 18, 2024

• The recent elections in France and the U.K. were respectively inconclusive and decisive, but there is at least one commonality: challenging public finances—a condition that holds true across the Group of Seven (G-7) and the EU.
• S&P Global Ratings expects that some of the largest G-7 sovereigns won't deliver budgetary consolidation sufficient to stabilize their debt-to-GDP ratios (which we estimate to be equivalent to at least 2% of GDP for most of these sovereigns). In light of lingering post-pandemic spending pressures, several European governments are finding it difficult to adjust their fiscal balances to less than 3% of GDP.

57. Credit FAQ: Will Callable Capital Be A Game Changer For The MLI Asset Class?, July 22, 2024

• In 2022, a G-20 expert panel review published a report "Boosting MDB's Investing Capacity," which included a recommendation to incorporate uplift from callable capital into multilateral development banks' (MDB) capital adequacy frameworks as one approach that can support increasing lending headroom.
• S&P Global Ratings responded to these recommendations and noted that callable capital could be a useful risk mitigant tool to support creditworthiness when there's downward pressure on our capital adequacy assessment.

58. Abridged Supranationals Interim Edition 2024: Multilateral Lending Institutions Sector Updates, July 12, 2024

• It's been almost two years since the expert panel review presented their review of multilateral development banks (multilateral lending institutions or MLIs in S&P Global Ratings' terminology) capital adequacy frameworks.
• A handful of MLIs have been actively exploring and responding to these recommendations, which we believe will over time reshape the sector.

Structured finance

59. Credit FAQ: How House Price Changes Affect Our EMEA Residential Mortgage Loans Analysis, July 12, 2024

• House prices are a crucial input in S&P Global Ratings' credit analysis when evaluating transactions backed by residential assets.
• The value and stability of house prices significantly influence collateral performance by affecting recovery values, as well as being an influencing factor for a borrower to default.
• This article addresses key questions raised by market participants in EMEA residential mortgage-backed securities (RMBS) and covered bond markets on our analytical approach in relation to house price considerations.

60. EMEA RMBS And ABS Monitor Q2 2024, July 22, 2024

• During Q2 2024, rating actions were up 19% quarter-on-quarter to 192, comprising 133 affirmations, 17 downgrades, and 42 upgrades. While affirmations exceeded last quarter's total (81), downgrades almost dropped by half (from 31), and upgrades decreased slightly (from 49).
• We reviewed 34 ABS and 98 RMBS transactions--28% of our total rated ABS and RMBS universe--through rating actions and our annual review surveillance process.
• We rated almost double the number of new transactions compared to the first quarter of the year (33 new rated deals versus 17). We rated 11 new ABS (Q1 2024: 2) and 22 new RMBS (Q1 2024: 15) transactions. We also rated new notes issued from three existing transactions. The issuances were geographically diverse. The RMBS transactions comprised assets from jurisdictions infrequently seen, Italy and Spain. We rated the first European data center transaction.
• Rating actions mainly covered affirmations (69% of classes reviewed), upgrades (22%), and downgrades (9%), with negative actions affecting classes originally rated from 'AA+ (sf)' to 'B-(sf)'.
• Rating action severities were 1.5 notches for downgrades and 1.6 notches for upgrades.
• Most RMBS affirmations were concentrated in U.K. transactions (58%), followed by Netherlands (20%), Portugal (13%), and Ireland (9%). U.K. transactions accounted for 58% of upgrades, followed by Portugal and Ireland (17% each), and Netherlands (8%). A significant proportion of downgrades were in U.K. transactions (88%, of which 73% related to BTL legacy deals and the rest to non-conforming deals), followed by Netherlands (12%, related to a legacy deal).
• We upgraded six ABS tranches and affirmed 63 tranches. No negative actions were taken on ABS transactions. Most upgrades were driven by increased credit enhancement and good performance. Two upgrades related to the guarantor's upgrade.

61. EMEA Structured Finance Chart Book: July 2024, July 18, 2024

• Macro. Lower energy prices and a resilient labor market (see chart) have enabled the eurozone economy to return to growth and the European Central Bank (ECB) to cut rates. We expect a return to potential growth by 2025, with inflation at 2% by mid-year. This would permit the ECB to cut rates by 25 basis points each quarter until the deposit rate bottoms out at 2.5% in the third quarter of 2025. In the U.K., the labor market is cooling quickly and consumers remain cautious, saving a greater share of their income than before. We think the Bank of England will start lowering interest rates gradually from August, with a drop of two percentage points by end-2025.
• Issuance. Investor-placed securitization issuance for June 2024 was €10.8 billion—down from the post-crisis record of May but still substantially higher than the €4.5 billion total from June 2023. Following strong activity over the past several months, overall issuance in the first half of the year was more than €75 billion, comfortably exceeding the previous post-crisis record of €56 billion in 2018. European benchmark covered bond issuance was strong earlier in the year but stalled significantly in June due to wider market volatility around the snap election called in France. Benchmark issuance in June was only €4.4 billion—at least a 10-year low for the month. Cumulative issuance reached €107 billion in the first half of 2024.
• Rating actions. In June 2024, we raised 26 of our ratings on European securitization tranches in some leveraged loan CLOs and a few southern European ABS and RMBS. There were also nine downgrades, mostly in the Elizabeth Finance 2018 U.K. CMBS transaction, where all tranches are now likely to default.

62. European CLO Monitor Q2 2024, July 15, 2024

• Rating activity for European CLOs was strong during Q2 2024, where we reviewed six transactions managed by five collateral managers.
• Rating transitions--mainly upgrades (60% of classes reviewed) and affirmations (40%)-- were positive primarily due to stable credit performance and higher credit enhancement driven by deleveraging.
• Rating action severities were 2.4 notches for upgrades and 1.5 notches for all rating actions during the quarter.
• CELF accounted for most affirmations and upgrades among the six transactions we reviewed (with two transactions for this collateral manager).
• We reviewed 121 transactions as part of our annual review surveillance process.
• We rated 45 new transactions (including one refinance and nine reset).
• We withdrew ratings on 135 tranches in 25 transactions, mainly due to redemption, reset, and refinancing.

63. Covered Bonds Outlook Midyear 2024: Growth And Rates Support Performance, July 11, 2024

• Our covered bond rating outlook remains stable, underpinned by the ample credit enhancement available to most of the programs that we rate and the presence of unused rating notches, both of which reduce the risk of downgrades.
• We expect that eurozone GDP growth will gradually recover toward the potential on the back of an increase in consumer spending in the second half of 2024 and investments in 2025. Job vacancies are still plentiful, and we expect unemployment rates to remain at, or close to, record lows in all major European economies.
• Eurozone headline inflation should move back to the 2% target by mid-2025, enabling the European Central Bank (ECB) to cut rates by 25 basis points (bps) per quarter until the deposit rate bottoms out at 2.5% in the third quarter of 2025.
• Despite higher interest rates and inflation, residential mortgage performance is still stronger than before the COVID-19 pandemic, thanks to a tight labor market, household saving buffers, and the switch to fixed-rate mortgages. Easing interest rates and a return to economic growth will limit the risk of further deterioration.
• Higher interest rates and a structural drop in the demand for commercial real estate (CRE) since the COVID-19 pandemic, particularly in more vulnerable segments such as nonprime offices, is affecting valuations, and we are starting to see the first signs of asset quality deterioration. But a return to growth and lower interest rates should ease the downward momentum in valuations and thereby stabilize credit quality.

64. ABS Frontiers: Aging Populations Could Drive Demand For Reverse Mortgages, July 13, 2024

• For at least four decades, many countries have seen an upward drift in the percent of their populations that are aged over 60 years and nearing or in retirement. If the trend continues, demand for reverse mortgages could increase in the future, particularly because many seniors are asset rich and cash poor.
• With reverse mortgages, different paths of interest rates and home price appreciation can lead to varying rates of home equity erosion, posing risks to both the lender and borrower.
• S&P Global Ratings has established criteria for rating new transactions of reverse mortgages in the U.K., and we would likely borrow these to rate similar deals in other countries. This would involve a consideration of regional variation in housing finance and regulations along with key risks, some of which are contemplated in this article.

65. Inside Global ABCP 2024 Update, July 11, 2024

• ABCP sector performance and rating is expected to remain stable across U.S. and EMEA.
• Derivative financing arrangements (total return swaps, repurchase agreements, securities lending agreements etc.) are steadily increasing in both U.S. and EMEA ABCP.
• Bank ratings supporting ABCP are expected to be resilient despite higher interest rates.
• Current issuance and utilization rates of ABCP in EMEA are at a decade high.
• Although limited at this stage, we expect Green ABCP issuance in EMEA to rise in the long term with increased investor demand for "Green" or "Sustainable" ABCP.
• France has recently been downgraded to 'AA-' and we do not anticipate immediate impact on the current ratings of French ABCP programs.

66. Legacy U.K. Buy-To-Let RMBS: Crunch Time For Arrears And Losses, July 18, 2024

• Our analysis suggests that one in every five loans in 90+ days arrears backing legacy U.K. buy-to-let (BTL) residential mortgage-backed securities (RMBS) transactions that we rate, is more than 12 months in arrears. This build-up of late-stage arrears may have several causes.
• Although interest rates have increased rapidly since 2022, the absolute level is similar to rates that loans backing legacy U.K. BTL RMBS transactions saw at origination.
• Servicers are reporting that smaller BTL investors have been using BTL as their primary personal income source and have been unable to pass on rate rises and/or have prioritized personal spending above keeping up-to-date on their BTL mortgage payments.
• The build-up of loans in arrears for longer than three months will become a key transaction performance metric, as build-up may indicate the appointment of a receiver of rent is not economically viable.

67. U.S. Structured Finance Chart Book: July 2024, July 18, 2024

• Higher interest rates continue to increase the challenge of refinancing commercial mortgage loans, and more defaults could follow, particularly for loans secured on lower-quality office properties in secondary locations. This could put further pressure on CMBS ratings.
• A growing market share of BEVs and PHEVs will increase credit risk in auto asset-backed security (ABS) transactions. As BEVs and PHEVs currently depreciate more than internal combustion engine (ICE) vehicles and hybrid electric vehicles (HEVs), we have adjusted our recovery and residual value assumptions in securitized pools with more than 10% exposure to BEVs, and 30% and 20% exposure to PHEVs in European and North American transactions, respectively.
• When rating transactions or companies backed by data center assets, we use one of four main analytical approaches: ABS, CMBS, corporate/REIT, or project finance. The approach we choose depends on several factors; most notably, the financing vehicle.
• S&P Global Ratings has established criteria for rating new transactions of reverse mortgages in the U.K., and we would likely borrow these to rate similar deals in other countries. This would involve a consideration of regional variation in housing finance and regulations along with key risks, some of which are contemplated in this article.

68. U.S. Auto Loan ABS Tracker: May 2024 Performance, July 11, 2024

• U.S. auto loan ABS performance was mixed in May. Annualized losses continued to improve month-over-month for subprime and remained stable for prime, though losses were higher year over year and relative to May 2019 pre-pandemic levels. Recoveries changed only marginally month over month, but they remained lower year over year and compared to the May 2019 pre-pandemic level.
• Although 60-plus-day delinquencies remained stable month over month, prime delinquencies reached their highest May levels since 2010, while subprime reached their highest-ever May level.
• In June, we revised our expected cumulative net loss levels for 49 transactions, upgraded 75 classes, affirmed 105 classes, and downgraded none.

Technology

69. Midyear 2024 IT Forecast Update: Robust Cloud Spending Offsets Still-Cautious Enterprise Budgets, July 17, 2024

• Our updated 2024 global information technology (IT) spending outlook is mostly unchanged at 8.2% as robust cloud service provider (CSP) spending is offsetting otherwise still-cautious enterprise spending.
• Semiconductors and IT services are performing better than expected while hardware, sans servers, and software are modestly weaker.
• Artificial intelligence (AI) is proving to be the game changer as CSPs are investing ahead of anticipated demand and enterprises are slowing traditional IT spending while cautiously exploring AI opportunities.
• Long-term risks to our IT forecast include potential volatility related to the AI investment cycle and rising geopolitical tensions with China, which is already disrupting the technology supply chain.

70. Credit FAQ: From Bust To Boom: How AI Is Uplifting The Korean Memory Makers, July 2, 2024

• The memory chip market is always cyclical, but rarely this cyclical. The sector has recently pulled out of a steep, year-long downturn, into what looks like a prolonged boom.
• The catalyst for this reversal? Global firms' escalating spending on the systems that power AI.
• Korean memory makers SK Hynix Inc. and Samsung Electronics Co. Ltd. take up the lion's share of the global HBM market. SK Hynix in particular has established a leading sales position in the latest generation of HBM chips.
• The rapid reversal of conditions for Korean chipmakers has drawn inquiries from investors. We address their frequently asked questions to examine the rise of AI and its credit impact on the entities.

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