Daily Update: Outlook For Credit Recovery is Mixed
Today is Thursday, January 23, 2025, and here’s your curated selection of essential intelligence on financial markets and the global economy from S&P Global. Subscribe to be notified of each new Daily Update.
S&P Global Ratings’ Credit Cycle Indicator continues to point to a credit cycle recovery this year, driven by rising leverage and looser monetary policy globally. But the household and corporate sectors appear to be diverging. For corporations, earnings growth and supportive market conditions are buoying credit markets. For households, credit remains at a subdued level versus historical averages. The lingering effects of inflation have eroded household purchasing power, which has encouraged caution and deleveraging. Across regions, there are additional disparities in the credit cycle outlook.
The Credit Cycle Indicator (CCI) was introduced in 2022 to provide a leading indicator of credit stress. Historically, indicators such as credit spreads, net rating downgrades and bond defaults were used to anticipate credit stress. Peaks in the CCI tend to precede negative credit developments by six to 10 quarters though, making it another useful data point to analyze the credit cycle. The CCI consolidates information about indebtedness, asset prices and financing conditions by geography, but does not capture all risk factors such as exogenous shocks and industry-specific elements.
The global CCI entered a prolonged trough at the beginning of 2023 but is beginning to recover. As the global economy has landed without a major recession in the wake of higher interest rates, many central banks have begun to lower policy rates.
In Asia, China’s CCI slumped as weak house prices and income prospects erode household confidence. In Japan, the CCI has risen with a rebound in corporate credit demand and household leverage. Both countries are eyeing more accommodative monetary policies in 2025. Across the rest of Asia, credit recovery is cooling as continued weaknesses in the real estate sector, political upheaval and cautious investor sentiment has slowed credit markets.
The CCI of emerging markets continues to trend upward but the pace of recovery is easing, due in part to concerns over protectionism in global trade. In the eurozone, leverage continues to lie below historical averages for corporate and household credit. Since the pandemic, caution has stalled credit markets and positive sentiment should lead to a recovery.
The North American CCI remains the wild card. On the one hand, the CCI signals a potential credit upturn in 2025, supported by an economic soft landing and favorable financing conditions. On the other hand, policy changes in the US could raise cost pressures, market volatility and risk tightening liquidity. Corporate debt in North America appears healthy due to projected earnings growth and supportive market conditions. But household subindicators point in the opposite direction, due in part to a multiyear record level of new delinquencies in auto loans and credit card debt.
Today is Thursday, January 23, 2025, and here is today’s essential intelligence.
Written by Nathan Hunt.
Sustainability
Sustainability Insights Research: Decarbonizing European Real Estate Won't Be Easy
With 80% of the EU's residential properties built before 2000, real estate companies could face massive investments in their quest to cut emissions after 2030. Rated real estate companies in Europe are targeting a 40%-50% reduction of emissions by 2030. This represents a 15%-20% energy efficiency improvement, which is in line with updated regulatory requirements. Decarbonization solutions are already generally available, but companies will need to continue to renovate their portfolios to meet regulations and their own goals.
—Read the article from S&P Global Ratings
Economy
Los Angeles Wildfires Highlight Evolving Risks and Challenges for Local Governments
Given the strength and resilience of the LA regional economy, S&P Global Ratings believes that the direct impact of the LA wildfires on local government credit quality will be limited, even as the area experiences significant damage and loss. Going forward, the increasing frequency and severity of wildfires in urbanized areas in California will require local governments and utilities to meet a higher standard of risk resilience for infrastructure and services. It also exposes them to greater liability compared with entities in other states with wildfire exposure. Beyond the horizon of this event, increased costs will likely push debt burdens higher and exacerbate tax and rate-setting pressures in a region already facing affordability constraints.
—Read the article from S&P Global Ratings
Capital Markets
US Homeowners Rates Rise By Double Digits for 2nd Straight Year in 2024
US homeowners insurers have hiked premium rates by double-digits over the past two years, according to S&P Global Market Intelligence's RateWatch application. Based on approved filings through Dec. 27, 2024, the national calculated weighted average effective rate increase for homeowners insurance was 10.4% last year. That uptick followed a 12.7% rise in the previous year. In total, 33 states had double-digit calculated effective rate increases in 2024, with the largest calculated increase occurring in Nebraska at 22.7%.
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—Read the article from S&P Global Market Intelligence
Global Trade
Houthis to Halt Attacks Against Most Red Sea Shipping
Yemen's Houthi militants announced a major pullout from attacks against shipping in the Red Sea Jan. 20, saying they will now only target vessels with strong links to Israel following the Gaza ceasefire deal between Israel and Hamas. Ships heading for Israeli ports, even those partially owned by Israeli individuals or entities and managed or operated by them, are exempt from attacks as of Jan. 19, according to a statement from the Houthis.
—Read the article from S&P Global Commodity Insights
Energy & Commodities
Listen: What's at Stake in Energy as Germans Go to the Polls
Ahead of Germany's general election on Feb. 23, Energy Evolution looks at the energy implications for Europe's largest economy. With the center-right Christian Democrats leading in the polls, correspondent Camilla Naschert lays out the party's energy plans and discusses the main priorities for Germany's energy system with expert guests.
—Listen and subscribe to the podcast from S&P Global Commodity Insights
Technology & Innovation
Tech IPOs, GenAI & Datacenters
Generative AI (GenAI) has been one of the bright spots in PE and VC investing. Public and private valuations in this sector have gone up substantially. Prime AI companies have no problems raising billions of dollars. This sector saw a doubling of PE/VC investments in 2024 and we expect the fundraising records to probably continue in 2025.
—Read the article from S&P Global Market Intelligence
Events & Webinars
Webinar: Global Credit Outlook 2025: Questions That Matter (Jan. 24, 2025)
S&P Global Ratings’ Global Credit Outlook 2025 presents its credit and macroeconomic outlooks for the year ahead, including its base-case forecasts, assumptions and key risks. At a time when key themes and risks appear to be increasingly interconnected, we invite you to explore the depth and breadth of expertise offered by S&P Global Ratings analysts and experts as we scan the horizon of what promises to be another challenging period for global markets.
—Register for the webinar from S&P Global Ratings
Realtor Associate @ Next Trend Realty LLC | HAR REALTOR, IRS Tax Preparer
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