(Reuters) -U.S. government services would be disrupted and hundreds of thousands of federal workers would be furloughed without pay if Congress fails to provide funding for the fiscal year starting Oct. 1. Workers deemed essential would remain on the job, but without pay.

Many government agencies have not updated shutdown plans they have prepared in the past. Here is a guide to what would stay open and what would shut down:

MILITARY

The 2 million U.S. military personnel would remain at their posts, but roughly half of the Pentagon’s 800,000 civilian employees would be furloughed.

Contracts awarded before the shutdown would continue, and the Pentagon could place new orders for supplies or services needed to protect national security. Other new contracts, including renewals or extensions, would not be awarded. Payments to defense contractors such as Boeing, Lockheed Martin and RTX, formerly known as Raytheon, could be delayed.

The Department of Energy’s National Nuclear Security Administration would continue maintaining nuclear weapons.

LAW ENFORCEMENT

Agents at the FBI, the Drug Enforcement Administration (DEA) and other federal law enforcement agencies would remain on the job, and prison staffers would continue to work.

Criminal prosecutions, including the two federal cases against former President Donald Trump, would continue. Most civil litigation would be postponed. It is unclear whether the government’s landmark Google antitrust lawsuit would be disrupted, though other antitrust cases have continued through past shutdowns.

Most Border Patrol and immigration enforcement agents would continue to work, as would most customs officers. The Secret Service and the Coast Guard would also continue operations, and most employees would continue to work.

Most of the Federal Trade Commission’s consumer-protection workers would be furloughed, as would half of its antitrust employees.

FEDERAL COURTS

Federal courts have enough money to stay open until at least Oct. 13. Activities might be scaled back after that point. The Supreme Court would stay open as well.

CONGRESS

Lawmakers continue to collect paychecks, even as other federal workers do not. Staffers do not get paid, though those deemed essential would be required to work.

TRANSPORTATION

Airport security screeners and air-traffic control workers would be required to work, according to recent contingency plans, though absenteeism could be a problem. Some airports had to suspend operations during a shutdown in 2019 when traffic controllers called in sick.

Training for new air-traffic controllers would stop, which Transportation Secretary Pete Buttigieg has warned could worsen a shortage of qualified workers.

Some major infrastructure projects could face delays as environmental reviews and permitting would be disrupted, according to the White House.

FOREIGN AFFAIRS

U.S. embassies and consulates would remain open. Passport and visa processing would continue as long as there were sufficient fees to cover operations. Nonessential official travel, speeches and other events would be curtailed.

Some foreign aid programs could run out of money as well.

NATIONAL PARKS AND NATURAL RESOURCES

It’s not clear how national parks, national monuments and other sites would be affected. Many remained open during a 2018-2019 shutdown, through restrooms and information desks were closed and waste disposal was halted. They were closed during a 2013 shutdown.

Wildfire fighting efforts would continue, according to the Agriculture Department’s 2020 contingency plan, though timber sales on national forest lands would be curtailed and fewer recreation permits would be issued.

MUSEUMS

The Smithsonian museums that line the National Mall would close, as would the National Zoo. That would bring a premature end to the Zoo’s farewell celebration for its three giant pandas, which are due to return to China.

SCIENCE

Scientific research would be disrupted as agencies like the National Institutes of Health, the National Science Foundation and the National Oceanographic and Atmospheric Administration (NOAA) would furlough most of their workers, according to recent contingency plans.

The National Aeronautics and Space Administration (NASA) would continue to support the International Space Station and track satellites, but 17,000 of its 18,300 employees would be furloughed.

Weather forecasts and fisheries regulation would continue, as would patent and trademark reviews. Tests of new drugs and medical devices would continue.

HEALTH

The Centers for Disease Control and Prevention (CDC) would continue to monitor disease outbreaks, though other public health activities could suffer as more than half of the agency’s workers would be furloughed.

The National Institutes of Health would furlough most of its staff and delay new clinical trials for medical treatments.

Healthcare services for military veterans and Native Americans would continue.

Most inspections of hazardous waste sites and drinking water and chemical facilities would stop.

Food-safety inspections by the Food and Drug Administration (FDA) could be delayed.

FINANCIAL REGULATION

The Securities and Exchange Commission (SEC) would furlough roughly 90% of its 4,600 employees and suspend most activities, leaving only a skeleton staff to respond to emergencies.

Likewise, the Commodities and Futures Trading Commission (CFTC) would furlough almost all of its employees and cease oversight, enforcement and regulation, according to its 2021 plan.

The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency would continue as normal, as they are funded by industry fees rather than congressional appropriations.

ECONOMIC DATA

The publication of major U.S. economic data, including employment and inflation reports of critical importance to policymakers and investors, would be suspended, according to the Biden administration.

SOCIAL SECURITY, MEDICARE AND OTHER BENEFITS

The Social Security Administration would continue to issue retirement and disability benefits, and payments would continue under the Medicare and Medicaid healthcare programs.

Military veterans’ benefits would also continue, according to a 2021 contingency plan.

Nutrition benefits provided to 7 million mothers through the Women, Infants and Children (WIC) program would be cut within days, according to Agriculture Secretary Tom Vilsack.

Food aid through the Supplemental Nutrition Assistance Program (SNAP) would go out as normal for October, but could be affected after that, he said.

TAX COLLECTION

The Internal Revenue Service (IRS) would operate as normal, and all 83,000 employees would continue to be paid because the agency’s funding would not expire.

DISASTER RESPONSE

The Federal Emergency Management Agency (FEMA) would be at risk of running out of funds for disaster relief and long-term recovery projects.

EDUCATION

Pell Grants and student loans would continue to be paid, but could be disrupted as most Education Department employees would be furloughed, according to the agency’s 2021 plan.

A protracted shutdown could “severely curtail” aid to schools, universities and other educational institutions, the department says. It also could delay funds that are due to be awarded later in the year.

WATERWAYS

The U.S. Army Corps of Engineers would continue to operate locks, dams and flood control facilities. Most employees would not be furloughed.

CHILD CARE

According to the White House, 10,000 children from low-income families would lose access to the Head Start preschool program.

SMALL BUSINESS SUPPORT

The Small Business Administration would not be able to issue any new loans, though loans for businesses hurt by natural disasters would continue.

AGRICULTURE

Meat and egg inspections would continue, but some lab services would be disrupted, making it harder to fight animal diseases. Crop insurance would not be affected, but some loan programs would be. Research, conservation and rural development programs would be shut down.

LABOR

Workplace safety inspections would be limited, and investigations into unfair pay practices would be suspended, according to the White House.

The ability of the National Labor Relations Board (NLRB) to mediate labor disputes would be curtailed because almost all of its 1,200 employees would be furloughed, according to a 2022 plan.

HOUSING

Monthly subsidies for public housing and low-income housing aid would be at risk. The Federal Housing Administration would continue to back insured mortgages, and Ginnie Mae would continue to back the secondary mortgage market. New homebuyers in rural areas would not be able to get loans from the Agriculture Department.

WHITE HOUSE

In the 2018-2019 shutdown, the White House furloughed 1,100 of 1,800 staff in the Executive Office of the President. Some offices, such as the National Security Council, continued at full strength, while others like the Office of Management and Budget (OMB) were scaled back sharply.

White House furloughs could make it harder to comply with the impeachment investigation of President Joe Biden, a Democrat, by Republicans in the House of Representatives.

The U.S. Constitution specifies that the president continues to get paid.

MAIL DELIVERY

The U.S. Postal Service (USPS) would be unaffected, as it does not depend on Congress for funding.

(Reporting by Andy Sullivan, Pete Schroeder, Howard Schneider, Moira Warburton, Nate Raymond, Makini Brice, Steve Holland, Julia Harte, Diane Bartz, Andrew Chung and Lucia Mutikani; Editing by Scott Malone, Jonathan Oatis and Aurora Ellis)

MOSCOW (Reuters) – Admiral Viktor Sokolov, the commander of Russia’s Black Sea Fleet, was shown on Russian state television on Tuesday attending a defence leaders’ meeting remotely, a day after Ukrainian special forces said they had killed him.

In video and photographs released by the defence ministry, Sokolov was shown as one of several fleet commanders on video apparently joining an in-person meeting of Defence Minister Sergei Shoigu and other army chiefs, although not speaking. It was not clear when the video was filmed.

Ukraine’s special forces said on Monday that Sokolov had been killed along with 33 other officers in a missile attack last week on the headquarters of Russia’s Black Sea Fleet in the port of Sevastopol in Crimea, seized from Ukraine in 2014.

In response to the Russian video, the Ukraine special forces said on Telegram: “Since the Russians were urgently forced to publish a response with Sokolov allegedly alive, our units are clarifying the information.”

Kremlin spokesman Dmitry Peskov had declined to comment on the Ukrainian claim, referring reporters to the ministry.

Ukrainian Defence Minister Rustem Umerov, interviewed by CNN, neither confirmed nor denied Sokolov’s death, but said his demise could only be a good thing for all concerned.

“He is in our temporary occupied territories … he should not be there at all,” CNN quoted Umerov as saying on its website.

“So, if he’s dead, it’s good news for everybody that we are continuing to de-occupy our territory.”

In the video, Shoigu said more than 17,000 Ukrainian soldiers had been killed in September and that more than 2,700 weapons, including seven American Bradley fighting vehicles, had been destroyed.

Reuters could not independently verify battlefield claims.

“The Ukrainian armed forces are suffering serious losses along the entire front line,” Shoigu said, adding that the Ukrainian counteroffensive had so far produced no results.

“The United States and its allies continue to arm the armed forces of Ukraine, and the Kyiv regime throws untrained soldiers to the slaughter in senseless assaults,” Shoigu said.

Kyiv’s counteroffensive has yet to seize much territory from Russian forces, which control about 17.5% of Ukraine’s internationally recognised territory.

According to a Sept. 19 scorecard by the Belfer Center at Harvard’s Kennedy School, Russia has gained 35 sq miles (91 sq km) from Ukraine in the past month while Ukrainian forces have taken 16 sq miles (41 sq km) from Russian forces.

(Reporting by Guy Faulconbridge; Editing by Mark Trevelyan, Gareth Jones, Alex Richardson, Ron Popeski and Timothy Gardner)

By Matt Tracy and David French

(Reuters) -Wells Fargo is teaming up with private equity firm Centerbridge Partners to launch a fund with a capacity to lend more than $5 billion to North American middle-market companies, the groups said on Tuesday.

The move highlights the increasing intertwining of private capital providers and traditional banks in offering credit to companies and consumers since the global financial crisis, as heightened regulation and cost have forced banks to reevaluate the types of loans and services they provide.

Centerbridge and investors including the Abu Dhabi Investment Authority and British Columbia Investment Management Corporation will provide the cash for the direct-lending fund, named Overland Advisors.

For Wells Fargo, also a minority investor in the venture, it can offer the loans to existing customers as an alternative to other financing options.

The loans will likely go toward major initiatives such as financing acquisitions or buying out shareholders, David Marks, executive vice president at Wells Fargo Commercial Banking, said in an interview.

“It is all part of being more strategic to our clients over the long term,” Marks said, noting the collaboration had been under discussion for more than a year.

Loans would be offered to businesses which have earnings before interest, tax, depreciation and amortization (EBITDA) ranging between $25 million to more than $100 million, and would be structured as senior secured debt, per a regulatory filing.

“We knew that if you could marry Wells Fargo’s network and its sourcing engine with an experienced private credit investor like ourselves, you would create something special,” Centerbridge Co-Founder Jeff Aronson said.

Loans from direct-lending funds often carry a higher interest rate than traditional bank debt, making it attractive for private capital providers. However, as credit conditions have tightened, and interest rates have risen, banks have also been seeking ways into the market.

JPMorgan Chase & Co this year entered the direct lending business by setting aside at least $10 billion, Reuters reported, citing a person with knowledge of the matter.

(Reporting by Matt Tracy in Washington, David French in New York and Jaiveer Singh Shekhawat in Bengaluru; Editing by Shweta Agarwal and Jamie Freed)

Cathie Woods Touts Nvidia Alternatives For Tapping AI Boom

Better bets exist for tapping into exponential growth of artificial intelligence. That is a sentiment echoed by Ark Investment Management head Cathie Wood. She made the remarks at a time when most focus is on Nvidia, the tech giant developing chips for powering artificial intelligence solutions and products.

Nvidia Premium Valuation

Nvidia has been the go-to company for investors looking to generate significant returns amid the increased focus on AI. Similarly, the stock has not disappointed, having rallied by more than 200% year to date, having become a Wall Street darling. The rally has since propelled the chip giant into a trillion-dollar company, with most investors confident that the rally will persist.

Wood, through the ARK Innovation ETF fund, has missed out significantly on the significant gain registered year to date. The hedge fund manager trimmed his exposure in the chip giant early in the year on the belief that the stock was overstretched. Nevertheless, Nvidia continued rallying, breaking all kinds of records. Its 2005 gain gas already dwarfed the 37% gain for the tech-heavy index NASDAQ and the 15% gain for the S&P 500.

Thanks to the strong demand for its chips, Nvidia has turned out to be a safe bet for gaining exposure in the AI boom. Its chips are increasingly being used to power emerging AI tools, including OpenAI’s ChatGPT and Alphabet’s Bard. The rapid growth for AI services has only triggered strong demand for the chips, helping bolster its sentiments in the market.

The fact that Nvidia appears to be working on a new era of accelerated computing that can enervate as much as $1 trillion in each spending has only strengthened its sentiments in the market. The solid underlying fundamentals have only justified the premium valuation that the stock enjoys in the market.

Nvidia Alternatives

While trying to downplay the big miss, Wood insists they are focused on other companies with significant exposure to the AI boom that most people are not talking about. According to Wood, investing in the chip giant at current valuation levels would make little sense as it has become really expensive. Consequently, they have shifted their attention to other software companies that are less obvious plays and less expensive.

UiPath Inc. and Twilio Inc. are some of the companies that ARK Investment remains bullish on amid the AI push. According to Wood, UiPath has a fantastic management team backed by a solid core business that entails automating management tasks and internal workflows. According to the hedge fund manager, the company could become a platform that all companies can build on.

Twilio is another exciting play for gaining exposure to the AI boom beyond Nvidia, as it is best known for facilitating business-to-consumer messaging. The company has already inked big business to power Uber Technologies messaging on the ride-hailing platform. The company enabled over 1 trillion messages between consumers and businesses last year, giving it access to huge troves of data. Uber has already started leveraging the troves of data at its disposal to come up with an artificial intelligence-powered chatbot. The chatbot is designed to offer recommendations to enhance its food delivery business and order placement.

(Reuters) – Target said on Tuesday it would close nine stores across four U.S. states, including California, citing that theft and organized retail crime was threatening the security of the retailer’s employees and customers.

The move, effective Oct. 21, will see the closing of one store in New York City, two in Seattle, three locations across the San Francisco and Oakland markets and three in Portland.

Despite heavy investments in security, the company continued to face “fundamental challenges” to running the stores safely, the retailer said. It operates nearly 2,000 stores across the United States.

“We cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance,” Target said in a statement.

Theft and retail crime has become an increasingly pressing issue for U.S. retailers, with organized crime rings targeting retail inventories and causing more financial loss to companies.

A report by the National Retail Federation (NRF), a trade association, earlier on Tuesday showed inventory “shrink” as a percentage of total retail sales accounted for $112.1 billion in losses in 2022, up from $93.9 billion in 2021.

Minneapolis, Minnesota-based Target said it would work with all eligible employees at the affected locations to offer opportunities for transfer to other Target locations.

(Reporting by Deborah Sophia in Bengaluru; Editing by Shweta Agarwal)

By Karen Brettell

NEW YORK (Reuters) – The dollar index hit a 10-month high on Tuesday while the Japanese yen came closer to the key 150 level, where Japanese officials are seen as potentially intervening to shore up the currency.

Benchmark 10-year U.S. government bond yields have jumped to 16-year highs this month as economic data remains robust despite higher interest rates.

The Federal Reserve last Wednesday said that it may hike rates further and was likely to keep them elevated for a longer time as it battles to bring inflation closer to its 2% annual target.

“The story of September has been the jump in Treasury yields and the spillovers into the currency market,” said Adam Button, chief currency analyst at ForexLive in Toronto. “The market has expected the economic data to deteriorate and it hasn’t.”

Minneapolis Fed President Neel Kashkari said on Tuesday that a “soft landing” for the U.S. economy is more likely than not, but added that there is a 40% chance that the Fed will need to raise interest rates “meaningfully” to beat inflation.

“It’s just exceptionalism in the U.S., it’s very hard to argue with. We’re just seeing that consistently strong data there,” said Joe Tuckey, head of FX analysis at broker Argente. “The dollar is just a steamroller.”

The dollar index rose 0.26% on the day to 106.21, the highest since Nov. 30. The euro fell 0.23% to $1.0567, the lowest since March 16.

Data on Tuesday showed that sales of new U.S. single-family homes fell more than expected in August as the rate on the popular 30-year fixed mortgage jumped above 7%, but U.S. annual home price growth accelerated for a second straight month in July.

U.S. consumer confidence also fell for a second straight month in September amid worries about higher prices and the political environment.

The Japanese yen has suffered amidst the broad dollar rally, raising speculation that Japanese officials will intervene in the currency.

Finance Minister Shunichi Suzuki on Tuesday said the government was “watching currency moves with a high sense of urgency”, after the yen hit an 11-month low of 149.19.

The yen bounced after Suzuki’s comments, but later in the day weakened back to 149.08.

The British pound fell 0.45% to $1.2158, the lowest since March 17.

========================================================

Currency bid prices at 3:05PM (1905 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 106.2100 105.9500 +0.26% 2.628% +106.2600 +105.8600

Euro/Dollar $1.0567 $1.0592 -0.23% -1.38% +$1.0609 +$1.0562

Dollar/Yen 149.0700 148.8850 +0.13% +13.71% +149.1800 +148.7100

Euro/Yen 157.52 157.71 -0.12% +12.27% +157.9200 +157.3300

Dollar/Swiss 0.9151 0.9120 +0.35% -1.02% +0.9155 +0.9119

Sterling/Dollar $1.2158 $1.2213 -0.45% +0.53% +$1.2215 +$1.2154

Dollar/Canadian 1.3520 1.3455 +0.48% -0.22% +1.3528 +1.3449

Aussie/Dollar $0.6393 $0.6423 -0.46% -6.21% +$0.6430 +$0.6388

Euro/Swiss 0.9668 0.9660 +0.08% -2.29% +0.9678 +0.9658

Euro/Sterling 0.8689 0.8673 +0.18% -1.75% +0.8705 +0.8669

NZ $0.5945 $0.5968 -0.40% -6.39% +$0.5973 +$0.5936

Dollar/Dollar

Dollar/Norway 10.8230 10.8010 +0.32% +10.41% +10.8650 +10.7870

Euro/Norway 11.4430 11.4419 +0.01% +9.05% +11.4930 +11.4136

Dollar/Sweden 11.0282 11.0506 -0.47% +5.96% +11.1017 +10.9552

Euro/Sweden 11.6547 11.7097 -0.47% +4.53% +11.7525 +11.6213

(Reporting by Karen Brettell; Additional reporting by Harry Robertson in London; Editing by Alex Richardson and Daniel Wallis)

(Reuters) – Private equity firm Centerbridge Partners is launching a direct-lending fund with backing from Wells Fargo, the companies said on Tuesday.

The direct-lending market is dominated by private equity firms, which in recent months have been looking to expand their footprints in the sector as mid-sized banks tighten loan standards.

The fund named Overland Advisors will target at least $5 billion in investible capital with a focus on meeting credit requirements of North American mid-sized companies, the San Francisco-based bank and Centerbridge said.

The companies added that the lending would primarily be in the form of senior secured loans to non-sponsored clients.

Abu Dhabi Investment Authority and British Columbia Investment Management Corporation have agreed to provide nearly $2 billion in initial equity commitments.

Bigger banks have also started dipping their toes in the sector to grab a slice of the lucrative market. Earlier this year, JPMorgan Chase forayed into the direct lending business by setting aside at least $10 billion, Reuters reported, citing a person with knowledge of the matter.

(Reporting by Jaiveer Singh Shekhawat in Bengaluru; Editing by Shweta Agarwal)

MOSCOW (Reuters) – Admiral Viktor Sokolov, the commander of Russia’s Black Sea Fleet, was shown on Russian state television on Tuesday attending a defence leaders’ meeting remotely, a day after Ukrainian special forces said they had killed him.

In video and photographs released by the defence ministry, Sokolov was shown as one of several fleet commanders on video apparently joining an in-person meeting of Defence Minister Sergei Shoigu and other army chiefs, although not speaking. It was not clear when the video was filmed.

Ukraine’s special forces said on Monday that Sokolov had been killed along with 33 other officers in a missile attack last week on the headquarters of Russia’s Black Sea Fleet in the port of Sevastopol in Crimea, seized from Ukraine in 2014.

In response to the Russian video, the Ukraine special forces said on Telegram: “Since the Russians were urgently forced to publish a response with Sokolov allegedly alive, our units are clarifying the information.”

Kremlin spokesman Dmitry Peskov had declined to comment on the Ukrainian claim, referring reporters to the ministry.

Ukrainian Defence Minister Rustem Umerov, interviewed by CNN, neither confirmed nor denied Sokolov’s death, but said his demise could only be a good thing for all concerned.

“He is in our temporary occupied territories … he should not be there at all,” CNN quoted Umerov as saying on its website.

“So, if he’s dead, it’s good news for everybody that we are continuing to de-occupy our territory.”

In the video, Shoigu said more than 17,000 Ukrainian soldiers had been killed in September and that more than 2,700 weapons, including seven American Bradley fighting vehicles, had been destroyed.

Reuters could not independently verify battlefield claims.

“The Ukrainian armed forces are suffering serious losses along the entire front line,” Shoigu said, adding that the Ukrainian counteroffensive had so far produced no results.

“The United States and its allies continue to arm the armed forces of Ukraine, and the Kyiv regime throws untrained soldiers to the slaughter in senseless assaults,” Shoigu said.

Kyiv’s counteroffensive has yet to seize much territory from Russian forces, which control about 17.5% of Ukraine’s internationally recognised territory.

According to a Sept. 19 scorecard by the Belfer Center at Harvard’s Kennedy School, Russia has gained 35 sq miles (91 sq km) from Ukraine in the past month while Ukrainian forces have taken 16 sq miles (41 sq km) from Russian forces.

(Reporting by Guy Faulconbridge; Editing by Mark Trevelyan, Gareth Jones, Alex Richardson, Ron Popeski and Timothy Gardner)

TOKYO (Reuters) – Japan retained its view of a modest recovery in the world’s third-biggest economy, but upgraded its assessment of corporate earnings for the first time since March 2022 even as it warned of risks to growth from a global slowdown and volatile markets.

The economy is “recovering moderately”, the government said in its monthly report for September on Tuesday, maintaining its view from the previous month as policymakers continue their efforts to shore up growth following the end of COVID curbs earlier this year.

The government also said that corporate profits were “improving as a whole”, the first upgrade in its assessment in 1-1/2 years after a strong quarter earnings season.

The latest report comes after Japanese Prime Minister Fumio Kishida unveiled on Monday the pillars of a new economic package, which would include steps to ease the burden from price hikes and boost wages.

Authorities said that private consumption, which makes up more than half of the economy, was “picking up” in the report thanks to improving jobs and wage conditions. The government also maintained its view that capital spending was “picking up”, underpinned by a business focus on investment in labour-saving equipment such as digitalization, the report said.

Policymakers, however, warned of the challenges to the broader economy from global monetary tightening, China’s economic prospects as well as the impact from price increases and volatile financial market.

Revised data earlier this month showed Japan’s economy grew less than initially estimated in the second quarter, raising doubts about the strength of the recovery that authorities are counting on in order to exit from ultra-easy monetary policy.

Bank of Japan Governor Kazuo Ueda said on Monday there was “very high uncertainty” over whether companies would continue raising prices and wages. He also offered a cautious take on the overseas economic outlook, including China’s slowdown.

A central bank’s survey due on Oct. 2 is expected to show Japan’s business confidence improved slightly in the three months to September, according to a Reuters’ poll.

(Reporting by Kaori Kaneko; Editing by Shri Navaratnam)

By Marc Jones

LONDON (Reuters) -Higher interest rates and a near stalling of Europe’s economy will put pressure on the credit ratings of the region’s companies, property firms and banks and drive up default rates, S&P Global said on Tuesday.

“The trend in credit quality is turning negative for corporates, especially for speculative-grade issuers, as financing conditions tighten,” the rating firm said in a new report.

“Real estate remains one of the most exposed sectors. For European banks, while asset quality deterioration will emerge, credit losses are expected to only normalize,” the report added.

S&P said it expected the ratio of “speculative-grade” or junk-rated firms to gradually increase to 3.75% by June 2024 from 3.4% in August.

It could be as high as 5.5% if the region suffers a painful recession, its head of European corporate research, Paul Watters, told reporters.

The rapid rise in global interest rates over the last 18 months means companies and households are now having to refinance at much higher costs than they have been used to over the last decade.

S&P estimates that junk-rated European companies have to refinance $68 billion worth of debt in 2024, $152.7 billion in 2025 and $232 billion in 2026, while investment grade-rated firms have $316 billion, $313.5 billion and $284 billion to refinance in those years respectively.

Nearly half of the 60 European property companies and Real Estate Investment Trusts that S&P rates currently have “negative outlooks” – effectively downgrade warnings – on their ratings.

“The risk here is that you get into a situation where you see more distressed sales (by property firms and REITs) and you see more cracks in that market,” Watters said.

(Reporting by Marc Jones, editing by Dhara Ranasinghe, Ros Russell and Deepa Babington)