Fitch's third-quarter Global Risk Outlook identifies mounting vulnerability to an AI-related market correction and continued uncertainty linked to the US-Iran conflict as the two dominant short-term credit risks.

Fitch expects world growth to slow to 2.4% in 2026 and forecasts US inflation will end 2026 at 3.7%.

Fitch flagged a strong El Niño weather pattern as an emerging credit risk, warning that highly indebted 'junk'-rated countries would be particularly vulnerable to El Niño and the US-Iran conflict. In Latin America, fertiliser and diesel account for between 50% and 70% of agricultural input costs, and around 30% of fertiliser supplies come from the Middle East, according to Fitch.

Credit Default Swaps Signal Distress

Credit default swap (CDS) premiums for Oracle, SpaceX, Alphabet, Amazon, Meta, Broadcom, and Nvidia have risen to record levels in recent days, according to the Financial Times citing LSEG data. Oracle's 5-year CDS premium rose to 215 basis points on Monday, up from 144 basis points at the start of the year, meaning investors must pay $215,000 annually to insure $10 million of Oracle's debt. Oracle announced it would invest $70 billion in data centers over the next year.

S&P Global Ratings downgraded Oracle's credit rating to 'BBB-', one notch above investment grade, citing uncertainties in AI investment profitability. Nvidia is in talks to guarantee approximately $250 billion for OpenAI's planned 10-gigawatt data center project in Ohio, based on unconfirmed reports with no official statement from Nvidia or OpenAI.

John Aylward, investment director at Sona Asset Management, stated that credit markets are extremely sensitive to uncertainties and that the speed and cost uncertainty of AI investment financing is undermining investor confidence. David Brown, co-head of global investment-grade credit at Neuberger Berman, said the key market question is how long capital expenditure will continue to increase and when companies will start generating positive cash flow again. George Catrambone, head of US fixed income at DWS Group, said investors see low probability of default for investment-grade companies but use CDS to hedge against potential downgrades and market volatility. Manish Kabra, head of US equity strategy at Societe Generale, said CDS indicators should be tracked rather than earnings per share when evaluating large cloud and data center companies, adding that AI investment capital expenditure is growing faster than companies' cash generation, bringing free cash flows close to the lowest levels of the economic cycle.