Citi's global macro portfolio delivered positive returns in Q2 but remains cautious about near-term FOMC and AI risks

Overview

Citi's Global Macro Strategy Portfolio Report Q2 2026 reviews the performance, attribution, closed-trade retrospectives and current positioning views of the GMS tactical macro portfolio and the GAA medium-term asset-allocation portfolio during the second quarter of 2026. The GMS portfolio rose 1.38% in Q2 and was up 1.31% year to date as of July 3, 2026; the GAA portfolio rose 17 basis points in Q2 but remained down 12 basis points year to date. The report's overall view is that the near-term macro environment remains unclear, particularly because of uncertainty surrounding the FOMC path and AI supply-chain cost pressures. The portfolio therefore maintains relatively low risk while selectively holding cyclical assets, long equity positions and rates relative-value trades.

Core views

The core conclusions are as follows: First, AI risks have increased. Citi has closed its largest year-to-date contributor, long KOSPI, but retains long NDX as signs of broader participation in the U.S. equity rally emerge. Second, weaker-than-expected employment data and more balanced Fedspeak have reduced the near-term probability of further Fed hikes, so rebounds in the dollar and U.S. Treasury yields may pause. Third, improving global cyclical momentum supports long copper and long SX5E. Fourth, a more neutral U.S. view keeps overall portfolio risk light, while the portfolio retains more idiosyncratic rates trades, including U.K. and Canadian front-end carry, long HGBs and long TES 2031s versus a 2y IBR payer.

Analysis framework

The report uses a framework combining portfolio performance review, return attribution, risk budgeting, major-index beta, closed-trade retrospectives and itemized explanations of current positions. GMS simulates the performance of trade recommendations using notional principal and portfolio risk units, with a standard drawdown budget of $1 million per trade and a total portfolio risk budget of $100 million. It also evaluates strategy effectiveness using the P/L, portfolio contribution, entry timing, objectives and risk commentary for open trades.

Methodology notes

• Portfolio performance evaluationGMS model portfolio

  Tracking global macro trade recommendations through a model portfolio

  Citi measures GMS trade-recommendation performance using notional principal, per-trade drawdown budgets and portfolio risk units, assessing returns, volatility, drawdowns and attribution in a manner closer to a real portfolio.

• Risk-adjusted returnsInformation Ratio and Calmar Ratio

  Information ratio and Calmar ratio

  The report evaluates return quality using annualized volatility, maximum drawdown, the information ratio and the Calmar ratio; Q2 figures were 7.2% annualized volatility, an information ratio of 0.38 and a Calmar ratio of 0.56.

• Asset-allocation attributionCross-asset attribution

  Cross-asset return attribution

  The report decomposes performance across equities, rates, FX, commodities and credit, and uses major-index betas to describe the portfolio's exposures to USTs, 60/40, MSCI World, oil and the USD.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• NDX

  Remain long

  Strengths

  The AI trade retains momentum, the U.S. equity rally is broadening, and the historical frequency of one-year gains exceeding digital-option strike levels supports a positive expected-value assessment.

  Weaknesses

  Rising AI supply-chain costs could affect hyperscaler capital expenditure.

  Comparison

  Unlike the closed KOSPI position, NDX remains a core long equity position.

  Risks

  AI-flation concerns, technology-equity valuation corrections and higher macro rates.

• Copper

  Long

  Strengths

  The energy transition and AI infrastructure buildout provide structural demand support, while improving global cyclical momentum is also favorable.

  Weaknesses

  The current copper digital call-option trade remains loss-making, with theta decay weighing on P/L.

  Comparison

  More exposed than gold to an improvement in the cycle; gold performed poorly in an environment of a stronger dollar and higher rates.

  Risks

  Weaker-than-expected global growth, a stronger dollar, crowded positioning or option expiry losses.

• SX5E / VG1

  Long European equities

  Strengths

  The equity pullback in early June was viewed as a technical deleveraging event, while improving global cyclical momentum supported a rapid rebound.

  Weaknesses

  European equities remain exposed to global risk appetite and macro shocks.

  Comparison

  Together with long U.S. equities, expresses improving equity-market breadth and a recovery in cyclical momentum.

  Risks

  Another deleveraging of risk assets, weaker European growth or policy shocks.

• HGBs

  Long Hungarian government bonds

  Strengths

  A Tisza election victory opened a path toward the release of EU funds, potentially reducing Hungary's asset risk premium and supporting the long end of the bond curve.

  Weaknesses

  The trade is affected by political developments and fiscal execution.

  Comparison

  One of the main positive contributors year to date, outperforming most directional FX and U.S. rates trades.

  Risks

  Slower-than-expected progress on EU funds, a widening fiscal deficit or a rebound in inflation.

• TES 2031s vs 2y IBR

  Long Colombian TES and hedged/relative to a 2-year IBR payer

  Strengths

  The first-round result of Colombia's presidential election indicated a shift to the right, increasing the probability of market-friendly and fiscally orthodox policies and supporting curve flattening.

  Weaknesses

  Inflation remains high, and the path toward policy easing is not fully certain.

  Comparison

  An idiosyncratic EM fixed-income trade emphasized in the report, distinct from broader directional dollar and U.S. rates risks.

  Risks

  El Niño driving food prices higher, delayed rate cuts or a reversal in the political outcome.

• UK front-end / SFI Z6 vs SFRZ6

  Receive carry in the U.K. front end

  Strengths

  BoE policy is already in restrictive territory and market pricing reflects tightening; once the oil-price shock fades, there may be more room for rate-cut pricing.

  Weaknesses

  If U.K. inflation or wages reaccelerate, front-end rates may struggle to decline.

  Comparison

  Together with Canadian front-end carry, expresses a relatively more dovish non-U.S. developed-market view versus the United States.

  Risks

  A hawkish BoE, sticky inflation and sterling-related political risk.

• Canada front-end / CORRA Z6 vs SFRZ6

  Receive carry in the Canadian front end

  Strengths

  The BoC is relatively more dovish than its G10 peers, with attention focused on excess supply, USMCA renegotiation risks and subdued core inflation.

  Weaknesses

  The trade's current P/L is slightly negative.

  Comparison

  Similar to the U.K. front-end trade, it is a selective developed-market carry trade relative to the United States.

  Risks

  A rebound in Canadian employment or inflation, or delayed BoC rate cuts.

• Gold

  Q2 detractor

  Strengths

  Can serve as a hedge during periods of conflict or risk aversion.

  Weaknesses

  Performs poorly in an environment of higher rates and a stronger dollar and was the largest detractor from GAA performance in Q2.

  Comparison

  The report favors base metals over gold.

  Risks

  Gold could remain under pressure if the dollar continues to strengthen or real rates rise.

Key data

• GMS Q2 return+1.38%Second-quarter 2026 performance of the tactical macro portfolio.
• GMS year-to-date return+1.31%As of 2026-07-03.
• Annualized volatility7.2%Used to calculate risk-adjusted returns.
• Maximum drawdown-4.89%GMS maximum drawdown disclosed in the report.
• Information ratio0.38Calculated based on Q2 portfolio performance.
• Calmar ratio0.56Measures returns relative to maximum drawdown.
• GAA Q2 return+17bpsSecond-quarter performance of the medium-term asset-allocation portfolio.
• Fully closed trades in Q219 tradesFive profitable trades and 14 loss-making trades were closed.
• Total P/L of current open tradesapproximately +$2.10mThe table shows total P/L of approximately $2.098 million and a portfolio contribution of approximately 2.10%.

Impact & implications

The investment implication is that overall risk should not be increased excessively amid uncertainty over the Fed's path and rising AI risks. However, if rebounds in the dollar and U.S. Treasury yields pause, copper, European equities, NDX and selected emerging- and developed-market rates trades may still have room to perform. At the portfolio level, the preference is for selective, idiosyncratic and relative-value opportunities rather than indiscriminate broad additions to risk assets.

Risks

• Futures trading entails a significant risk of loss.
• The FOMC path is unclear, and a continued hawkish stance by the Fed could again weigh on FX and rates trades.
• Rising AI supply-chain costs could weaken hyperscaler capital expenditure and negatively affect AI-related equity trades.
• A stronger dollar and sticky U.S. rates could weigh on copper, gold, non-U.S. equities and carry trades.
• Geopolitical developments and oil-price volatility related to conflicts in the Middle East could alter cross-asset correlations.
• Option trades face the risks of expiring out of the money, theta decay and structural losses.
• Trades driven by political events depend on elections, fiscal policy and policy implementation, creating a risk of reversal in outcomes.

What to watch

• Whether subsequent FOMC communication, U.S. employment data and inflation data validate a more balanced Fed path.
• Whether the rebound in the dollar and 10-year U.S. Treasury yields genuinely pauses.
• AI supply-chain costs, hyperscaler capex and changes in U.S. equity-market breadth.
• Whether copper prices can be supported by the energy transition, AI infrastructure and global cyclical momentum.
• Policy and political catalysts for rates trades in the United Kingdom, Canada, Hungary and Colombia.
• Relative performance of NDX, SX5E, EM Asia equities and Japanese equities.
• The path and risk controls for open trades ahead of multiple option expiries from August through December.