J.P. Morgan maintains its global macro multi-asset strategy: bullish on European duration, the U.S. dollar, and EM FX, while watching energy and Fed risks

Overview

This is a macro strategy report covering global rates, commodities, currencies, and emerging markets. The main thesis is that although the Fed is expected to remain on hold in 2026, a late-1990s-style soft-landing-then-re-tightening scenario means yields still face upside risk; meanwhile, energy prices, U.S.-Iran tensions, U.S. policy, and the dollar's trajectory jointly shape cross-asset allocation.

Core views

The core views are: first, the U.S. economy remains resilient, with 2026 GDP expected to grow 1.9%, core PCE expected to stay at 3.4%, and the unemployment rate expected to fall to 4.1% by Q4 2026, so medium- and long-end Treasury yields may remain elevated. Second, the ECB will most likely stay on hold and remain data-dependent, leaving tactical allocation value in European duration. Third, the dollar remains supported ahead of the FOMC by Fed hawkishness and rate differentials, but may consolidate afterward if U.S. data fail to validate the hawkish stance. Fourth, energy prices and the Fed are currently the two main sources of risk, leading to high uncertainty and relatively low positioning. Fifth, EM FX remains supported by the cyclical outlook, and an overweight is maintained.

Analysis framework

The report uses a cross-asset macro strategy framework, combining monetary policy paths, yield curve valuations, fiscal financing needs, investor demand, FX positioning, commodity supply and demand, and geopolitical scenarios to form allocation recommendations across rates, FX, commodities, and EM assets.

Methodology notes

• Macro rates forecastingFed policy path and yield curve forecasting

  Forecast 2-year, 10-year, and long-end U.S. Treasury yields based on growth, inflation, employment, and the policy rate path.

  The report assumes the Fed keeps rates unchanged in 2026, and combines core PCE, unemployment, and fiscal financing pressure to derive the path of front-end and medium-/long-end Treasury yields.

• Relative valueCross-market duration and curve trades

  Seek low-beta trades through relative pricing across Bunds, Gilts, U.S. Treasuries, JGBs, and swap curves.

  The report prefers long 10-year German Bunds and UK Gilts, continues to short 10-year U.S. Treasuries versus German Bunds, and remains neutral on the U.S. Treasury curve.

• FX strategyDollar smile, rate models, and positioning analysis

  Assess the dollar and carry trades by combining dollar valuation, rate differentials, growth signals, positioning, and volatility.

  The report believes the dollar remains supported ahead of the FOMC, though conviction has declined; compared with directional USD trades, FX carry is seen as more sustainable.

• Commodity scenario analysisGeopolitical conflict and supply-demand risk premia

  Analyze U.S.-Iran tensions, transit rules in the Strait of Hormuz, Qatari gas recovery, copper demand, and the impact of El Niño.

  The report emphasizes that if the assumption of gas supply recovery is challenged, winter prices and the forward curve may once again price in a significant risk premium.

Asset mapping & comparison

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

• 10Y U.S. Treasuries

  Bearish relative to German Bunds

  Strengths

  U.S. economic resilience, elevated core inflation, and Fed hawkish risk support yields staying high.

  Weaknesses

  Front-end yields are near local highs, and position covering could temporarily push yields lower.

  Comparison

  The report recommends staying short 10-year U.S. Treasuries versus Bunds rather than making a large outright short duration bet.

  Risks

  Weaker employment data, position unwinds, and safe-haven buying could drive yields lower.

• 10Y Bunds

  Tactically bullish

  Strengths

  The probability of a hawkish ECB surprise is low, and European duration still has allocation value.

  Weaknesses

  Higher energy prices could lift European inflation risk and push yields higher.

  Comparison

  More attractive relative to U.S. Treasuries; the report maintains a long Germany vs. U.S. position in 10Y.

  Risks

  An escalation in U.S.-Iran conflict and higher gas prices could trigger a bear flattening in the European yield curve.

• 10Y Gilts

  Tactically bullish

  Strengths

  The report expects yields to trade around the 4.80% range and maintains long positions in 10-year UK Gilts.

  Weaknesses

  UK fiscal and political changes could disturb the curve.

  Comparison

  The report removes its 10s/30s Gilt curve flattening bias and shifts to a neutral curve stance.

  Risks

  UK policy uncertainty or inflation repricing could push yields higher.

• USD

  Bullish bias but lower conviction

  Strengths

  Fed hawkish rhetoric, undervaluation versus relative rate moves, and support ahead of the FOMC remain in place.

  Weaknesses

  A vacuum in U.S. data limits upside, and the dollar may consolidate if data fail to validate the hawkish stance.

  Comparison

  The report sees FX carry as more stable than pure directional USD trades.

  Risks

  Weaker U.S. employment data, changes in USD/CNY pricing, and mean reversion in the middle of the dollar smile.

• EM FX

  Overweight

  Strengths

  Supported by the cyclical outlook, with a low-volatility environment favorable for carry and high-yielding currencies.

  Weaknesses

  Energy prices and Fed risk still keep overall uncertainty elevated.

  Comparison

  Preferred by the report over EM rates, EM sovereigns, and corporates.

  Risks

  A renewed rise in the dollar, higher U.S. rates, and geopolitical risk could pressure EM FX.

• Natural Gas

  Upside risk premium

  Strengths

  If recovery in Qatari supply falls short of expectations, winter prices and the forward curve could reprice significantly.

  Weaknesses

  The market currently seems to assume supply can recover reliably before the Northern Hemisphere winter.

  Comparison

  Natural gas affects the European yield curve and inflation expectations more directly than broader energy products.

  Risks

  Easing geopolitical tensions or a smooth supply recovery would reduce the risk premium.

• Copper

  Demand-supported

  Strengths

  The report notes that China is still buying copper while the market waits for tariff updates.

  Weaknesses

  Tariff policy and global growth uncertainty may still affect demand expectations.

  Comparison

  Copper more directly reflects Chinese demand and trade policy expectations.

  Risks

  An unfavorable tariff outcome or slower Chinese demand could weigh on prices.

• Sugar

  High exposure to weather risk

  Strengths

  El Niño may simultaneously affect key supply regions including India, Thailand, and Brazil's Center-South.

  Weaknesses

  Transmission channels differ by region, and actual supply shocks still require weather confirmation.

  Comparison

  Among major agricultural products, sugar is especially sensitive to El Niño risk.

  Risks

  Less severe-than-expected weather effects or supply recovery would reduce upside price risk.

Key data

• 2026 U.S. GDP forecast1.9% q4/q4The report expects the U.S. economy to maintain moderate growth.
• 2026 U.S. core PCE forecast3.4% q4/q4Core inflation remains above target, providing the basis for persistent Fed hawkish risk.
• Q4 2026 U.S. unemployment rate forecast4.1%The report expects the labor market to tighten gradually in 2026.
• Fed target rate range3.5%-3.75%Expected to remain unchanged throughout 2026, with possible hikes in Q3 2027.
• 2-year U.S. Treasury yield forecast4.20% by end-2026, 4.30% in Q2 2027The front end still has room to rise due to policy repricing.
• 10-year U.S. Treasury yield forecast4.70% by end-2026, 4.75% in Q2 2027Medium- and long-end yields are expected to remain near cyclical highs.
• U.S. fiscal 2026 deficit forecast$2.020tnRevised up from the $1.955tn forecast at the start of the year.
• U.S. fiscal 2027 deficit forecast$1.960tnRevised down from the $2.050tn forecast at the start of the year.
• Additional U.S. Treasury supply absorption demand in 2026$543bnThe report believes price-sensitive investors will need to absorb more supply.
• Global sugar export exposureabout 65%India, Thailand, and Brazil's Center-South together account for about 65% of global sugar exports, all exposed to El Niño-related weather risks.

Impact & implications

The implication for portfolios is that duration should not be expressed through a simple outright bearish bet; instead, relative-value and low-beta expressions should be used more. European duration still offers tactical long opportunities, while elevated medium- and long-end Treasury yields affect global bond valuations. Long USD positions can still be retained, but with reduced conviction and close attention to the FOMC and employment data. Commodity prices, especially natural gas and oil, may transmit into rates markets through inflation expectations and the European yield curve. EM FX remains attractive in the cyclical backdrop.

Risks

• The Fed turns more hawkish than expected and delivers more than one future rate hike, pushing up front-end and medium-/long-end yields.
• U.S. employment or inflation data come in weaker than expected, leading to an unwind of long dollar and higher-yield trades.
• An escalation in U.S.-Iran tensions lifts oil prices, natural gas prices, and European inflation risk.
• Qatari natural gas supply recovery falls short of market assumptions, causing winter gas prices to reprice with a risk premium.
• Changes in U.S. fiscal, trade, tariff, and midterm-election-related policies disrupt the dollar, term premium, and global risk appetite.
• EM assets face pressure from a stronger dollar, higher U.S. real rates, and tight credit valuations.

What to watch

• Whether Fed communication remains hawkish after the July FOMC meeting.
• Whether U.S. nonfarm payrolls and wage data confirm renewed tightening in the labor market.
• Whether core PCE remains at a level sufficient to support the Fed's hawkish stance.
• Whether the ECB maintains a data-dependent and tightening bias, and how the market prices a September hike.
• U.S.-Iran tensions, transit rules in the Strait of Hormuz, and changes in energy transportation costs.
• The pace of Qatari gas supply recovery and European natural gas inventory levels.
• China's copper demand and tariff policy updates.
• The actual impact of El Niño on sugar supply regions in India, Thailand, and Brazil's Center-South.
• Whether the U.S. Treasury's coupon auction size guidance is raised before 2027.
• The impact of GPIF asset allocation changes on JGB supply-demand dynamics and long-term rates.