Summary of J.P. Morgan's 2026 Year-Ahead Outlook Industry Overview - The report discusses the macroeconomic environment and market dynamics as they relate to various asset classes, particularly focusing on the U.S. Treasury yield curve, equities, and commodities [5][7][33]. Key Points and Arguments Market Dynamics - Markets are expected to face a multi-modal macro risk distribution, with a base-case scenario suggesting a shift from a central mode to a right-side distribution indicating improving growth expectations but with increased overheating risks [5][7]. - The left-side tail risk, representing recession, is acknowledged but considered less likely compared to the overheating scenario [5][7][26]. Treasury Yields - Front-end Treasury yields are anticipated to remain in a bullish range, while the belly and long end of the curve may face bearish pressure due to risk-on trends and widening inflation breakevens [5][33]. - The 2-year note is highlighted as a key indicator for market expectations, currently positioned near critical levels around 3.50% [8][12][35]. Equities - Large-cap U.S. stocks are expected to lead a bullish trend into the first half of 2026, with higher volatility and potential drawdowns anticipated [5][13]. - Chinese equity indexes, such as the CSI 300 and Hang Seng, are noted for their bullish patterns, suggesting potential for reaching 2021 cycle highs [15][17]. Commodities - Base metals are expected to catch up to the strong performance of precious metals, with a longer-term bullish trend anticipated [5][21]. - Crude oil prices are expected to remain range-bound, contrasting with the bullish outlook for base metals [5][21]. Currency Outlook - A stronger U.S. dollar is anticipated in early 2026, with the potential for simultaneous strength in the AUD/USD pair, which is historically an outlier [5][16]. Inflation and TIPS Breakevens - The report suggests that bullish trends in base metals could lead to upward pressure on 10-year TIPS breakevens, which are expected to widen towards the 240-250 basis points range [20][66]. - A gradual rally in front-end yields is expected, with TIPS breakevens potentially widening if inflation pressures increase [20][66]. Risk Scenarios - The report outlines a left-side tail risk scenario where recession could lead to predictable market trends, but this is viewed as a lower probability outcome [26][68]. - A more aggressive bullish scenario for the 2-year note could indicate a recession outcome, leading to a significant break in consumption and labor data [26][40]. Other Important Content - The report emphasizes the importance of monitoring key levels, trends, and patterns in various markets to react to potential regime changes [7][12]. - The technical setup for the 2-year note suggests a potential target near 1.75% if bearish scenarios materialize [40][46]. - The report also discusses the potential for a steepening of the yield curve, particularly in the 2s/5s and 2s/10s curves, as markets navigate through 2026 [54][60]. This comprehensive analysis provides insights into the expected market conditions and investment strategies for 2026, highlighting both opportunities and risks across various asset classes.

Summary of J.P. Morgan Global Fixed Income Markets 2026 Outlook Industry Overview - **Industry**: Global Fixed Income Markets - **Company**: J.P. Morgan Securities plc Key Themes and Core Views - **Baseline Macro View**: Growth is expected to run at or above potential across most developed markets (DM), with inflation declining but remaining sticky above target in several jurisdictions [8][18] - **Central Bank Actions**: - Most DM central banks are expected to either maintain current rates or conclude easing cycles in the first half of 2026. - The Federal Reserve (Fed) is anticipated to cut rates by 50 basis points (bp) and the Bank of England (BoE) by 75 bp, while the Bank of Japan (BoJ) is expected to hike by 50 bp by the third quarter of 2026 [8][18] - **Yield Forecasts**: - 10-Year U.S. Treasuries (UST) forecasted at 4.35%, 10-Year Bunds at 2.75%, and 10-Year Gilts at 4.75% by the fourth quarter of 2026 [8][18][21] - **Market Risks**: The U.S. presents the widest risk distribution due to personnel and fiscal dominance issues, adding uncertainty to the Fed's outlook [8][18] Trading Recommendations - **Treasuries Strategy**: - A recommendation for a 50:50 weighted 2s/5s/10s belly-cheapening fly, anticipating cheapening in the 5-Year sector as the Fed goes on hold in the second half of 2026 [8][18] - **Cross-Market Divergences**: - Suggested buying payers on 5-Year SOFR rates funded by selling payers on 5-Year EUR rates and buying calls on June 2026 SONIA vs SOFR [8][18] - **Euro Area Strategy**: - Expectation for 10-Year Bund yields to remain range-bound, with a forecast of 2.65% by mid-2026 and 2.75% by year-end [9][19] - **UK Strategy**: - Anticipation of the BoE easing by 25 bp in December and two more cuts in the first half of 2026, targeting a Bank Rate of 3.25% [10][18] - **Scandinavian Markets**: - Both Riksbank and Norges Bank expected to stay on hold, with a recommendation for Jun26/Dec26 SEK FRA curve flattener as a carry trade [11][18] - **U.S. Market Dynamics**: - Expectation for yields to remain range-bound initially, with a rebound anticipated once the Fed goes on hold in spring 2026 [13][18] Additional Insights - **Inflation and Economic Resilience**: Despite inflation being stickier than expected, DM growth has shown surprising resilience, with recent data indicating disconnects between consumer sentiment and capital expenditure [22][18] - **Market Volatility**: Increased volatility is expected in the second half of 2026, particularly in France as the 2027 presidential election approaches [19][18] - **Interest Rate Forecasts**: - Detailed interest rate forecasts for various countries, including the U.S., UK, Euro area, Japan, and Australia, with specific rates and changes outlined for 2026 [16][21] This summary encapsulates the key points from the J.P. Morgan Global Fixed Income Markets 2026 Outlook, highlighting the anticipated economic conditions, central bank actions, trading strategies, and potential risks in the market.

Group 1 - Bitcoin (BTC) has surpassed $90,000, driven by increased expectations for a Federal Reserve rate cut in December, which has improved risk sentiment [1] - The macroeconomic environment remains challenging, with inflation still high, and the rally may encounter resistance around the mid-$90,000 range, while the support zone is identified between $80,000 and $82,000 [1] - Bitcoin ETFs in the U.S. have not experienced significant inflows, and the performance of Bitcoin holder Strategy's stock is close to break-even, leading to its placement on MSCI's delisting watchlist [2] Group 2 - AI has been a major factor in driving bullish momentum across risk assets, including Bitcoin, since the launch of ChatGPT in late 2022 [3] - Analysts note that the recent bounce in Bitcoin from nearly $80,000 to above $91,000 is occurring amid decreasing liquidity [3] - Concerns are emerging in the AI sector, with widening credit default swap (CDS) spreads and issues related to Nvidia's increasing receivables and inventories affecting market confidence [2]

WATCH: The Modern Wage Crisis & Bitcoin's Institutional Takeover | Bitcoin Policy Hour Ep. 22 🇺🇸On the arrival of true institutional adoption while Main Street struggles. Ivy League endowments and sovereign wealth are accumulating as inflation drives voter polarization and populism.Plus analysis of Rep. @WarrenDavidson’s newly announced “Bitcoin for America” Act.Feat. @btcpolicyorg’s @zackbshapiro @Bayman1177 & @zackcohen_ 🟪Chapters:00:00 – Why 2025 Is a Breaking Point for the Economy05:00 – Top 3 Benefits ...

Core Insights - Kevin Hassett is the frontrunner to become the chair of the Federal Reserve, with President Trump expected to announce his nominee soon [2][6] - Hassett has advocated for lowering interest rates, criticizing the current Fed leadership for not acting quickly enough [3][4] - The Federal Reserve has already cut interest rates by a quarter-point in its last two meetings and is expected to do so again in December [3][4] Economic Implications - If appointed, Hassett is likely to push for further interest rate cuts, which could stimulate the economy but also risk increasing inflation [4][7] - Hassett believes inflation will decrease to around 1% next year while economic growth accelerates, suggesting a bullish outlook on economic performance [4] - The debate within the Fed is ongoing, with officials divided on whether to prioritize lowering rates to support the job market or maintaining higher rates to combat inflation [3][7] Nomination Considerations - Hassett's nomination raises questions about the future independence of the Federal Reserve from the White House [8] - It is unclear who Hassett would replace on the Federal Open Market Committee (FOMC), as he is not currently a board member [8][9] - There are possibilities for an unprecedented power split where Powell could remain as FOMC chair while Hassett serves as chair of the Fed's board of governors [9]

Economic Growth and Projections - The Office for Budget Responsibility (OBR) upgraded its growth forecasts for 2025 to 1.5%, but downgraded projections for the rest of the decade to 1.4% in 2026, down from 1.9%, and 1.5% each year to 2030 [1] - The average household is expected to be £850 poorer in 2029-30 compared to 2024-25, indicating a disappointing outlook for living standards [1] - The central forecast for real household disposable income (RHDI) per person in the UK is projected to grow at only 0.2% to 0.3% per year after this year, significantly lower than the long-run average [2][4] Employment and Income - Unemployment is expected to rise faster than previously anticipated, peaking at 5%, with the jobless rate only falling back to 4.1% in the final months of the decade [13] - Real terms hourly pay for workers is projected to remain 0.5% below its 2009-10 level by the end of the decade, reflecting a long-term squeeze on pay [3] Taxation and Fiscal Policy - The tax burden is forecasted to rise to a post-war high of 38.3% of GDP, driven by significant personal tax increases, including freezing income tax thresholds [21][22] - The OBR noted that the top half of earners pay 90% of all income tax, highlighting the increasing reliance on higher earners to fund public services [27][28] Government Spending - The OBR described the recent Budget as including substantial spending increases, with an average rise of £33 billion per year over the next five years, primarily to fund higher benefits [29] - By the end of the decade, public spending is expected to settle at just over 44% of GDP, which is five percentage points higher than pre-pandemic levels [30] Economic Outlook and Challenges - The OBR warned that the UK may not return to previous growth rates, citing a significant and long-lasting slowdown in productivity growth since the 2008 financial crisis [8] - The Chancellor's plans to manage debt and spending face challenges, with debt servicing costs projected to rise from £113.7 billion this year to £140 billion in five years [15][16]

Economic Growth Outlook - The economy is expected to see a slight pickup in growth, with GDP growth projected to be around 4.2% for Q3 and 4% for Q2 [25] - Job growth is anticipated to average around 80,000 for 2026, an increase from the recent average of 70,000 to 60,000 [19] AI's Impact on the Economy - AI spending currently represents about 1.5% of GDP, contributing approximately 25% to the overall GDP growth [6][7] - While AI is a significant driver of growth, it is not in bubble territory, and companies are expected to continue investing in AI [10][11] Federal Reserve Policy and Leadership - The potential nomination of Kevin Hasset as the next Fed chair may lead to a more dovish approach, but consensus among committee members will still be necessary [12][14] - The Fed is expected to implement two more rate cuts, but challenges remain in achieving a dovish policy due to elevated inflation [15][14] Labor Market Dynamics - The labor market is showing signs of strength, with a notable increase in construction employment and a rise in labor force participation [21][28] - The recent jobs report indicated a payroll increase of 119,000, although the unemployment rate rose to 4.4% [21]

The dollar index (DXY00) on Wednesday gave up an early advance and finished down by -0.08%.  The dollar fell slightly on Wednesday after the Nov MNI Chicago PMI posted a 17-month low. Also, strength in stocks on Wednesday has curbed liquidity demand for the dollar.  The dollar initially moved higher on Wednesday on better-than-expected US economic news, with weekly jobless claims unexpectedly falling to a 7-month low and Sep capital goods new orders rising more than expected. The dollar is also under pres ...

Economic Activity & Consumer Spending - Economic activity showed little change, with some districts experiencing modest decline [1] - Consumer spending declined, though high-end retail remained resilient [1] - Auto dealers saw declines in EV sales, possibly due to the expiration of tax incentives [1][2] Manufacturing & Trade - Manufacturing increased somewhat, but tariffs and tariff uncertainty acted as headwinds [2] - Input cost pressures were widespread in manufacturing and retail, largely due to tariffs [6] - Companies faced margin compression and financial strains from tariffs, with mixed plans to raise prices [7] Labor Market & Employment - Employment declined slightly, with half of districts reporting weaker labor demand [3] - Hiring freezes and attrition were used to limit employment rather than layoffs [4] - AI replaced entry-level positions or increased worker productivity, curbing new hiring [5] - Employers found it easier to find workers in some sectors, but construction remained tough [5] - Wages grew at a modest pace, but rising health insurance premiums put upward pressure on labor costs [5] Inflation & Prices - Prices rose modestly during the period [6] - Pass-through of higher input costs varied across companies [7] Social Impact - Community organizations saw increased demand for food assistance, partly due to SNAP disruptions [3] Real Estate - Ongoing recovery was noted in the office real estate market [2]

Core Insights - The Beige Book indicates a decline in employment across various sectors, highlighting a slowdown in job growth and potential economic challenges ahead [1] - Persistent inflation remains a significant concern, with prices continuing to rise despite efforts to stabilize the economy [1] Employment Trends - Employment levels have decreased in several regions, suggesting a broader trend of weakening labor markets [1] - Specific sectors, such as retail and manufacturing, have reported notable job losses, contributing to the overall decline in employment [1] Inflation Dynamics - Inflation rates are reported to be consistently high, with consumer prices increasing at a rate that outpaces wage growth [1] - The ongoing inflationary pressures are affecting consumer spending and business investment decisions, leading to cautious economic outlooks [1]