Summary of J.P. Morgan's FX Positioning & Flows Conference Call Industry Overview - The conference call primarily discusses the foreign exchange (FX) market dynamics, particularly focusing on the U.S. dollar (USD) and foreign investments in U.S. assets. Key Points and Arguments USD Flow Narrative - The narrative surrounding the USD has shifted, with expectations of foreign repatriation of U.S. asset holdings not materializing as anticipated, leading to significant inflows into the U.S. in May and June 2025 [6][8][10]. - Record net foreign purchases of U.S. equities were observed in 2Q 2025, despite expectations for capital repatriation [5][11][13]. Foreign Investment Trends - In June 2025, foreigners net purchased $192.3 billion of U.S. long-term portfolio assets, with 87% being equities [10][11]. - May 2025 saw a record net foreign purchase of U.S. assets at $326 billion, followed by a sizable $192 billion in June [11][10]. - The overall trend indicates a strong appetite for U.S. equities, with June's inflow of $162 billion marking an all-time high for equity purchases [11][19]. USD Depreciation Factors - Despite significant inflows, the USD depreciated by 1-2% in May and June 2025, suggesting that other bearish drivers, such as cyclical factors and speculative selling, outweighed the positive impact of investment flows [6][25]. - The correlation between USD movements and U.S. asset inflows has weakened, indicating that cyclical drivers are becoming more dominant [25][26]. Repatriation and Hedging Dynamics - The anticipated repatriation of U.S. assets and increased FX hedging ratios have not reached their tactical peak, suggesting a more mature phase in these dynamics [37]. - Evidence from select economies indicates that FX hedge ratios have increased, particularly in Canada, where the effective USD FX hedge ratio rose by at least 9% relative to end-2024 levels [37]. Sector-Specific Insights - Official sector equity inflows were unprecedented in June, with private sector equity inflows also being substantial [19][23]. - The inflows were concentrated in equities, contrasting with net selling of U.S. Treasuries, indicating a shift in investment preferences [19]. Trade Deficits and Financial Flows - The U.S. trade deficit remains wide, which is expected to lead to large financial account inflows, helping to explain the strong portfolio inflows observed [36]. - The lack of positive correlation between USD performance and U.S. asset purchases suggests that other forces are influencing USD depreciation [59]. Additional Important Insights - The analysis highlights that the inflows into U.S. assets are primarily driven by external surplus economies, with significant contributions from countries like Singapore, Norway, and Switzerland [46]. - Notably, China, India, Canada, and Japan were identified as net sellers of U.S. assets in June, reflecting ongoing sensitivities to trade developments [51]. This summary encapsulates the critical insights from the conference call, focusing on the dynamics of foreign investment in U.S. assets and the implications for the USD.

Investment Ratings - USD: Bearish [2][12][17] - EUR: Bullish [3][18][19] - JPY: Bullish [4][20][21] - GBP: Neutral [5][22] - CHF: Neutral [6][23] - CAD: Neutral [7][24] - AUD: Neutral [8][25] - NZD: Neutral [9][13] - SEK: Neutral [14][24] - NOK: Neutral [16][24] Core Insights - The report indicates a bearish outlook for the USD, driven by technical factors and expectations of weak growth alongside sticky inflation [2][12][17] - A bullish sentiment is maintained for the EUR, supported by technical momentum and FX hedging, with a significant amount of European holdings in US assets being unhedged [3][19] - The JPY is expected to outperform due to lower US terminal rate pricing and uncertainty regarding tariffs, which may enhance its appeal as a safe haven [4][20][21] - The GBP is viewed neutrally, with potential upside risks depending on local rate movements and fiscal concerns [5][22] - The CHF outlook remains neutral but with a bullish skew, contingent on inflation trends [6][23] - The CAD is expected to face downward pressure due to a bearish outlook on North American growth [7][24] - The AUD's direction is contingent on the RBA's upcoming rate decisions, with a potential rate cut anticipated [8][25] - The NZD outlook is neutral, with risks tied to RBNZ rate decisions [9][13] - The SEK and NOK are both viewed neutrally, with bearish skews due to economic data and oil price pressures [14][16][24] Summary by Currency - **USD**: Bearish due to technical forces and inflation concerns [2][12][17] - **EUR**: Bullish with strong technical support and FX hedging [3][19] - **JPY**: Bullish, benefiting from US data softness and tariff uncertainties [4][20][21] - **GBP**: Neutral with bullish risks based on rate movements [5][22] - **CHF**: Neutral but bullish skew based on inflation data [6][23] - **CAD**: Neutral with bearish risks from economic outlook [7][24] - **AUD**: Neutral with bullish risks depending on RBA decisions [8][25] - **NZD**: Neutral with downside risks from RBNZ [9][13] - **SEK**: Neutral with bearish risks from retail sales data [14][24] - **NOK**: Neutral with bearish risks from oil prices [16][24]

Investment Rating - The report suggests a bearish outlook on the USD and recommends selling USD while buying curve steepeners [9][13][53]. Core Insights - The report indicates that the consensus view aligns with a weaker USD and a steeper yield curve, but the expected magnitude of these moves is significantly larger than what the consensus anticipates [9][13]. - It is projected that the USD will weaken by approximately 9% on a DXY basis and that the US Treasury curve will steepen by around 100 basis points over the next 12-18 months [13][20]. - Investor positioning is currently cautious, but supportive fundamentals and strengthening sentiment suggest a favorable environment for the recommended trades [9][13]. Summary by Sections G10 FX Strategy - The report highlights that while a weaker USD is a consensus view, the extent of the weakening is underpriced, with only a 15-25% chance assigned by the market to reach the forecasted levels against major safe-haven currencies [3][31]. UK Rates Strategy - The report notes the closure of a long position in SFIZ6 due to a recent rally in front-end rates, but identifies an attractive entry point for upside option structures given low implied volatility [4][26]. Japan Rates Strategy - The focus is shifting from the Bank of Japan (BoJ) to the Ministry of Finance (MoF) regarding long-end issuance and quantitative tightening (QT) pace, which may influence market dynamics [5][30]. US Rates Strategy - The report discusses entering 2s10s CPI swap steepeners, as the TIPS breakevens curve has steepened, indicating potential for further widening based on financial conditions and inflation expectations [6][36]. General Market Dynamics - The report emphasizes that recent USD declines are primarily driven by reduced investor appetite for USD exposure due to policy uncertainty rather than concerns about US growth [17][20]. - It also notes that the USD discount reflects a negative policy premium associated with uncertainty around US trade and fiscal policy [18][19].

Investment Rating - The report does not explicitly provide an investment rating for the industry or assets discussed. Core Insights - The analysis suggests that foreign investors may be perceived as "overweight" in US assets, but this is complicated by the home bias of US investors, indicating that US investors are likely underweight in foreign assets [10][11][23]. - An appropriate allocation to US equities relative to the global opportunity set is estimated to be between 56-65% [10][16]. - The report indicates that the USD is expected to weaken if both foreign and domestic investors reduce their exposure to US assets through shifts in asset allocation or changes in currency hedge ratios [10][28]. Summary by Sections Foreign Exposure and Home Bias - The characterization of foreign exposure to the US as "overweight" requires a benchmark for analysis, with the US comprising 71% of the MSCI World index and 62% of the MSCI ACWI [12]. - Many investors exhibit a "home bias," holding a larger share of US equities than suggested by neutral weights, which complicates the assessment of whether they are truly overweight [10][19]. Market Capitalization and Earnings - The US share of global equity market capitalization is 67%, which adjusts to 60% when normalized by long-run P/E ratios [20]. - The US accounts for 56% of global corporate earnings and 27% of global GDP, indicating a significant presence in the global market [20]. Currency and Hedging Strategies - The report discusses the potential impact of changes in hedge ratios on currency markets, noting that investors from the eurozone have the largest holdings of US equities, followed by Canada and the UK [30][32]. - An increase in FX hedging could have a more substantial impact in markets with less liquidity, particularly for currencies like NOK, CAD, SEK, and KRW [34]. Future Outlook - The report anticipates continued USD weakness due to falling US rates, increased FX hedging of US investments, and rising risk premiums from policy uncertainty [45][58]. - The analysis suggests that the DXY could decline by 6% as a result of these factors, with the most significant weakness expected against JPY and CHF [44][58].