2026 outlook: What’s next for markets and the global economy?

[Music]

Sam Azzarello: What's next for markets and the global economy after a year defined by escalating tariffs, persistent geopolitical tensions, and the rise of artificial intelligence across industries?

Mislav Matejka: We see a constructive outlook across most markets, with both DM and EM equities expected to beat other assets, in particular cash and bonds…

Meera Chandan: We're seeing growth forecasts getting upgraded across the curve as we going into the new year, and there's a lot of fiscal and monetary policy easing that is going to provide a tailwind for an improving growth backdrop.

Bruce Kasman: We do believe sticky inflation overall remains a theme on the global stage, and it is, I think, an important in terms of limiting the ability of central banks overall to lower interest rates.

Sam Azzarello: Welcome to J.P. Morgan's Making Sense. I'm Sam Azzarello, and I lead content strategy for global research here at J.P. Morgan. Today, I'm joined by a few of my colleagues to discuss our outlook for 2026. To kick things off, we'll hear from Bruce Kasman, our chief global economist. Bruce, thanks so much for being here today.

Bruce Kasman: Thanks, Sam, for having me.

Sam Azzarello: So Bruce, what surprised you most about the global economy in 2025?

Bruce Kasman: I think the biggest surprise was the resilience of the global economy in the face of some significant negative shocks. The particularly big one was the rise in U.S. tariffs, the trade war that had opened up. But at the same time, I think the resilience of the global economy has not come with balanced growth, and there was another surprise, which was the divergence in a global economy which seemed propelled by strong, uh, CapEx in particularly tech spending in 25, and at the same time, had a fairly sharp slowing in job growth. That juxtaposition of CapEx accelerating in job growth stalling for the most part, uh, was a major surprise.

Sam Azzarello: Fantastic. Thanks for that, Bruce. Where do you think the global economy is headed in 2026 and what are the key factors to watch?

Bruce Kasman: So the global economy's movement into 2026 to us is being driven by two broad factors. One is the sense that the sentiment shock that came this year in 2025 alongside the trade war begins to fade. And we think that will be an important catalyst for recoupling the labor market to the overall picture on growth. Labor markets have been quite weak. Job growth has nearly stalled across the major economies. And if we're right, we get a lift from fading of some of the concerns about policy, a lift that's partly supported by the easing we've seen in monetary and perspective easing in fiscal policies. And we therefore get as we move through 2026, an alignment of solid growth with more normal performance in terms of job growth rebounding. That's the first thing I would emphasize. The second thing we would look for is less synchronized, but still overall sticky inflation in that environment. That's partly driven by the continued overall environment of goods price pressures being different than that they were before the pandemic. And it's also being emphasized by the fact that as job growth recovers here, we continue to see weak labor supply dynamics, immigration policies, having shifted materially across most advanced economies. And with that, we begin to start to see a turn again towards labor market tightening, which basically shifts from what has been some softening we've seen in the U.S. and other countries this year. So sticky inflation, weak supply sides due to immigration policy and solid growth as you recouple the labor markets to an overall decent performance we're expecting across most of the globe. One of the consequences of this, of course, is that central banks do not get the opportunity to validate market expectations for interest rate declines, and we are not looking for much, if any, additional easing for most central banks, with the exception of a high yielding EM central banks that probably still have more to come.

Sam Azzarello: Final question for you. Will sticky inflation remain a prevailing theme next year?

Bruce Kasman: We do believe sticky inflation overall remains a theme on the global stage, and it is, I think, an important in terms of limiting the ability of central banks overall to lower interest rates. Uh, what I would also suggest, however, is we're moving away from a period in which inflation dynamics are more synchronized. That was clearly a factor in the post-COVID Russian invasion environment in which these global shocks were so important. Inflation dynamics are going to be more driven by local conditions, particularly labor market tightness. We do expect overall here to be relatively sticky and stable inflation, but also expect to see more variation with perhaps the most notable variation is that we have inflation in Western Europe coming down to target and inflation in the U.S. staying close to 3%.

Sam Azzarello: Bruce, thanks for your insights. Next up, we have Mislav Matejka, head of global equity strategy. Mislav, thanks so much for joining us today.

Mislav Matejka: Hi, Sam. Thanks for having me.

Sam Azzarello: So why don't you start by walking us through the overall outlook for global equities in 2026 across both developed markets and emerging markets.

Mislav Matejka: We see a constructive outlook across most markets, uh, with both DM and EM equities expected to beat other assets, in particular cash and bonds, with equities offering in the range of 10 to 25% upside in our view. And the Bullish goal is driven by the supportive growth policy trade-off where on one hand, we look for robust earnings delivery next year, and that is underpinned by resilient activity momentum in the U.S., but also an improvement among laggard regions. So China here, it could show green shoots of consumer recovery, and Euros on fiscal stimulus is likely to become much more impactful. And on the other side, inflation is likely to stay on the downtrend due to subdued brand, slowing wage growth and slowing services inflation, which in turn will keep Fed in particular dovish through the first half of 26. And the bond yields therefore are unlikely to break out higher, and especially not to break out higher for the, for the wrong reasons. Now, more specifically for the U.S., we are looking for the rally that is supported by continued rapid AI rollout, and therefore in the U.S., we keep preferences in terms of the styles for large caps and for the growth. In the rest of DM, we think that Eurozone will show better earnings delivery after three years of stalling, and that is on stronger activity and less headwinds from trade and from the FX. Japan was our key DM overweight call for 25, and we still think that it goes up further in 2026, but after the big rally, valuations are becoming fuller. And finally, within the EM, which we like, we in particular have bullish goals on Korea, India, and on Brazil.

Sam Azzarello: All right. Certainly a lot for us to keep our eyes on. How is the relentless expansion of AI fueling record CapEx and earnings expansion, and how might this impact markets in 2026?

Mislav Matejka: AI rollout remains a clear positive for markets, uh, focused on the U.S., given that almost half of S&P 500 weight is AI related these days. Now, the rapid AI CapEx is set to continue, and that's almost irrespective of whether stocks keep performing, as in a sense, this is seen to be a U.S. versus China race, and one can't lose. And within the U.S., there is a winner takes all mentality. So CapEx projections are only likely to get higher without anybody being able to step off, even if the stock prices don't follow. So the natural risk here is the, the one of commoditization with, uh, returns on investments not delivering of concentration risk and, and eventually of overcapacity. And, and we are cognizant of these, but we do believe that AI rollout is in early stages and that's really if you kind of branded year two or three out of potentially 10 plus. In contrast, smartphones, they took eight to 10 years, cloud took eight to 10 years of the accelerated adoption. So there is much more to go. Here, as we mentioned before, in the U.S. portfolio, we are staying constructive on the AI team and the overweight large caps versus small caps as well as the growth versus, uh, value style. Now, AI names have been responsible for pretty much all the incremental earnings growth in the past few years, and in our view, they're likely to deliver above market earnings growth again next year. Within this, as we move through '26, we do expect more and more companies to be able to point out the benefits of the implementation of AI tools in their operations, which would support their productivity and profit margins. So the AI trade should be broadening. It should be broadening into the adoption beneficiaries of AI, so the next 500 companies in S&P 500, and that will also be helping the international names.

Sam Azzarello: Besides AI, what are some other key factors that could shape global equity markets in 2026?

Mislav Matejka: For a long time, AI was the only story in town, and almost all the price returns, all the earnings, and all the CapEx in the past years were driven by AI. We do see additional sources of the upside for equities next year. In fact, for S&P 500 in the latest Q3 results, the remaining 493 stocks have recorded the best earnings growth in years at past 12%, and the gap with Max seven has narrowed quite a lot. That is healthy. And will address to some extent the concentration risk that is in the markets. It would help many connected trades. Also, Eurozone stimulus has not materialized really so far this year, and we feel that it was actually correct to fade the euros and rally from Q1. We have been arguing since March for our consolidation phase, as in our view, there wasn't likely to be much of a earnings follow through, if at all. This worked, and we now expect that into next year, there will be more positive performance of the region with earnings finally delivering on the upside. Besides these, uh, trade headlines will be an important consideration as into the midterms, U.S. administration might want to water down some of the tariffs in order to ease the cost of living pressure on the U.S. consumer. And Fed outlook, it really, it would be also the key factor driving equities where any potential turn towards more cautious funds could impact liquidity adversely, but also there is this wildcard of Fed potentially staying dovish if some of the inflation numbers do indeed move lower.

Sam Azzarello: Mislav, thank you for sharing your views.

Mislav Matejka: You're welcome, and, and nice talking to you.

Sam Azzarello: Next, we'll look at rates with Francis Diamond, head of European Rate Strategy. Francis, thanks for being on the podcast.

Francis Diamond: Hi, Sam. Thanks for having me.

Sam Azzarello: What's the overall outlook for rates markets in 2026? And are there any regions you'll be keeping a close eye on?

Francis Diamond: Yeah, well, I think, Sam, there are a variety of different themes for global rates markets for next year, based on our views around monetary policy and the macro outlook. And if we take the baseline view being one of resilient growth with a global recession likely avoided, and a generally broad disinflation backdrop with some increased divergence, that kind of sets a scene in terms of probably limiting the potential for yields to rally. But I do think that means as a theme, we can look to see carry opportunities in certain markets where central banks are in hold, particularly in the Euro area and in Sweden. I think there is a bit of divergence across curves, which we'll look to investigate, particularly at the front end of the U.S. curve where rates look probably a little bit too low in our view, against our macro backdrop. And we think the Fed is probably delivering slightly fewer cuts than markets are currently pricing. And maybe the conversation will slowly turn towards hikes at some point, but I don't really think that's a big story for next year, and that's probably more a 2027 theme that can start to kick in towards the backend of 2026. So I think this, this probably means there's a bit of a theme of cross-market divergence between U.S. and Euro, which we'll be keeping an eye on. And we also keep an eye on potentially, uh, increased fiscal and political term, meaning term premium in the UK, which might have an impact on intermediate yields from the second quarter of next year, and also the fiscal backdrop and issuance dynamics will be a focus for Japanese rate markets as well.

Sam Azzarello: Very interesting insights. Do you see monetary policy continuing to diverge across the globe next year?

Francis Diamond: Yes, for sure. I think there's definitely scope for some divergence across the DM central banks. It's probably limited in nature, but certainly there's probably the Bank of Japan expected to be the only DM bank that's tightening. We expect the policy rate to rise to 1% by the end of next year as underlying inflation, uh, continues to rise. We think the easing cycle for many central banks has ended. So we see the ECB, the Riksbank, the Nords Bank, the RBA, and the RBNZ all on hold over 2026. And I think it's only the Fed and BOE are expected to ease a little more. We forecast one further 25 basis point cut from the Fed in January, which is a bit less than what's priced into the front end of the curve in terms of the terminal rate over 2026. So we see terminal rate getting close to, or getting to 3.5%. Um, we expect the Bank of England to cut rates to about 3.5% by the middle of next year, which is a little more than priced into markets. So definitely some divergence, but relatively limited compared to what we've seen, over previous years.

Sam Azzarello: And final question for you, Francis. What's the forecast for yields? Are they expected to grind higher over the course of 2026?

Francis Diamond: Well, again, I think it's somewhat selective here, Sam. So in our base case forecast, I think we do think two year treasury yields can rise modestly over the second half of next year. But at the front end, in Germany, yields are a lot more range bound, and probably at the front end of the UK, maybe yields are grinding a little bit lower, to be honest, in terms of a modest rally over the next few months. And if we look further out, we see 10-year bonds, probably around about 2.75% by the end of next year. 10-year treasuries at 4.35% by the end of next year, and 10-year gilts around 4.75% at the end of next year. So that does imply modestly lower bond yields, whereas we do think 10-year gilts and 10-year treasury yields can grind models be higher over 2026. I'd say when we think about the curves, that just gives a bit more of a mixed view in terms of how curves can behave across regions. So probably a bit of steepening in the UK, unchanged in Germany, some modest steepening in the U.S. as well, and then flatter curves in Japan and Australia. And finally, when we just look at sovereign inter-EMU spreads, I think it's just a story of spreads moving sideways over the first half of next year, with maybe a slightly more cautious outlook over the second half of next year.

Sam Azzarello: Francis, thank you for joining and sharing your insights.

Francis Diamond: Great. Thanks for having me, Sam.

Sam Azzarello: Now, let's hear from Meera Chandan, co-head of Global FX Strategy. Hi, Meera. Great to have you on the podcast. Looking ahead, what are the main forces shaping the FX market in 2026?

Meera Chandan: There are two main macro themes that we'd be focused on. The first is that central banks are going to be transitioning from what was a simultaneous easing cycle, in 2025 to a simultaneous hold at relatively high levels above pre-COVID levels in 2026. So this is a pretty big transition where 70% of central banks were cutting rates, now no longer doing that, relatively inactive. The second pillar of the macro theme is that this is going to be a fairly pro-cyclical dynamic going on in the background. We're seeing growth forecasts getting upgraded across the curve as we going into the new year, and there's a lot of fiscal and monetary policy easing, that is going to provide a tailwind for an improving growth backdrop. So inactive central banks, strong growth. If it sounds like the middle of the dollar smile, and a low volatility environment, that's exactly what it is.

Sam Azzarello: So, Meera, is the U.S. dollar likely to remain under pressure in the year ahead, and what are the main drivers behind your outlook?

Meera Chandan: Unfortunately, the prospects don't really look brighter for the dollar, in the coming year. We have been bearish the dollar since March of 2025, and we continue to stay bearish as we look, in the year ahead. The reason for that, firstly, is that at least in the early part of the year, the Fed will either keep rates unchanged for a long period of time, or they're going to cut a lot, either for data-driven reasons, or perhaps if political pressures start to mount. But regardless, I think what that means is any kind of dollar strength we get is going to be quite bounded, whereas the dollar weakness could be more open on the downside. I think there could be periods, long periods of dollar consolidating, at relatively unchanged levels because if U.S. growth is 2% and is yielding 3.5%, that's a pretty good outcome. But the risks on balance, if we do get a large move, I think is skewed to the downside.

Sam Azzarello: Lastly, let's talk about other currencies. Which ones will you be watching closely and why?

Meera Chandan: The currencies to watch in 2026 are going to be their usual three major ones. I would say the Euro, Yen, and the Chinese Yuan. Eurodollar, uh, look, net net, we are still bullish, but we have lowered our sites. Our previous target on the upside was 1.22, that got, that we've taken down to 1.20. But I also think equally Eurodollar can spend long periods consolidating because while Eurozone is on its own growth part on the fiscal front, the U.S. is on its own growth part with AI and tech. So that can be offsetting factors from time to time. So, we do think Eurodollar can consolidate 1.16 to 1.18 in the near term, get to 1.20 as global growth improves. I would say the floor on Eurodollar is around 1.15, if we do get a hawkish repricing for the Fed. On dollar yen, I think that's going to be an interesting one to watch early on in the year. The Takaichi administration has turned sharply towards reflationary policies that drove weakening in the yen in the first place. Now the global monetary policy easing cycles are coming to an end. Global growth is strong, so the use of yen as a funder should just accelerate. So we do think dollar yen will breach 160 in 2026 and remains, yen risks remains key to the downside. Chinese Yuan, not much movement there, really. I mean, dollar CNH, we think, is going to be just at around this, just above the seven level. And what that means is the currency remains weak on a basket basis and retains its competitiveness. The Chinese economy retains its competitiveness versus the rest of the world. And, uh, what that means is it continues to be an anchor that prevents the rest of the Asian complex from strengthening too much. So those are the three currencies to watch.

Sam Azzarello: Thanks, Meera. Really appreciate your views. And now for a look at credit markets, Stephen Dulake, our co-head of Global Fundamental Research, joins us. Steve, thanks for stopping by.

Steve Dulake: Oh, thank you for having me.

Sam Azzarello: What's the overall picture for global credit markets in 2026?

Steve Dulake: In general, I would say okay-ish. I mean, optically from a macro perspective, um, we expect this year's, uh, macro resilience to continue into next year, uh, which is to say we expect continued economic growth. We expect inflation to moderate a little bit, but we do think obviously, you know, one potential fly in the ointment is, is the Fed's ability to cut rates further against the backdrop of a much firmer economic baseline than we were forecasting a little while back. I would say though, in many ways, as the year progresses, we think that the sort of, the micro will sort of become increasingly relevant from a credit investor perspective. Specifically, we're expecting a notable pickup in net issuance, not least here in the U.S., obviously expecting continued supply from the AI ecosystem and the AI adjacent ecosystem. We're also expecting issuance related to M&A and LBO activity to pick up in both high grade and high yield. And we think all of those things take a little bit of a toll on spreads on a look forward basis. So from where we are today, we think spreads will widen a little bit, albeit a little more so in high grade relative to high yield. Um, so we expect to see a little bit of compression in a modestly wider spread environment. Um, we also expect returns in high grade to dominate those in high yield, and that reflects the impact of the much longer duration in the high grade market, given our rate strategist expectations that bond yields will rise a little bit through the course of 2027.

Sam Azzarello: Steve, in light of everything you just mentioned, are there any risks we should be keeping a close tab on?

Steve Dulake: There are. I mean, I would say first and foremost, I would say risk-wise, any significant deviation from our macro baseline. So, you know, to the extent that growth proves to be even firmer than we expect, that would have likely knock-ons in terms of sticky, uh, inflation at a time when affordability is already currently a bit of a hot political potato. So, I think, I think the market could get itself a little bit in a pickle against a backdrop of higher growth, because naturally the market would expect sticky inflation, naturally begin to bring forward the data which they expect the Fed to raise rates. But we obviously know that in Washington, the executive is very clear in its desire to see lower rates both at the short end of the curve and at the long end of the curve. So, I think that could inject some volatility, uh, some more aggressive moves in bond yields. And that could be an environment where you see credit rates correlation go to one, so you have higher bond yields and higher credit spreads. The flip side of that obviously is a much weaker economic outturn. Let's call it something between decidedly subpar growth and, and recession. And I think it's fair to say today that spreads really aren't pricing any material contingency of, of recession. So, I would say in either direction, material deviation from our macro baseline potentially poses risks for spreads. The other thing I'd probably talk a little bit about would be... To the extent, there's a lot of focus on the increasing use of debt by the AO ecosystem to fund its capital expenditure plans. If the sort of monetization curve, so to speak, associated with those investments proves to be a little bit flatter than we all expect, which is to say the return on those investments takes longer to manifest itself, that can be an environment where markets begin to expect or anticipate much weaker balance sheets. So, although we are talking about fairly high rated companies, underlying this issuance doesn't mean that spreads couldn't widen a lot given the growing concentration in the market of the sort of AI ecosystem and, and adjacent sectors. So, those would probably be the, the two main things I'd focus on.

Sam Azzarello: Lastly, let's touch on spreads. Are credit spreads expected to widen next year? And if so, why?

Steve Dulake: So, we touched on that a little bit already. We expect spread to shift a bit on the back of increased issuance. So, a relative horizon supply, relative to demand. That's not to say we're expecting a, a material decline in demand, kind of given the prevailing yield structure or all-in yield structure, I should say. But as I mentioned, we are expecting more supply, firstly, from the AI-related ecosystem, and secondly, as a result of increasing M&A and LBO activity. I think that will result in an expectation that we'll see some slippage in, in credit fundamentals. So, those are the principle drivers for our forecast of moderate spread widening in 2026.

Sam Azzarello: Fantastic. Thanks for that.

Steve Dulake: Thank you for having me.

Sam Azzarello: Next, we'll hear from Jonny Goulden, head of Emerging Market Fixed Income Strategy. Jonny, thanks for joining the podcast.

Jonny Goulden: Thanks, Sam. Great to be here.

Sam Azzarello: As we head into 2026, what does the macro picture for emerging markets look like?

Jonny Goulden: So, it's a good contrast if we think about where we are now versus where we were this time last year. This time last year, obviously looking into '25, the outlook was very uncertain and basically negative for emerging markets, as the new U.S. administration was going to change a lot of the macro settings. But as we look into '26, the macro backdrop looks less volatile and more supportive. So, we are generally constructive on emerging markets, particularly local markets, FX, and high yielding local bonds. If we think about growth first, actually our economist forecasts are pretty similar to this year, so a view of continuity. I would say that maybe there's some upward bias given the AI CapEx cycle. There's been a lot of monetary easing, but the growth environment looks pretty supportive on emerging market inflation. This has been falling for two and a half years. We are getting close to the end of that process. That means that EM central banks will not be able to cut as broadly as they have in the last few years, so we have to position for more differentiation around central banks, uh, in rate markets. Otherwise, EM debt dynamics for both sovereign and corporate credit look pretty stable at relatively benign levels.

Sam Azzarello: Jonny, can you talk a little bit about the main risk scenarios you and your team are watching with respect to emerging markets next year?

Jonny Goulden: So, when we think about the main risk scenarios for emerging markets, they don't look like they're going to come necessarily from EM itself, but more the global, really the U.S. environment. Maybe one smaller. And more likely, the other one bigger and less likely. So, let's look at the more likely first. Uh, and those are risks that come from the global interest rate environment. So, if growth, inflation are going to be higher, um, rates globally and in emerging markets may be higher. And given we are at the end of these rate cutting cycles in EM, they can't be as much of a counterbalance to that. From the investors, actually, we spent the last few weeks talking to, their twist on this is actually a scenario where they worry that the Fed is too dovish in the face of better data, and actually the long end of the U.S. rates curve becomes a bit de-anchored and more volatile. Now, that would probably be positive for emerging markets to start a weaker dollar versus EM currencies. But if we're going into an environment of high and volatile U.S. rates, then it's unlikely to be good for EM bonds generally. Obviously, that's not the base case. Maybe the bigger risk would be the end to this risk-on environment, which has been led by U.S. equities, some rethink of AI CapEx or earnings, big fallen equities, takes down credit markets, maybe draws an end to this growth cycle overall. Again, not the base case for the equity team, uh, but I think if we're thinking about some kind of global recession, that won't favor emerging market credit spreads or high yielding local bonds, but maybe lower yielding FX and rates might outperform in that environment.

Sam Azzarello: Going deeper, are there any regional markets you'll be keeping a close eye on?

Jonny Goulden: The idiosyncratic risks fall partly along regional lines, but some actually cut across. The first one is about transformative elections. So, these are elections where you have very different candidates on offer, which may give a very different outlook for the countries. Chile just concluded on the weekend, we have swung from a left wing to a right wing president. We have transformative potentially elections in Columbia, Peru, Brazil, in Latin America, Hungary, and Israel, and EMEA, EM are all going to be very closely watched, and be opportunities within markets. I think the second would be around what we call distressed opportunities. These are countries which are in default at the moment and may come out of that. The two big ones that investors are looking at are Venezuela and Lebanon. Uh, we're not sure they will exit default next year, but certainly they are going to be closely followed as opportunities. Frontier markets, what we call frontier markets in general, particularly in local markets, places like Egypt, Nigeria, Kazakhstan, maybe we'd put Argentina in that bucket as well, also been a great source of returns. They are, naturally have uncertainty around them, so I think we're going to be keeping a close line on those as well. And finally, maybe in, uh, more macro is the Asian exporters. Probably put China in that bucket as well. Tech exporters, Taiwan, Korea, Malaysia, Singapore, had pretty good economic performance this year. Uh, they have lagged in currency terms, so I think investors are going to be watching as well to see if either of those parts will shift.

Sam Azzarello: Fantastic. Thanks for that, Jonny.

Jonny Goulden: Thanks for having me.

Sam Azzarello: And now we're going to turn to commodities. Joining us is Natasha Kaneva, our global head of Commodities Research. Natasha, thanks so much for joining.

Natasha Kaneva: Thank you for having me.

Sam Azzarello: Let's start with oil. How are imbalances in the oil market shaping your price forecasts for 2026?

Natasha Kaneva: Yes. Thank you, Sam. Well, first of all, the first message is that we maintain a bearish outlook since pretty much mid-2023. Um, so if you take a look, oil prices averaged about, um, $68 this year, down from $80 in 2024. And we believe there is another step down in 2026. Our price forecast is about $58. Our message to the market has remained largely consistent since mid-2023, while oil demand is strong supply simply to abundant, expending it three times the rate of demand in both 2025 and 2026, before moderating slightly in 2027. So, there are two main sources of non-OPEC supply that we focus on. Number one is the global offshore sector. Once it was considered cyclically cost intensive. This sector has now transformed into a dependable long-term driver of non-OPEC oil production. Very important, it's positioned at the very low end of the cost curve. What it means is it's price inelastic. Regardless of what the price does, this is the supply that will continue delivering. And the second one is because all the deep water platforms have been already sanctioned and delivered all the way through 2029, the sector offers exceptional visibility on new offshore barrels, making future completions highly assured. The second sector we're watching very closely is the global shale. We introduced this term in this outlook. Previous, it was just the U.S. shale. After the election, uh, midterm election win in Argentina, we're talking about global shale. Uh, we advise the clients to pay attention to that sector as well. It's a large scale. It's relatively low cost as well with a lot of volumes of supply coming there. So, as a result, global inventories will be building. They increase by about 1.5 million barrels per day this year, further builds in 2026 and to 2027. Without intervention, the surplus will climb even further, putting downward pressure on the prices. However, we believe that this magnitude of market imbalances is unlikely to fully materialize in practice, with adjustments expected on both demand side and supply side, um, with, you know... But, you know, the burden, the greatest burden of rebalancing will almost certainly fall on the supply side, so hence we keep our price forecast for 2026 and changed 58. We introduced a '27 price forecast of about $57 per brand.

Sam Azzarello: Let's turn to precious metals. In 2025, gold was a hot topic. Do you see gold prices rising even further next year?

Natasha Kaneva: Yes, Sam, definitely. So this is a bullish recommendation that we maintain for a fourth year in a row. So as you remember, the first time we advised our clients to buy gold was in November 2022. For the fourth year, this is our top recommendation with further price acceleration. Our price target is $5,000 by the end of 2026. So supply remains relatively inelastic, which means that supply's not reacting to the prices despite prices more than doubling since 2022. At the same time, the major sources of demand in our view will continue delivering into 2026 and 2027. Big focus remains on the central bank purchases. We do believe that they will maintain their buying, uh, patterns into 2026 and to 2027, albeit at lower volumes at what they averaged over the previous three years. On top of this, amid a combination of expected or further expected Fed cuts into early 2026, broader investor anxiety spanning U.S. debt sustainability, fund independence, continued global financial easing, we do believe that ... We see there is a room for further robust growth in investor demand for gold too, particularly as we expect gold ownership to continue expanding into 2026 and 2027. So again, the price target for next year is $5,000 per ounce.

Sam Azzarello: And lastly, what's the story for agricultural markets? Are there any signs of supply-side stress?

Natasha Kaneva: Yeah, so the expected returns from the agricultural commodities are expected to be mixed. So for example, we remain bullish on corn and wheat. We see greater upside in ICE no. two cotton and ICE no. 11 sugar, but we retain the more bearish outlook on soybeans. Interestingly, currently, we see no clear signs of shortages or supply-side stress in any of the agricultural commodities except in the livestock sector and to some extent cocoa markets. However, our projections indicate that global agricultural availability will remain near multi-year lows in the 2026, '27. Uh, harvesting season also in 2027, '28, declining further from already low levels currently. We expect this tightening availability driven by low producer margins to heighten sensitivity and price volatility in response to supply-side shocks.

Sam Azzarello: Natasha, thanks for your time and insights.

Natasha Kaneva: Thank you for having me.

Sam Azzarello: And to round out today's episode, we'll hear from Fabio Bassi, head of cross-asset research. Fabio, thanks so much for taking the time to join us.

Fabio Bassi: Hi, Sam. Thanks for having me.

Natasha Kaneva: What are some key themes you'll be focusing on in 2026 from a cross-asset perspective?

Fabio Bassi: As you wrote in our outlook, we believe that 2026 will be driven by three powerful forces: uneven monetary policy, the unstoppable AI supercycle, and the deepening polarization across market and economies. First, on monetary policy, we are approaching the end of the rate normalization journey across developed market. The Fed is likely to deliver some selective insurance cut, while only the Bank of England is set for additional leasing. But it's not, as I said, a one-size-fits-all story. Central banks are moving at different speed, and that divergent is going to create opportunity and risk across asset classes. Second, the AI supercycle is the real game changer. We are seeing record level of CapEx and rapid earning growths, especially in the U.S. equity market. AI isn't just a tech story anymore. It's spreading into banks, healthcare, logistic, and utilities. For investor, this is the anchor theme driving our bullish outlook on USA stocks. Third, polarization is intensifying. In equity, there is a clear split between the AI-driven winners and the rest of the equity market. In the economy, strong CapEx standing contracts to weaker labor demand and consumer spending. And also across households, the divide between high and low income is widening, creating a classic K-shaped recovery. How these polarization are going to evolve is going to be critical for macro trends and market performance in 2026. What is the big macro takeaway here? Fiscal and monetary easing combined with less policy uncertainty in the U.S. are going to boost business sentiment and help closing the gap between strong growth and a still soft labor market. But this resilience also means that inflation is going to be sticky. Tariff will keep some pressure on prices, and while AI productivity gain and lower energy cost will help, they're not going to be enough to offset it.

Natasha Kaneva: Now let's talk about different scenarios. What are some positive scenarios for risk assets that could play out next year?

Fabio Bassi: Looking ahead, uh, we believe there are several positive tailwinds that could supercharge risk asset in 2026. First, uh, clearly, if the AI theme broadens even further, we could see a wave of investment as government and companies are raising to avoid being left behind. This is what we call the FOBO, the fear of being obsolete, effect. This could drive CapEx, innovation, and ultimately also earning growths across sector. Second, there is a possibility of what we call immaculate disinflation. If inflation fall faster than expected, the Fed could deliver more easy, bringing rates down to or even below the terminal level that they currently priced in. That would be a major boost for equity, credit, and other risk asset. Third, global fiscal easing and, uh, a rollback of tariff could add even more fuel to the fire. For example, if the Supreme Court rules against a broad IEEPA tariff and the administration doesn't replace them with a universal 15% tariff, that could open the door to stronger global trade and growth. In Europe, the big upside comes from German fiscal expansion. And while the geopolitical solution to the Russia-Ukraine conflict remains a wildcard, even a ceasefire could have a meaningful impact on energy prices and sentiment. That said, we are realistic about the challenges. Getting a full peace agreement with a strong security guarantee is a high bar.

Natasha Kaneva: Conversely, what are the main negative risks we should watch out for?

Fabio Bassi: Well, on the flip side, there are some real risks that could derail our positive outlook. The biggest near-term risk is a genuine macro slowdown. If labor demand stays weak and payroll disappoint, we could see a recessionary dynamic taking hold. It's not our base case, but we are still assigning about 35% probability to this scenario. So that definitely remain on our other screen. Sticky inflation is another key risk, if price pressure persists and the Fed pivots away from its current stance, removing its asymmetric bias and opening the door to rate hikes or tighter liquidity, that could tighten financial condition quite quickly. This is going to put pressure on risky asset, especially those that have benefit from easy monetary policy. Finally, we have to talk about AI skepticism. With valuation running hot and a lot of hype in the market, there is a risk that investors start to question the sustainability of the AI boom. While we believe that fundamental, CapEx, sales growth, earnings, and buybacks will support the AI sector, we can't rule out episodes of volatility or temporary retracement. In short, 2026 will be a year where investor needs to stay agile. Keep an eye on both the upside and the downside, and be ready to pivot as the data and the headline evolves.

Natasha Kaneva: Fabio, thanks for sharing the cross-asset view.

Fabio Bassi: Great chatting with you.

Sam Azzarello: All right. That wraps up our 2026 outlook episode, here on Making Sense. We hope you found the insights from our analysts helpful and insightful, and we wanna thank you for tuning in. For more market insights, be sure to visit jpmorgan.com/research.

Voiceover: Thanks for listening to Research Recap. If you've enjoyed this conversation, we hope you'll review, rate, and subscribe to JP Morgan's Making Sense to stay on top of the latest industry news and trends, available on Apple Podcasts, Spotify, and YouTube.

This communication is provided for information purposes only. For more information, including important disclosures—please visit www.jpmorgan.com/research/disclosures.

Copyright 2025 JP Morgan Chase and Company, all rights reserved.

[End of episode]