Emerging markets: Conditions are supportive of rate cuts  

Evolving U.S. policy is expected to continue dominating the outlook for emerging markets (EM) in the second half of 2025. “We had assumed that U.S. policy would be unveiled quickly and with clarity that would push in the direction of continued U.S. exceptionalism —stimulating U.S. growth and keeping U.S. rates higher, while beggaring the rest of the world. What has instead transpired is policy uncertainty and frequent significant changes in tariffs,” said Jonny Goulden, head of EM Fixed Income Strategy at J.P. Morgan.

Looking ahead, the medium-term view for EM remains clouded by uncertainty. J.P. Morgan Research’s base case for the U.S. and world economy is one of slow growth (but not a recession), with U.S. inflation rising but global inflation staying contained. “This should be an environment where EM fixed income continues to deliver positive carry returns, but where growth-sensitive markets can stay volatile with periods of weakness,” Goulden noted. EM currencies are also expected to outperform the dollar.

On the economics front, EM growth is forecast to slow to a 2.3% annualized rate (ar) in the second half of 2025, down from 3.9% in the first half. “The U.S.–China tariff détente and 90-day rollback of reciprocal tariffs have eased downside risks to our global growth outlook, and we now expect a more moderate deceleration,” said Jahangir Aziz, head of Emerging Market Economics Research at J.P. Morgan.  

EM central banks are expected to continue cutting rates despite the Fed staying on hold. “While EM monetary policy easing has been warranted by high real policy rates and weak domestic demand, global financial market constraints had loomed large. These constraints have not materialized and, in fact, a surprisingly weak dollar has expanded the space for easing,” Aziz noted.

Domestic conditions support further rate cuts. Despite the boost to EM growth in the first quarter from front-loaded exports, domestic demand remains palpably soft and should facilitate further disinflation. In all, J.P. Morgan Research expects 19 EMs to cut rates by year-end. 

FX: EM currencies set to outperform  

In light of fading U.S. exceptionalism, J.P. Morgan Research remains bearish on the dollar. “The main anchors of our bearish USD view remain unchanged. Specifically, moderation in U.S. growth, global longs in U.S. equities or assets, growth-supportive fiscal and monetary policies outside the U.S. and higher probability of a structural USD weakening, which deserves a dollar discount,” said Meera Chandan, co-head of Global FX Strategy at J.P. Morgan.

Overall, EM currencies are expected to outperform the greenback. “Several key conditions seem to define the onset of a USD bear cycle versus EM FX, including expensive USD valuations, a notable accumulation of U.S. international liabilities versus the rest of the world (RoW) and the end of a period of U.S. growth exceptionalism,” Chandan noted. “Plus, past experience indicates that once initiated, dollar bear cycles can persist for a while.” 

Commodities: Bearish on oil, bullish on gold  

Beyond the short-term spike induced by geopolitics, J.P. Morgan’s base case for oil remains anchored by the supply-demand balance. Since February, global oil inventories have increased by almost 240 million barrels, indicating that supply is abundant.

“Based on our forward physical oil balances, which show a market in a 2.2–2.4 mbd surplus over the second half of 2025, oil is anticipated to trade in the low- to mid-$60/bbl range for the remainder of 2025 and settle at $60/bbl in 2026, assuming the risk premium fully dissipates by then,” said Natasha Kaneva, head of Global Commodities Strategy at J.P. Morgan.

Looking at the Iran–Israel conflict, oil markets currently appear to be pricing in only a ~3% chance of a further escalation, where the flows in the Strait of Hormuz might be impacted. Under this severe outcome, which could jeopardize 30% of the world’s seaborne oil trade, J.P. Morgan Research estimates oil prices could surge to the $120–130/bbl range.   

Despite the unrest in the Middle East, natural gas market fundamentals remain stable amid lower European storage targets and subdued Asian demand. “While we see a broadly balanced market in the summer, we retain a bullish bias for the winter months on the back of historically low projected end-of-summer storage levels and winter weather uncertainty,” Kaneva said. “Looking ahead to 2026, we anticipate rising supply from global LNG projects and the potential return of Russian pipeline gas to Europe.”

In precious metals, gold’s spectacular bull run looks set to continue, buoyed by geopolitical tensions and growth concerns. “For investors, we think gold remains one of the most optimal hedges for the unique combination of stagflation, recession, debasement and U.S. policy risks,” Kaneva said. As such, J.P. Morgan Research sees gold prices reaching an average of $3,675/oz by the fourth quarter of 2025 and topping $4,000/oz by the second quarter of 2026.

Elsewhere, most agricultural commodities are trading at price levels below producer gross margins, with negative risk premium across grain, sugar and cotton markets. This is as investors’ risk appetite has diminished due to headwinds including uncertain U.S.–China trade flows.  

“In the coming months, the U.S.–China trade relationship will remain a primary source of sentiment for the agricultural complex. We do not rule out scope for meaningful negotiations and Chinese goodwill purchases of U.S. agricultural products through the new crop — likely in the fourth quarter of 2025 and beyond,” Kaneva said.  

Credit: High yields, light net supply 

J.P. Morgan Research expects U.S. high-grade credit spreads to remain similar to their current tight levels in the second half of 2025, with the year-end forecast unchanged at 95bp. Three key points to highlight are that yields are high, net supply is light and corporate earnings have been very good.

“U.S. high-yield bond spreads are expected to widen about 100bp to 450bp by the end of 2025, which equates to a full-year return of 5–6%,” said Stephen Dulake, co-head of Fundamental Research at J.P. Morgan. “We also continue to forecast loan spreads to widen 90bp to 550bp by year-end. High-yield bond and leveraged loan default rates are expected to reach 1.50% and 3.25%, respectively, in 2025, and we preliminarily expect them to rise to 2.75% and 4.75% in 2026.”

While most of the securitized products market has retraced to pre-Liberation Day spread levels, some hover wider:

•  J.P. Morgan Research’s home price forecast remains unchanged at +3% for 2025.
• Agency mortgage spreads have stabilized within a modestly wider range, offering potential excess returns for investors, though sharp tightening is not anticipated.
• For asset-backed securities, credit trends are expected to remain stable, in line with expectations of no recession and very mild labor market deterioration.
• Capital market conditions continue to open up for commercial real estate, though some policy-related disruptions have emerged. While issuance has been strong, stress in mostly seasoned exposures continues to mount.