A year of divergence: The market and economic outlook for 2025

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Fabio Bassi: Against a backdrop of slowing inflation and growing geopolitical uncertainty, what's in store for the global economy, equities, currency, commodities and more? Will the year ahead be characterized by steady growth, or can we expect increased volatility?

Bruce Kasman: The big divergence worth noting is the fact that we have interest rates in Western Europe going down below 2% next year, while we have them staying around 4% in the U.S.

Meera Chandan: I think the U.S. election is going to be one of the big drivers for FX next year.

Luis Oganes: Inflation has been declining in emerging markets, which is good news.

Fabio Bassi: Welcome to Research Recap on J.P. Morgan's Making Sense. I'm Fabio Bassi, head of Cross-Asset Strategy, and today I'm joined by my colleagues in J.P. Morgan Research to discuss what lies ahead for the economy and markets in 2025. Before we begin though, I would like to congratulate the team for re-claiming first place in the recent Extel rankings, formerly known as Institutional Investor, which is a testament to the amazing work they have produced over the past year. Now I would like to bring in our head of Global Research, Hussein Malik, to give us an overview of the global landscape. Hussein, what's top of mind for you as we add into 2025?

Hussein Malik: In 2024, attention centered on inflation, central bank responses and global elections. As we transition to 2025, although the business cycle dynamics remain crucial to the outlook, there will be a heightened focus on policy changes in the U.S. across trade, immigration, fiscal and regulatory policies. These changes will significantly influence outcomes in the U.S. and elsewhere for 2025 and beyond, and the global landscape should become more fluid as a consequence. The combination of less synchronized business cycles and central bank paths globally, heightened geopolitical uncertainty and evolving government policy agendas are introducing unusual complexity to the outlook, requiring one to maintain an open mind and a flexible approach to investing.

Fabio Bassi: Fantastic. Thanks so much for that Hussein. Let's now dive a little deeper into the macro market outlook for 2025. First up, our chief economist, Bruce Kasman, will walk us through his forecast for the global economy in 2025. Thank you for being here Bruce.

Bruce Kasman: Thank you.

Fabio Bassi: Bruce, can you kick us off by presenting your outlook for the global economy?

Bruce Kasman: Well, we certainly have been and continue to be of the mind that interest rates will remain high. What has been interesting in the evolution of the global economy and our thinking is that a year ago when we were thinking about a world in which inflation would stay persistently high, central banks wouldn't lower rates, we were worried that that would begin to undermine the health of the global economy in terms of generating vulnerabilities, tighter financial conditions, balance sheet erosion, things of that sort. What has impressed us is how well the global economy has been able to deal with higher interest rates and we're increasingly inclined to a view that inflation will remain sticky, growth will remain resilient, and the underpinnings of the global economy will still remain in place here that we can live with high interest rates for a long period of time. The other point I would just make about the 2025 outlook is we think that the world is moving away from common developments that have created synchronization effectively, the reverberations of the pandemic shock. And as those reverberations are now fading, we think you're gonna see more divergence across countries. So around this theme of high for real long, we have more divergence and inflation performance, more divergence in central banks. And the big divergence that I think is worth noting is the fact that we have interest rates in Western Europe, particularly in the Euro area, going down below 2% next year while we have them staying around 4% in the U.S.

Fabio Bassi: Thanks Bruce. How do your forecasts differ from consensual projection by central banks or private forecasters?

Bruce Kasman: Well, I would say that I think consensus is a bit in flux right now as we're processing the election outcome. But if we go back a few weeks when people were putting their outlooks together pre-election, I think what you saw is a consensus which had far more disinflation, far more central bank easing was effectively not in this high-for-long camp that we were. And I think that's the main differentiation. There has been a consensus that it was expecting interest rates to come substantially lower just about everywhere. So there was more synchronization, more disinflation, effectively an immaculate scenario where inflation came down with any loss of growth, we've been fighting against that view, particularly on the inflation and interest rate side. We continue to do so.

Fabio Bassi: Finally, how much of this forecast is contingent on U.S. policy under Trump presidency? What are the key things to consider?

Bruce Kasman: So, as we're looking at the outcome of the U.S. election, we're seeing forces that are likely to, we believe, be consistent with our high-for-real-long scenario. The efforts we think the U.S. administration is gonna take on trade is likely to be one that will raise global inflation next year, limit room for central bank easing. In addition, we think the U.S. is likely to benefit from the regulatory changes from the fiscal policy changes while the rest of the world might actually suffer beyond the direct impacts of the trade shock from the sentiment shock as the fear of a more extreme set of U.S. policies filters through the global system and that's where the risks lie. If we do get more extreme policies, if we see tariffs go up against the entire world, if we see geopolitical stress and conflict increase, we are in a situation where maybe the sentiment shock becomes broader and deeper and includes the United States and could be a threat to the global expansion next year.

Fabio Bassi: Thank you so much Bruce.

Bruce Kasman: Thank you.

Fabio Bassi: Now, Dubravko Lakos-Bujas, our head of Global Market Strategy, will offer his take on the equity market in 2025. Thank you for joining us, Dubravko.

Dubravko Lakos-Bujas: Hi Fabio. Thanks for having me today.

Fabio Bassi: Dubravko, can you summarize the route of our global equity market in 2025?

Dubravko Lakos-Bujas: Looking at 2025, we think the global equity backdrop will likely be quite fluid with a lot of cross-currents at the forefront. We think big picture, the theme will be about dispersion. Dispersion is driven both by top down as well as bottom up forces. Top down forces being basically what I would call unsynchronized business cycles. You know, countries that are facing disinflation at different sort of rates and pace and uh, bottoms up. We're just basically I think facing an environment where we likely see potential policy changes and there will likely be a lot of uncertainty tied to that. And then you also have technological innovation, which I think remains a big theme and it's something that doesn't equally affect all countries. So I think dispersion will be a big theme across stocks, across sectors, countries and styles. And the other thing I'll mention is we think the U.S. exceptionalism in story is something that likely will continue to power through. We think the U.S. remains the growth engine.

Fabio Bassi: Thanks for that. What are the key factors that are driving this view?

Dubravko Lakos-Bujas: So the key factors I think are several. I think for one, when you sort of think about U.S. and the U.S. exceptionalism story, I think that's centered around a business cycle that's still largely in expansion. We're definitely seeing some data suggesting that the low-end consumer, which has been most affected by this call it affordability crisis, starting to see some improvement and some sort of pickup in demand. And some of that is sort of related to better wage growth and slightly better inflation dynamics that they faced. At the same time, the AI cycle and the AI investment thesis is something that has the potential for further broadening out as we go through 2025. And it's very much so a U.S. story. We still continue to find ample liquidity in the broader system and there is something to be said about things like animal spirits and the wealth effect. And then lastly, I'll mention that there is a pretty big potential for both a pickup in capital markets and the activity after several quarters, actually a few years of silence there if you will. And a lot of that being tied to where central bank policy was and where interest rates have been. So we think it's quite a positive backdrop for the U.S. We think Japan is something that sort of trades as a second derivative off of the U.S. and remains a positive story. And like I said, elsewhere, when you look at Europe, Europe continues to face both cyclical and secular headwinds. And the emerging market story just remains a pretty tough one in an environment of strong dollar higher for longer rates. And this policy and uncertainty that I mentioned earlier on.

Fabio Bassi: Oh, that's interesting. Will the polarized regional equity performance we are currently seeing continuing to next year?

Dubravko Lakos-Bujas: So we do think that for the time being this polarized performance as you mentioned, likely continues to persist between various countries. I do think there will likely be an opportunity to play the convergence trade at some point next year, but you probably will want to first get more clarity on some of the potential policy changes such as, you know, question marks we have around trade and tariffs and Europe and various parts of EM are quite sensitive to that. And I think we also want to probably get more clarity and more confirmation that the inflation progress or the disinflation progress that we're seeing in the U.S. continues to sort of move in the right direction and that Fed continues to sort of act as a tailwind rather than sort of a headwind when it comes to equity markets.

Fabio Bassi: And in your opinion, what are the major risks to watch?

Dubravko Lakos-Bujas: So risk-wise, I mean there's always something to be said about equity valuations being elevated and there's something to be said about positioning on the equity side, also being on the higher end of the historical range. But the problem with valuation and with positioning, things can stay sort of stretched and elevated for prolonged periods of time. You need a catalyst to cause some form of, call it reversal. So when you ask about a risk, I mean the one thing that could sort of trigger people to turn more bearish is basically if the Fed, let's say opens the doors to a potential, not just pause, but more so a potential hike in the future, assuming that inflation dynamics start to sort of firm up and change within the U.S. And that could be tied to an economy that continues to show re-acceleration. So if that were to happen, I think the valuation and the sort of elevated positioning factors all of a sudden start to become more important and could basically create some reversal and could cause a pullback in the market.

Fabio Bassi: Thanks for your time, Dubravko.

Dubravko Lakos-Bujas: Thank you for having me.

Fabio Bassi: Next up we have Jay Barry, head of Global Rates Strategy. Thanks for joining us today, Jay.

Jay Barry: Thanks for having me.

Fabio Bassi: Firstly, what are your expectations for the Fed easing for 2025?

Jay Barry: Sure. So we look for the Fed to slow down the pace of easing to a quarterly pace, beginning at the next meeting in December, and look for a hundred basis points of total easing such that the Fed fund's target range reaches three and a half to three and three quarters percent by the third quarter of next year. We're thinking this is sort of the right pace for the Fed because if anything growth in the U.S. remains pretty solid. We're looking for 2% real GDP growth next year. We do see inflation moderating further and we do see further loosening in the labor markets. But given the uncertainty over the path of fiscal immigration and trade policy next year, we think this probably makes sense for the Fed to proceed at a bit more of a more deliberate pace and therefore leave policy rates in a somewhat restrictive area next year, such that we're at three and three quarters by the third quarter.

Fabio Bassi: How is the shallow easing cycle likely to impact Treasury yield and the yield curve?

Jay Barry: I think this is exactly why we entitled our 2025 outlook, “How I Learned to Stop Worrying and Love Higher Treasury Yields.” It's because a shallow easing cycle means that there's going to be more limited room for Treasury yields to decline than we've seen in the full-blown easing cycles like in 2001 or 2007 or even 2020. We do have other instances of more shallow and incomplete easing cycles, summer of '19, fall of '98, 1995-96, and I think those put good guardrails on what to expect out of the markets, where Treasury yields did decline until very close to the end of the easing cycle, but in a relatively limited fashion. So I think that's a starting point to understand that rates are going to remain more elevated than they've been at any point in the last 15 or 20 years. It also means we need to be really careful where if we're going to position for lower rates next year, where we do that along the yield curve. And we think the front end is the place which makes the most sense for a number of reasons. First, money markets are not fully pricing in our Fed forecast right now. Second, the rhetoric outta the Fed suggests that their bias right now is asymmetrically dovish. If the labor markets loosen aggressively, they can ease aggressively. But if inflation stays elevated, they may just stop easing earlier, which acts as a support. And finally, it does appear to us that the front end appears cheap adjusting for the Fed's comments and the expected path of growth over the next year or so. So we think if you position for lower rates anywhere, it's better at the front end. Meanwhile, we're much more circumspect about the long end of the curve because one of the core themes we've been focused on for the last year and a half to two years is that the Treasury market is going through a pretty seismic shift in demand. It's rapid growth because of very wide budget deficits means that the pace of issuance is outstripping demand from the most prolific typically price insensitive investors that have supported the Treasury market for the last two decades like the Fed, U.S. banks, and foreign official investors. And as their share of ownership in the Treasury market continues to decline, we need to rely on more price insensitive investors, and that's going to mean they're going to require more compensation in the form of higher term premium. And it's tough to observe term premium in the real world, but what to us it maps for is a yield curve that's steeper for a given level of policy rates than we've been used to over the last few years. So we very much feel much more comfortable with yields declining modestly at the short end while we think it's much more likely that long-term yields remain more elevated. And that's why we see tenure yields troughing around four 10 by next fall before reaching four and a quarter at the end of next year.

Fabio Bassi: Finally, what's the story with developed market policy rates? What does policy divergence mean for rates globally?

Jay Barry: And I think that's a real story here because while we're just talking about the Fed and U.S. exceptionalism, which is likely to keep policy rates more elevated, the story is different elsewhere across the globe. And in Europe in particular, it's a much different story. Growth is sluggish right there, and with the added uncertainty over what changing trade policy may mean in the U.S. for European growth, we think that paves the way for a weaker European economy with inflation that is moderating back toward trends and toward target pretty quickly. So it means that there's room for the ECB in our minds to move into accommodative territory by the middle of next year, and we look for the ECB to ease to one in three quarters by the middle of the year, which if we're right, that means that there's substantial reason to think that the front end of the European curve can rally right there. There's room for the European curve to steepen as well. So we envision 10-year bond yields reaching 195 by the middle of the year before bouncing back to 205 at year-end and think there's substantial room for the curve to steepen, but different to what we talked about in the U.S. This is for traditional bullish reasons around easing central bank policies than it is for the term premium reasons we talked about in the U.S. Finally, the U.K., it's in a scenario that looks a lot more like the U.S than it does the euro area where inflation is likely to remain stickier. Fiscal policy is loose. We think the Bank of England can ease by a hundred basis points. And very similar to our U.S. story, we think there's scope for the yield curve to steepen and room for the front end to rally, but only in very modest fashion.

Fabio Bassi: Thank you so much, Jay.

Jay Barry: Thanks for having me.

Fabio Bassi: Covering the outlook for currency, we have Meera Chandan, our Co-ed of GlobalFX Strategy. Great to have you here, Meera.

Meera Chandan: Thanks for having me today.

Fabio Bassi: Meera, what are the main forces shaping the FX market in 2025? Is the policy fallout from the U.S. election the key factor to watch?

Meera Chandan: Sure. I think the U.S. election is going to be one of the big drivers for FX next year. And the policy channels, really it's two of them that we focused on. One of them is the trade policy and specifically what happens around tariffs because that is going to directly feed into the dollar. The other part of this is going to be what happens to the U.S. terminal rate and also to the U.S. resilience story if a lot of the pro-growth activities and policies are activated for next year. So the U.S. election's gonna be a big part of it, absolutely. But I think beyond the U.S. elections within the DM space, I would be looking at other things as well. I think, you know, some of these early rate cutters are starting to see improvement in the underlying growth data as policy easing is finally starting to have an impact. This is particularly the case for highly levered economies. I think that could be an interesting theme. We also have a relative terms of trade divergence, which was quite active this year, which I think should be relevant next year as well. So that is actually things to watch even beyond the U.S. elections.

Fabio Bassi: Thank you for that. In your view, what's the outlook for the U.S. dollar in 2025?

Meera Chandan: Highly bullish. I would say to begin with. Again, it's the U.S. policy that is going to be the main driver here. I would be looking at first and foremost what happens with tariffs. I think even if tariffs are the starting point for the negotiations is quite hawkish and the eventual landing point is quite soft on tariffs. I think even despite that, you could get a situation where the dollar is sharply stronger as the market moves to price in the tariffs. And I don't think that pricing is fully gone through yet. I mean, let's take a look at euro/dollar for example. The European markets are pricing in an ECB terminal rate of only 1.8%. That certainly has a lot more downside to it if the tariffs are actually implemented against the Eurozone. I think equally in China as well, don't really think that all of it is priced in just given the magnitudes of moves that we have in mind. So just to illustrate, we do think that a 10% tariff can lead to euro/dollar testing parity in Q1. So we are looking for a break of parity. And by Q1, dollar/CNH looking for sort of the 7.50 type range. But you know, with upside risks if tariffs are higher, like closer to the, you know, the upper limit of 60% that has been discussed in the news that could be nearing up to eight on dollar/CNH. And then the other part of this that we have to also track aside from the trade policy, is the fiscal response in the U.S. And also, you know, how much of a boost business confidence can actually get from the pro-growth policies that President Trump has been talking about. So you could get a situation where the U.S. terminal has to be higher for longer, which essentially means that you get a double whammy for the dollar in favor of the dollar. First from the tariffs, which widens the growth cap between U.S. and the rest of the world. And second, from U.S. fiscal policy and deregulation, which could actually increase the terminal rate in the U.S.

Fabio Bassi: That's great. As well, which currency will you be keeping a close eye on and why?

Meera Chandan: I would say the Japanese yen is one to watch, aside from Euro and CNH. The reason for that is because BoJ is one of the two central banks globally that actually will be hiking rates next year. The other one is Brazil, but you know, Japan being one of the lowest yielding currencies globally is projected to hike rates to 1% by the end of next year. Now that might not sound like a lot, but it starts to add up when you factor in the view that the rest of the world is actually going to be easing quite aggressively. So looking for yen to actually fare better than it did in the past year. Dollar/yen projections I think are, are pretty tame at 148 to 150, but that partly reflects the U.S. resilience story. I think where the juice really starts to come in is if you look at crosses such as euro/yen, where there's actually room for euro to weaken and yen to strengthen all at the same time. I think that's when you start to get, things start to get more interesting. So I think yen is definitely one to watch, and also from the point of view that, you know, if yen continues to weaken, then the BoJ and the Ministry of Finance, their FX interventionist policy also starts to get more active. Within the Europe block, we have quite a few interesting candidates as well. We've got the Swiss franc, which is thought of like yen. It's a, you know, we're looking for euro/Swiss to grade 90 on the expectation that European growth will be weaker. We do think some of the high currencies within the euro block can actually be more resilient. I think sterling, you know, to some extent can outperform the euro, but currencies that we see really outperforming the euro within the euro block are going to be Scandis, Sweden, and Norway, because these are highly rate-sensitive economies, highly levered economies that should benefit from the growth boost that central banks are cutting, particularly in the case of Sweden. So looking for euro stock to be lower as well. I think Aussie and Kiwi are, of course, you know, looking for those to be weaker in sympathy with CNH, but in the grand scheme of things, I think Aussie in particular, for example, they do have a fair amount of fiscal room to buffer any sort of sentiment impact. So I would be looking for, perhaps, I would say to me, the most vulnerable currency out there is euro.

Fabio Bassi: Thank you for being here, Meera.

Meera Chandan: Thank you.

Fabio Bassi: Now, Steve Dulake, co-head of Fundamental Research, will cover the outlook for credit markets. Thank you for joining us, Steve.

Stephen Dulake: Thank you for having me here.

Fabio Bassi: Steve, what's the overall picture for a global credit market in 2025?

Stephen Dulake: Quite frankly, it's not too different from where we were at this juncture last year looking into 2024. So I'd say a couple of things are very relevant. Firstly, I think the overall credit ecosystem in a global context remains pretty robust. I think there's no evidence of excess positioning, no excess leveraging complexity, no tourism or sort of what I would call nontraditional holders of risk in the asset class. And I think one thing which is missing importantly and positively is there aren't really any obvious asset liability mismatches in the system. So I think the ecosystem is pretty robust and despite spreads being pretty thin, I think all-in yields remain in a fairly attractive place for institutional investors. So I think what I would call a decent 2025, not perhaps a stellar 2025, but generally an environment of positive returns for the asset class.

Fabio Bassi: That's interesting. How can the spread expect to tighten in the coming month?

Stephen Dulak: Depends which market segment you're really talking about. So if I think about our forecasts, for example, in U.S. high grade, we think a little bit tighter U.S. high yield, a little bit wider in Europe, a little bit wider relative to the U.S., reflecting, I think some of the risks which have really begun to emerge just recently with respect to sovereigns, notably France. Though I would say, I think, at this point, the idea of being underweight Europe and overweight the U.S. is I think quite a consensus view. But generally speaking, spread's not expected to move too much. A little bit tighter, a little bit wider depending on which market segment we're referring to.

Fabio Bassi: Thank you, Steve. Finally, what are the key themes or factors you'll be keeping a close eye on in 2025?

Stephen Dulake: Interest rates, very, very clearly, I think, you know, to the extent we've actually been out on the road meeting with investors already and talking about the outlook for 2025. I think one of the areas where we have seen some pushback is on our revised view with respect to Fed policy and Fed rate cuts. So even though we now only think the Fed gets to three and three-quarters on the funds rate, you know, there's definitely a body of opinion that that may be a little bit of a stretch against resilient in economy and once in which inflation could prove to be sticky. So I think what we worry about or what we think is relevant to keep an eye on is if we hit that moment where market participants really find it important or necessary to revise interest rate expectations and that gives rise to some level of disorder in rate markets that you would associate with the sort of high evol. I think that's the environment where you get positive credit rates correlation and much like we saw on a number of occasions when the Fed was raising rates aggressively. In general, I think all-in yields are in a pretty decent place to sort of foster an environment of constructive, though not stellar, positive returns. So I think across all asset classes, we're talking sort of coupon-like returns, carry-like returns for the coming year. But certainly, most concerned about rates moving up against the backdrop of strong growth, sticky inflation, notably in the U.S., or the alternative, rates moving down a lot, and that choking off institutional demand. But that by definition would probably be very consistent with an economy that's hit the skids and experiencing a recession, in which case, spreads should be a lot wider.

Fabio Bassi: Great. Thank you so much, Stephen.

Stephen Dulake: Thank you for having me, and apologies for the baritone voice. Um, I've had a bit of a cold the past few days.

Fabio Bassi: Next up, Luis Oganes, head of Global Macro Research, will shine the spotlight on emerging markets. Thank you for being here today, Luis. Can you start off by summarizing your overall emerging market growth forecast for 2025? What are the factors informing this view?

Luis Oganes: So starting with the notion that actually 2024, that we're just closing now, was not a bad year for emerging markets' growth overall. We're expecting growth to reach around 4.1%, not too far away from potential growth in yen. However, even all the cross-currents that we're monitoring for 2025, we're thinking the growth is probably gonna be lower. The forecast that we have is 3.4%, so it's like one point below potential. A lot of that is actually due to the cross-currents are gonna come from the announcement of the incoming U.S. administration to impose tariffs, particularly on China. For China's growth, we're going from 4.8% to 3.9% next year, so that is going to be a big drag on EM growth overall. Of course, we don't know the scope, the extent of all these tariffs announcements. I guess we need to be patient and wait for the new administration to be in place and we may be forced to revise these growth forecasts one way or the other. Hopefully, there'll be under-delivery of some of these promises and we'll need to revise up, but where we are, we are for incorporating into our projections, you know, some of these disruptions that would come from tariffs.

Fabio Bassi: Very interesting. What can we expect in terms of inflation monetary policy across emerging market?

Luis Oganes: Inflation has been declining in emerging markets, which is good news, right? We have a projection for inflation this year to close around 3.4%, next year to go down to 2.8%. So already, most countries that are targeting inflation, that target is around 3%, so actually, the target would be accomplished for the most part in 2025, given that many EM central banks still have high nominal real interest rates. there should be room for them to cut. But again, a lot of that will be dependent on how far the Fed goes. As you know, our U.S. economies do have maybe another 100 basis points of cuts into the forecast, but there are a lot of doubts, how much the Fed is going to be able to cut if some of the policies of the incoming administration do generate, once again, inflation pressures in the U.S. The forecast, as you know, for the Fed is to cut all the way to 3.75. Markets are thinking, there's a lot of people thinking that it may not be able to go below 4%, so this may also limit the room for EM central banks to cut. So we do have 120 basis points in GDP weight in terms of policy rate cuts for EM central banks do in 2025, so more than the Fed itself. But again, it is coming from a much higher starting point. But this number is obviously, you know, can be lower if, in the end, you do have these tariffs that generate currency depreciation in emerging markets, pass through from devaluation to inflation, and therefore, less room for EM central banks to cut. So a lot to watch in this space during 2025.

Fabio Bassi: Thanks for that. Finally, are there any regional market you'll be watching closely?

Luis Oganes: Well, certainly, we talk about emerging markets as if it was a block, and it's not a block, right? And if you look at our year outlook report, you know, we talk about the divergence that we're gonna be seeing in yen. We're gonna have, you know, some set of countries that are heavily reliant or dependent on trade with the U.S., and those are the ones that are probably gonna be (laughs) somehow in the firing line of U.S.'s tariffs policy, but others that are more insulated and others that, because of the products that they export, may actually not feel too much of a pressure. So China, which, obviously is going to be in the front line of tariffs and the rest of Asia, which somehow depends on the supply chains of the China manufacturing apparatus, will probably feel the pressure immediately. By contrast, you have countries that are exporting commodities, many of them in Latin America, South Africa, etc., that if China continues with the policy of the last couple of years, so continuing to stockpile commodities as a way of reducing vulnerability or dependence, they could actually, you know, (laughs) interestingly enough, you know, not feel much of the pressure just because you will have this stronger one from China. Then you have this number of idiosyncratic stories across EM that are gonna be doing kind of their own thing, meaning it's gonna be relatively uncorrelated risk to whatever the Fed does or U.S. tariffs do, etc. I'm talking here about Turkey, that is still, you know, have shifted towards orthodoxy, inflation is declining, eventually they'll have to cut rates. Rates are still very high though and this is one of the preferred currency exposures of many investors. You have countries like Argentina that is making progress also in a very fiscally conservative, orthodox policy mix that, should see actually growth returning, you know, maybe 5% or more during 2025, which will be an interesting case. And then you have of course, you know, countries that are gonna be under pressure, but we don't know exactly the scope of this pressure, right? So I think that 2025 is gonna force us all to be very nimble and be very humble to be honest with our projections, acknowledging that we're probably gonna be revising them along the way once we know the scope and the extent of how aggressive or not U.S. trade policies will be.

Fabio Bassi: Thank you for joining us, Luis.

Luis Oganes: Thanks for having me.

Fabio Bassi: Now, Natasha Kaneva, head of Global Commodities Strategy, will walk us through the 2025 outlook for the oil market. Great to have you here, Natasha.

Natasha Kaneva: Hi, Fabio. Thank you so much for having me.

Fabio Bassi: Natasha, what is the team's outlook for the overall commodities index for 2025? And what key themes do you believe are important for clients to be aware of?

Natasha Kaneva: Well, thank you, Fabio. So there are two main takeaways in commodities. Number one is that following a 13% contraction last year, the BCOM Index is on track to deliver a flat return in 2024 and is anticipated to remain relatively flat in 2025 as the declines in energy prices are balanced by further price increases in metals and agriculture. And the second conclusion is that if the projected subdued commodity prices hold true, they should continue to put downward pressure on headline inflation, particularly its non-core components. So for example, in 2022 and 2023, commodities were a massive disinflationary force, single-handedly contributing almost two-thirds of the drop in the U.S. headline CPI inflation from 9.1% in June 2022 to 3.4% in December 2023. Inflation continued to go further this year, taking annual headline CPI print down to 2.7% in the latest November reading, as food and energy components together contributed to almost 35% of this decline. So in 2025, commodities are expected to maintain their disinflationary influence if we're correct in our views.

Fabio Bassi: Within the commodity index, what are your strongest views?

Natasha Kaneva: Yeah, so in terms of, or in order of our price forecast, Fabio, we maintain our multi-year bullish outlook on gold for a third year in a row. The first time we put bullish gold outlook was in November 2022, and we also forecast a stronger bullish catch-ups in silver and platinum. In terms of price targets, ultimately we forecast gold prices to rise to about $3,000 per ounce next year. Averaging just slightly under that in the final quarter of 2025. Both silver and platinum have strong underlying fundamentals and we think a catch-up trade in 2025 could be quite potent. Pushing silver prices towards $38 per ounce and platinum rallies to about $1,200 per ounce. Industrial metals are advancing to our second position in terms of potential price appreciation from the current levels. the two metals that we really favor, copper and aluminum. In the case of copper fundamentals are really strong, exact opposite of what we're dealing in energy, especially in oil. There is a good amount of demand, but there's not enough supply. So our price target cost for price is averaging $10,400 per metric ton in the final quarter of 2025 and onward to an average $11,000 by 2026. Aluminum actually is a metal that is most insulated from bearish macro pressure at the moment given its high-cost floor. So we believe that the fundamental sales is skewing to the upside in 2025 with a price target of $2,850 per metric ton in the second half of next year. So in the agricultural commodities, that's number three. So relative to the forward curve, our price forecast for the agri-commodity screens constructive with most price appreciation or most price upside for the sugar and palm oil agricultural commodities. Neutral view on U.S. natural gas, the price target is $3.50 per MMBtu, this is just slightly bullish relative to the current forward price. And finally, oil. So in the case of oil, we are moving from tactically neutral, there were episodes this year when we were outright constructive on the oil, but this current juncture we're moving to an outright bearish outlook. Brent price forecast is projected this year, most likely we're on track to average about $80 per barrel. This is just $3 lower than what was our price forecast since last June. So for next year, price is largely unchanged, so it's $73 on average for 2025 with expectations of a shift from a largely balanced market this year to a large surplus in 2025 and in 2026. Demand is not an issue, but unlike copper, there's just too much supply, especially non-OPEC supply. So this is the one that drives the price down. And the outlook for 2026 is Brent prices to average $61 per barrel, in the case of WTI it's minus four.

Fabio Bassi: Thank you so much for sharing your view, Natasha.

Natasha Kaneva: Thank you for having me, Fabio.

Fabio Bassi: Now that my colleagues have shared their views, I’d like to wrap up this episode with some projections across different asset classes in 2025. So to summarize, for 2025, we are positive on risky assets with a strong preference for U.S. equities. In rates, we expect uneven normalization that is going to create cross-market opportunity with more confidence in the disinflation process, in the euro area and in the reflation narrative in Japan. We remain positive on the dollar, which will benefit from a relative growth story with further upside coming from trade policy from the new administration and the introduction of tariffs. We are also positive on credit in general as an asset class. In our view, balance sheets are more resilient than earnings due to the uncertainty of the U.S. policy and ecosystem remains robust for credit. We are cautious on EM fixed income, tariffs will weaken EM currency and will make it difficult for emerging market central banks to cut further. And finally, in commodities, we believe that the combination of new policy, weak demand-supply backdrop is going to support a weaker oil price in 2025 and actually also in 2026. That's all the time we have now. But thank you so much for tuning in to this episode of Research Recap on J.P. Morgan's Making Sense. For more marketing insights, please visit jpmorgan.com/research. We hope you join us again next time.

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