JPMorgan Chase & Co. CEO Jamie Dimon has voiced significant concerns about the US economy, stating he cannot dismiss the possibility of stagflation as the nation grapples with formidable risks stemming from geopolitical instability, persistent budget deficits, and mounting price pressures.

He also endorsed the Federal Reserve’s current patient approach to monetary policy.

“I don’t agree that we’re in a sweet spot,” Dimon declared in a Bloomberg Television interview conducted at the lender’s Global China Summit in Shanghai.

He elaborated on the multifaceted threats, highlighting “huge deficits, inflationary factors, and geopolitical risk.”

In this context, Dimon asserted that the US Federal Reserve is “doing the right thing to wait and see before they decide” on future interest rate moves.

His comments come as Fed officials have maintained steady interest rates throughout the year, navigating a landscape characterized by a resilient economic backdrop juxtaposed with uncertainty over potential government policy shifts—such as tariffs—and their cascading effects on the economy.

Earlier this month, policymakers acknowledged an increased risk of simultaneously confronting both elevated inflation and rising unemployment, the hallmarks of stagflation.

A significant source of this uncertainty is the ongoing trade dynamic between the US and China.

While the two economic giants agreed earlier this month to a sharp reduction in tariffs for a 90-day period to negotiate a new trade agreement, the path forward is fraught with challenges.

Analysts and investors widely anticipate that US President Donald Trump’s tariffs on Chinese goods will likely remain at a level sufficient to severely curtail Chinese exports even after the 90-day truce concludes.

Dimon expressed a desire for continued dialogue: “I don’t think the American government wants to leave China,” he said.

“I hope they have a second round, third round or fourth round and hopefully it will end up in a good place.”

Policy uncertainty stifles business activity

President Trump’s often unpredictable tariff announcements and his administration’s efforts to shrink or dismantle government agencies have fueled widespread concerns about international trade, inflation, unemployment, and the potential for a recession.

Bank executives have noted that this climate of uncertainty is prompting companies to pause expansion plans, including lucrative mergers and acquisitions that are a key business for Wall Street dealmakers.

Reflecting the gravity of these global shifts, JPMorgan, the largest US bank, launched its “Center for Geopolitics” this week.

This new unit will provide research on critical geopolitical issues, including Russia and Ukraine, the Middle East, and the trend of global rearmament.

The unit “is both for us, and it’s also to educate clients,” Dimon explained.

Clients ask us all the time, what should we do about this country. How do you look at risk?

The impact of policy uncertainty on client activity is palpable.

JPMorgan, among other financial institutions, has indicated that clients may be adopting a wait-and-see approach, preferring to remain on the sidelines.

Troy Rohrbaugh, co-CEO of JPMorgan’s commercial and investment bank, stated earlier this week that the bank’s investment banking fees could potentially fall by a percentage in the mid-teens compared to a year ago—a more significant decline than analysts had predicted.

Fiscal challenges and dollar dynamics

Dimon also underscored the pressing need for the US to address its fiscal imbalances, stating the country has to “attack the deficit problems.”

He acknowledged the rationale behind investors potentially reducing their holdings of US dollar assets amidst these concerns.

“I don’t worry about short-term fluctuations in the dollar, but I do understand people might be reducing dollar assets,” he remarked.

These concerns are amplified by ongoing legislative efforts.

On Wednesday night, House Republican leaders released a revised version of President Trump’s extensive tax and spending bill.

The new draft includes a higher limit on the deduction for state and local taxes (SALT) and other modifications, aimed at winning over dissenting factions within the GOP to secure support for the legislation.

The US Treasury market has also shown signs of stress.

On Wednesday, Treasuries extended their recent selloff, with longer-term securities bearing the brunt of the decline.

An auction of 20-year debt received a relatively tepid reception from investors.

At one point, the selloff pushed the yield on the 30-year bond up by as much as 13 basis points to nearly 5.10%, its highest level since 2023.

Treasury yields were little changed in Asian trading on Thursday, indicating a tentative stabilization after the recent volatility.

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European stock markets commenced Thursday’s trading session on a decidedly negative note, with major indices across the continent slipping into the red shortly after the opening bell.

This broad-based downturn was accompanied by company-specific news, including a wider first-half loss for budget airline EasyJet and a notable stock downgrade for British telecom giant BT Group.

Approximately ten minutes into the trading day, the pan-European Stoxx 600 index was trading 0.5% lower, with nearly every sector experiencing losses.

This negative sentiment was reflected in the performance of key regional stock exchanges.

Germany’s DAX and France’s CAC 40 were both down by around 0.5%, while London’s FTSE 100 had shed 0.4%.

Pre-market indications from IG had already signaled a lower open, with London’s FTSE seen opening down 43 points at 8,739, Germany’s DAX 135 points lower at 23,984, the French CAC 40 down 48 points at 7,865, and Italy’s FTSE MIB anticipated to open 251 points lower at 40,331.

EasyJet navigates headwinds

Budget airline EasyJet found its shares under pressure after reporting a widened loss for the first six months of its financial year.

The company announced a pre-tax loss of £394 million ($529 million) for the first half, compared with a £350 million loss recorded for the same period in 2024.

In response to the earnings release, EasyJet’s shares were down 3% at 08:10 a.m. London time, shortly after the market opened.

Despite the larger loss, EasyJet’s CEO, Kenton Jarvis, expressed confidence in the airline’s full-year performance, citing strong current booking trends.

Jarvis described the first half of the year—typically a quieter period for airlines—as an “interesting time.”

Speaking to CNBC’s ‘Squawk Box Europe’ on Thursday, he elaborated: “In the first half, we have two quarters. The first quarter is the October through to December, and in that quarter, we actually performed very well.”

Jarvis also acknowledged industry-wide capacity strains, noting that both Airbus and Boeing are failing to meet their original aircraft delivery schedules, but he stressed that underlying “demand is there.”

Looking ahead, EasyJet stated that current bookings provide confidence that it will meet profit forecasts for the financial year.

We’re also seeing very positive bookings in our holidays division, where we’re expecting something like 25% passenger growth year-on-year. So demand is looking good for the summer at the moment, and supply is relatively constrained.

BT Group faces analyst downgrade amid rally concerns

In other company news, British telecommunications stalwart BT Group saw its shares come under scrutiny.

Deutsche Bank analysts downgraded BT’s stock to a “Sell” rating, just weeks ahead of its fourth-quarter results.

The downgrade was primarily attributed to the significant 17% rally in its share price this year.

In a note to clients, Deutsche Bank’s Robert Grindle observed that BT shares “have proven even more defensive than peers at a time of trade war confusion, a weak economy and GBP strength, despite Openreach line losses.”

However, the analyst cautioned investors that BT still faces fundamental challenges, including new competitors encroaching on its market share.

Grindle did acknowledge that the recent acquisition of a stake in the company by Bharti, one of India’s largest telecom operators, had contributed to positive sentiment surrounding the stock.

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Emerging market stocks are once again at the center of investor interest, driven by growing disillusionment with US assets and a renewed search for growth abroad.

The shift comes as Moody’s recent downgrade of the US credit outlook and a spike in Treasury yields have shaken confidence in the strength of American financial markets.

Adding to the momentum, Bank of America declared emerging markets as “the next bull market” in a recent note to clients.

“Weaker US dollar, US bond yield top, China economic recovery… nothing will work better than emerging market stocks,” said Michael Hartnett, chief investment strategist at BofA Global Research.

On Monday, JPMorgan followed suit, upgrading its rating on emerging market equities from neutral to overweight, citing improving US-China relations and favourable valuations.

Performance gap between US and EM widens

The MSCI Emerging Markets Index, which tracks equities across 24 countries, has risen 8.55% year-to-date, sharply outpacing the US benchmark S&P 500’s modest 1% gain in the same period.

The divergence has become more pronounced since April 2, when former President Donald Trump unveiled a new wave of “reciprocal” tariffs.

While both US and global markets initially fell in the wake of the announcement, emerging market stocks staged a robust recovery.

Between April 9 and April 21, the MSCI Emerging Markets Index climbed 7%, while the S&P 500 declined by more than 5%.

Despite a mild rebound in US assets since, sentiment remains fragile.

The US 30-year Treasury yield surged past 5% on Monday, touching levels last seen in November 2023.

Meanwhile, US equities broke a six-day winning streak on Tuesday, as Moody’s downgrade reignited market concerns.

Why are EM equities poised to outperform?

The unfolding trend may signal the start of a broader rotation in global asset allocation.

Malcolm Dorson, head of the active investment team at Global X ETFs, believes emerging market equities are now in a unique position to outperform.

“After underperforming the S&P over the past decade, EM equities are uniquely positioned to outperform over the next cycle,” Dorson told CNBC.

He pointed to a confluence of factors including a softer US dollar, underweighted investor positioning, and strong growth prospects at discounted prices.

According to his data, US investors typically allocate only 3% to 5% of their portfolios to emerging markets, compared to the 10.5% weight of EM in the MSCI Global Index.

JPMorgan notes that EM stocks are trading at around 12 times forward earnings—significantly lower than their developed market counterparts.

India, Brazil, and Argentina attract spotlight

Among the emerging economies, India stands out as the strongest long-term growth story, underpinned by rising domestic demand.

Dorson also highlighted Argentina for its cheap valuations, and Brazil and Greece for recent sovereign credit upgrades that have improved their investment case.

“We could be at the start of a new rotation,” said Mohit Mirpuri, equity fund manager at SGMC Capital.

“After years of US outperformance, global investors are beginning to look elsewhere for diversification and long-term returns.”

Ola El-Shawarby, a portfolio manager at VanEck, added that previous EM rallies were often cut short by fleeting catalysts.

This time, she argues, the combination of undervaluation, improved fundamentals, and structural reforms could provide longer-lasting momentum.

“Emerging markets are firmly back in the conversation,” she said.

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Crude oil prices found a tentative footing on Thursday, attempting to stabilize after a period of decline.

The downward pressure stemmed from a concerning build in US stockpiles, which amplified existing worries about an oversupplied market, compounded by a broader easing in global financial markets.

Brent crude, the international benchmark, hovered near the $65 a barrel mark, having shed approximately 1% over the preceding two trading sessions.

West Texas Intermediate (WTI), the US benchmark, traded below $62 a barrel.

The latest data revealed that US commercial inventories of crude oil rose for a second consecutive week.

Adding to the bearish sentiment, gauges measuring demand for both gasoline and distillates also appeared weak, a particularly concerning sign as the US summer driving season—typically a period of peak consumption—approaches.

This weakness in the oil complex was mirrored in broader financial markets.

Growing concerns about Washington’s ballooning budget deficit triggered declines in US stocks, government bonds, and the US dollar.

This risk-off sentiment subsequently rippled through Asian equity markets, which followed their US counterparts lower.

These market ructions are occurring at a time when global investor appetite for US assets was already showing signs of waning.

Supply glut and trade war jitters persist

Crude oil remains under significant pressure as the Organization of the Petroleum Exporting Countries (OPEC) and its allies (collectively known as OPEC+) gradually reintroduce barrels into a market that already appears well-supplied.

This supply dynamic has contributed to oil futures being approximately 13% lower year-to-date.

Furthermore, the ongoing US-led trade war has exacerbated losses, fueling concerns that the globe-spanning disruptions will inevitably slow economic growth, thereby hurting energy demand.

Geopolitical chessboard: Iran, Ukraine in focus

Despite the prevailing supply and demand concerns, geopolitical factors continue to play a crucial role in shaping market sentiment.

Ongoing nuclear talks between the United States and Iran remain a key variable, as any resolution could significantly alter global oil flows.

Adding to regional tensions, a report emerged this week suggesting that Israel was preparing for a potential strike on Tehran.

Separately, investors are closely monitoring the long-running efforts to broker an end to the war in Ukraine.

Developments on either of these fronts could lead to shifts in sanctions policies and materially impact global oil balances.

In a related development concerning Ukraine, the United Kingdom urged its Group of Seven (G7) allies to lower the price cap imposed on Russian oil.

Following a finance ministers’ meeting in Banff, Canada, the UK stated that such a move was necessary to exert further pressure on Russian President Vladimir Putin to end Moscow’s ongoing assault.

Market analysts acknowledge the fleeting impact of some geopolitical headlines unless they translate into immediate supply disruptions.

“Israel-Iran headlines offered a fleeting geopolitical premium, but these tend to fade quickly unless supply disruptions are imminent,” commented Charu Chanana, chief investment strategist at Saxo Markets Pte.

She also highlighted the broader market context, noting, “US fiscal concerns are adding to the risk-off tone,” which is limiting the scope for any significant rally in oil prices.

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