The geopolitical situation in the Middle East remains tense, energy prices are hovering at elevated levels, and yields on the bond markets have risen noticeably. Nevertheless, in the assessment of Tilmann Galler, capital market strategist at J.P. Morgan Asset Management, the economy is proving resilient against these pressures. On the occasion of presenting the Guide to the Markets for the fourth quarter of 2026, the economist notes that the price of Brent crude oil remains relatively moderate at around 100 US dollars, as exports from the Middle East recently climbed back to more than 90 per cent of their 2025 level. Greater bottlenecks exist for distillates such as diesel and jet fuel, as export restrictions in Russia and China bite and currently only the United States is supplying at full export capacity.
Support from infrastructure programmes and technology investment
The global economy is being supported primarily by state fiscal policy and massive waves of private investment. In Europe, defence budgets are rising, while in Germany, following an easing of the debt brake, funds are once again flowing more heavily into infrastructure, accelerating domestic gross value added. Internationally, the expansion of digital networks and data centres dominates. The five leading US hyperscalers Oracle, Microsoft, Alphabet, Amazon and Meta expanded their capital expenditure budgets from 240 billion US dollars in 2024 to more than 750 billion US dollars in the current year. For global data centre projects, Galler forecasts a total volume of up to 1.6 trillion US dollars this year, driving order intake for core capital goods across sectors.
At the same time, international developments are dampening the risk of a renewed inflation shock. China is acting as a major exporter of deflation, particularly in electric vehicles, high technology and AI tokens, even though the domestic economy there is showing weakness. In Japan, by contrast, the market is reflating amid noticeable labour shortages, which is why Galler anticipates further interest rate hikes by the Bank of Japan. For the Federal Reserve and the European Central Bank, meanwhile, only gradual interest rate adjustments are emerging, as real interest rates are not yet in restrictive territory.
Capacity limits on the bond market and the return of risk premia
A fundamental transformation is taking place on international bond markets. High issuance volumes from governments and corporations are pushing the bond market to the limits of its absorption capacity, leading to a marked surge in yields. Market participants are once again demanding clear risk premia; with regard to the increased spreads on French government bonds, Tilmann Galler speaks of the return of vigilant bond markets that penalise political instability and the absence of structural reforms.
- —Selective opportunities in southern Europe: Consolidated national budgets in Spain, Portugal and Greece offer investors dependable return potential.
- —Attractive yield profile: US aggregate indices of corporate bonds with a high-yield allocation are achieving yields of 6 to 6.5 per cent with reduced volatility.
- —Buffer function against market corrections: Government bonds provide protection during deflationary shocks, as demonstrated by historical gains of 29 per cent in 10-year US Treasuries following the bursting of the dot-com bubble.
Nevertheless, higher financing costs are selectively leaving their mark. In the US housing market, investment remains mixed, credit growth is losing momentum, and weaker companies face more demanding refinancing conditions. However, bonds are once again reaching yield levels that are within reach of equity markets, while offering portfolios a classic protective function against economic downturns.
