AFS Markets Blog: Midday 02/07/2026

• Meanwhile in markets, US Treasuries are trading sideways this morning as punters anxiously await this afternoon’s June US labor market report. The data is expected to show a stable – if not slightly improving – labor market;

• While a Thursday jobs report may feel unusual it still drops at the usual 14:30 CET. Consensus puts non-farm payrolls growth at 113k – bang in line with the average growth we have seen so far in 2026. That is comfortably above breakeven growth expectations that range from zero to just over 80k. It seems we have left behind 2025’s labor market weakness – when average payrolls growth sat just under 10k;

• Shifting to the household survey, the unemployment rate is tipped to hold at 4.3 percent for a fourth straight month. While this signals stabilization lingering weakness in the labor market can still be found here. The number of employed individuals has shrunk over the past year, but instead becoming unemployed workers are choosing to drop out of the workforce entirely. As a result the US participation rate now stands at its lowest level since 2021;

• The 2-year US Treasury yield is now up 13bps since Tuesday – when Treasury Secretary Bessent noted he wouldn’t be surprised by a “very strong” jobs print. If true, it’s bad news for markets: hot data hands the FOMC more hawkish ammunition and could revive talk of a hike later this month. Conversely, a weak report could reverse the recent slide in Treasury prices – and cooling rate hike expectations certainly wouldn't hurt equities;

• Turning to FX, the spotlight is on Japan this morning after a sudden 100 pip drop in USDJPY dragged the cross back to the lower end of the 161 handle. Speculation is rife over whether the move signals a BOJ intervention, a rate check or another form of muscle-flexing. A sharp warning ahead of the long Fourth of July weekend wouldn't be a surprising move to make – intended by Tokyo to scare off those shorting the yen. Reuters also reported this morning that Tokyo is shifting tactics – looking to ditch advance verbal warnings of intervention for an abrupt ambush approach to catch speculators off guard;

• Still, Japan should be careful not to rely on FX intervention too much. Intervening more than three times in six months would cost Japan its free-floating currency status under IMF rules – leading to reclassification as a standard floating regime. This is more than a semantic change: it could undermine Japan’s international credibility – further hammering JGBs – and could lead to Tokyo being placed on the US currency manipulator list, exposing it to trade-related countermeasures;

• Crucially, the IMF framework treats a single intervention episode as lasting up to three business days. So, watch closely for further action over the coming hours and days because if the morning’s move was currency intervention the clock will be ticking. Japan has already logged one official intervention during the current six-month window. If this proves to be the second Tokyo would have just one ‘free’ intervention episode remaining until the 4th of November – by my calculations;

• In our neck of the woods, Switzerland released June inflation figures this morning. Headline CPI eased to 0.5 percent YoY from 0.6 percent in May, partly reflecting the fading inflationary pressures following the US-Iran deal. Core inflation held steady at 0.3 percent – remaining at its lowest level since 2021. The data only further reinforces our view that the Swiss National Bank will keep its policy rate unchanged at 0 percent until at least March 2027 – the end of our forecast horizon. We also want to make note of EURCHF falling back below the 0.92 handle for the first time in two weeks;

• Shifting to broader markets, Bund yields are up 2–4bps in a bear-steepening pattern this morning. The Stoxx 50 is up around a quarter of a percent, while across the Atlantic S&P 500 futures are broadly flat and Nasdaq futures are down just under half a percent;

• In commodities, Brent crude is trading at $70.56 at pixel time – marking a fresh post-war low. That comes despite an Axios report warning that tit-for-tat strikes could resume after the Fourth of July. According to the report, Sunday’s de-escalation amounted to little more than a one-week truce. While the US and Iran continue negotiations, the two sides reportedly remain at loggerheads over the memorandum of understanding – particularly its provisions regarding who actually controls the Strait of Hormuz;

• Looking ahead, all eyes are on the US labor market report – which will be complemented with weekly US jobless claims. Tomorrow is set to be relatively quiet due to the extended holiday weekend in the US, although we will still get remarks from several ECB-speakers throughout the day.

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