AFS Markets Blog: Midday 03/08/2026

• Meanwhile in markets, the Trump Always Chickens Out trade has triumphed once again as renewed peace talks have won out over a large-scale US bombing campaign against Iran. Bonds and equities are rallying in response as Brent crude has retreated to around $84 per barrel – roughly $10 below last week's highs;

• US Treasury yields are down around 4bps across the curve this morning, while Bund yields have fallen roughly 5bps. That has pushed 30-year yields in both markets back below the decade-plus highs they reached on Friday. Periphery-Bund spreads have also fallen today – with those of Spain and Portugal at or near their lowest levels since the war in Iran kicked off. While Italian and French 10-year spreads to Bunds are off their highs they remain elevated, and stuck above all their major daily moving averages;

• On the Iran front, an Iranian Foreign Ministry spokesperson publicly stated that Tehran is not currently engaged in talks with the US, with no plans to send a negotiating delegation "these days". However, officials indicated that discussions on resuming maritime transit through the Strait of Hormuz with Oman are making real progress. This would be a crucial agreement given that disputes over shipping routes triggered the collapse of the Memorandum of Understanding;

• Turning to FX, USDJPY is trading just below the 157 handle – roughly 150 pips above its intraday low. Even with that bounce, the pair remains 4 percent lower week-to-date – pulling back from just below 164. While the US supported the yen by selling euros rather than dollars it has been able to prevent a broader weakening of the greenback. The greenback is down nearly 2 percent on the week against major currencies – sending EURUSD to a one-month high of 1.15 – while losses against emerging market currencies remain more contained at half a percent;

• Moving to equities, screens are largely green. The Stoxx 50 touched a new all-time high this morning – up by a percent. S&P 500 futures are up half a percent – though the index remains more than a percent below its own record high;

• In our neck of the woods, Swiss July CPI data printed soft this morning. Headline inflation eased slightly to 0.4 percent YoY (down from 0.5 percent in June), while core inflation held steady at 0.3 percent YoY. Swiss inflation remains near the lower bound of the target range despite a recent pickup in Iran-driven energy costs. The latest data reinforces our view that the Swiss National Bank is in no rush to adjust their interest rates, forecasting its policy rate to remain 0 percent over the 12 months of our forecast horizon. A rare news report released last week citing SNB insider sources has the same view, saying the Bank expects to keep rates at zero through the end of 2027. While SARON swaps have moved lower following last week's insider scoop, 16bps of hikes remain priced in for the March 2027 meeting;

• Looking ahead, the only event of note this afternoon is the release of the US ISM Manufacturing PMI for July – which is expected to show continued expansion in the sector. Tomorrow, the focus shifts to the release of detailed US job openings data for June, as attention begins to turn to Friday's US labor market report.

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