AFS Markets Blog: Midday 09/09/2026

• Meanwhile in markets, we’re seeing Newton’s Third Law in action today: as energy prices rocket higher, equities and bonds are falling lower. No surprise there. Brent crude has now risen more than twelve percent over the past month, breaking above the big $100 mark for the first time since July today;

• US Treasury yields may only be up by a basis point or so across the curve, but that still leaves the 2- and 10-year yields at their highest levels since 2024 and 2023 respectively. Bund yields are up 1 to 3 bps in a bear-flattening pattern this morning. This pushes the 2-year Bund yield to 3.03 percent – its highest mark since 2024 – while the 10-year yield has hit its highest level since 2011;

•  In our neck of the woods, the surge in natural gas prices is even more worrisome than crude oil. European natural gas forwards are up over 28 percent over the past month, hitting €79 per MWh this morning to mark a new war high. This latest rise follows escalating tit-for-tat strikes between the US and Iran. After the US destroyed five Iranian tankers on Tuesday, Iran targeted a US base in Jordan with ballistic missiles and ten vessels – two US ships and eight tankers – in the Strait of Hormuz, though it remains unconfirmed whether any of these were actually hit;

• We are seeing signs of the conflict in the Middle East expanding beyond the tit-for-tat US-Iran strikes. This week, the internationally recognized government of Yemen launched an offensive against the Iran-backed Houthi rebels which control the western half of the country – resulting in the most intense bout of fighting since 2022;

• The offensive in Yemen has not achieved any major successes so far, but Iranian commentators we follow are voicing concerns over the developments. The Houthis – and, by extension, Iran – have leveraged their control over western Yemen to target Saudi Arabia and limit Red Sea shipping. Iran does not want to lose this leverage, as it limits Riyadh’s ability to reroute its oil exports and bypass the Strait of Hormuz. Elsewhere, we are also seeing that clashes between Israel and Hezbollah – another Iranian proxy group – in southern Lebanon are picking up, threatening to unravel the fragile US-backed ceasefire that has been in place since April;

• Nevertheless, the latest cycle of escalation has yet to trigger any major Iranian attacks on the Gulf states – if my memory serves me right. So far, there have only been threats, with Iran threatening to target tankers off the coast of Kuwait and Bahrain just this morning. It is worth noting that Israel and Iran have avoided trading direct blows in recent months, with the last direct confrontation occurring in early June. So, while the fighting in the Middle East is expanding, it has not (yet) encompassed the entire region again;

• A glance at the CDS spreads of Gulf Cooperation Council members reveals that these too have been spared from the regional escalation. For most investment-grade members, spreads are hovering just above their war lows and have traded sideways since early August. The lone exception is Oman where spreads have been widening since June, starting roughly when the Memorandum of Understanding was signed between the US and Iran. Oman’s CDS now trades 20bps wider than Saudi Arabia’s – whereas the two were virtually neck-and-neck leading up to the war. The widening has brought Oman’s CDS essentially back in line with its pre-war level – the same goes for the spreads of almost all other IG GCC nations. Only Saudi Arabia’s CDS spread trading tighter than before the conflict started;

• Shifting to broader market commentary, the Stoxx 50 is down one percent today, while S&P 500 futures are only trading marginally lower – after shedding over half a percent yesterday. However, it isn't all doom and gloom in equities as AI stocks are back to defying gravity. Our AI index – which tracks major hyperscalers and chip manufacturers – has gained six percent over the past week to reach its highest level since July. The index is now officially out of correction territory, erasing two-thirds of its 22 percent peak decline;

• Turning to FX, EURUSD is trading at 1.164 – its highest level in nearly two weeks. That leaves the pair testing its 200-day moving average, after having gained two and a half percent from the late-June lows. Broad euro performance, however, remains less impressive: while up one percent from its June lows, the currency is still down just over one percent on a year-to-date basis. By comparison, the broad dollar – despite its ups and downs throughout 2026 – is essentially flat for the year, sitting on a modest gain of roughly a quarter of a percent;

• Looking ahead, today’s calendar is largely empty, with only the US Treasury’s buyback of long-end bonds and the National Bank of Poland’s interest rate decision (consensus is a hold) on the docket. Action picks up tomorrow with the ECB’s rate decision (a 25bps hike) and the August US PPI report – a nice amuse-bouche before Friday's main course: the US CPI print for August.

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