AFS Markets Blog: Morning 14/07/2026

• Meanwhile in markets, the US and Iran remain deadlocked in tit-for-tat strikes, with Tehran escalating attacks on commercial shipping in the Strait of Hormuz. Predictably, oil is leading the way, with Brent crude futures rising to a one-month high, thereby weighing on bonds and equities;

• Brent crude futures have risen $85 a barrel, thus clearly blasting through the 200-DMA at around $79. S&P 500 futures are down half a percent, though off the lows. Surprisingly, Asian equities are moderately higher. US Treasury yields are loitering near yesterday’s highs – they were up 4-7bps across the curve yesterday. Surprisingly, the broad dollar is benefiting little from the latest flare-up in violence in the Gulf;

• According to reports, overnight the Iranians struck two tankers in the Strait of Hormuz, killing one crew member and wounding eight others. The attack followed an earlier round of US strikes and President Trump’s trolling yesterday, when he told Fox News in an interview that the US would levy a 20% protection fee on ships transiting the Strait. Trump’s latest brainfart invoked a sarcastic response from Iran’s Foreign Minister Seyed Araghi, who snarkily said on X that it’s only justified that whoever provides security in the Strait should be compensated for that racket – ahem, service. And that Iran will charge a lower fee than the US. Well, at least the US and Iran agree on something: freedom of navigation is a thing of the past;

• With a return to fighting, President Trump was forced to write a letter to Congress under the War Powers act. In his letter, Trump spun the strikes as limited and “self-defensive” in nature. Note that according to the act, the President must seek Congressional approval for the attacks – war? – on Iran within 60 days;

• Are we back to a real war? What still differentiates the fighting from all out war is that the attacks and counterattacks following a predictable tit-for-tat pattern. A real war is not choreographed where each side waits its turn. But perhaps that’s nit-picking. Or even cherry-picking if you will. In any case, this is not unrestricted warfare. Far from it. The US has confined the attacks to Iranian military targets which purportedly have some relationship with Iranian strikes on commercial ships that attempt to cross the Strait of Hormuz. The Iranians, in turn, make a point by attacking commercial ships (the daring ones that try to cross) and, of course, striking US bases in the Gulf;

• Elsewhere, the AI boom/bubble is deflating further. With the benefit of hindsight, the latest batch of (over-)hyped AI stocks peaked mid-June and then entered bear market territory quite rapidly. High-flying single name stocks like SK Hynix, Samsung, Sandisk or all down 30% or so from their respective peaks. Ditto for the Kospi main index. US markets remain resilient, with the Nasdaq down only 5% from the June peak. The Philadelphia Semiconductor Index is down a more sizeable 15% from the peak;

• Regarding ECB rates pricing, what a difference a week makes. On Monday last week, ESTRs priced in only one more quarter point hike, with a September hike not even fully priced in. At pixel time, a September hike is fully priced in. And with marginal odds of a greater than 25bps move. Furthermore, the forward curve peaks out at 2.75 percent, implying marginal odds of more than two quarter point hikes. Note that our ECB overlords are particularly worried about natural gas prices, which fell much less than crude oil prices on the now dead US-Iran truce deal. At $52.79 per MWh, prices have nearly doubled compared to the pre-war level;

• Keep an eye on Japanese government bond yields this morning, which are bucking the trend of higher yields elsewhere. To be precise, JGB yields are down 4-10bps across a bull-flattening curve following some successful jawboning of the market by Finance Minister Satsuki Katayama, who said last week that Japan’s large pension funds should allocate more investments to the domestic market, a veiled reference to the JGB market;

• Looking ahead, the US will reimpose the naval blockade of Iranian ports later today. Besides, eyes will be on June US CPI figures later this afternoon, as well as Fed Chairman Warsh’s first testimony before Congress. Regarding the former, overnight Fed Governor Waller suggested that if the June core reading prints hot, a rate hike this month should be on the table. And regarding Warsh’s testimony, given the stiff rise in energy prices and the drumbeat of hawkish FOMC speak, I now wonder if Warsh will, in fact, lean a bit more hawkish as well.

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