AFS Markets Blog: Midday 16/07/2026

• Meanwhile in markets, Brent crude may have fallen below $84 a barrel, but equities and bonds are largely trading sideways this session. Given the lack of fresh updates on Iran since our morning commentary, let's shift our attention to the Alps;

• Earlier this morning, the Swiss National Bank released the summary of discussions from its June policy meeting. As expected, the focus is squarely on upside inflation risks. While the summary noted isolated signs of second-round effects (think airfares), it clearly judged that inflation "cannot be expected to rise rapidly above 2 percent" – the upper bound of the SNB's target range. With no COVID-esque inflation spike on the horizon, there is little reason to act in the near future. The SNB's conditional forecast projects inflation to stay below one percent in the short and medium term, providing plenty of room for upside surprises;

• In June, core inflation held steady at a benign 0.3 percent. While I expect it to pick up as more second-round effects from the war in Iran gradually feed through, the increase shouldn't be large enough to force the SNB to tighten policy in 2026. SARON swaps currenty price in 10bps of hikes at year-end, too high given it implies a 40 percent chance of a hike in 2026. A move in 2027 remains possible, though my base case is that the US and Iran step back in time to avoid the price spikes needed to justify a hike in the first half of that year (the end of my forecast horizon);

• The summary also highlighted the widening interest rate differential between Switzerland and the outside world. That development has propelled EURCHF and USDCHF to their highest levels in six months – or even longer in the greenback’s case;

• Future rate hikes by the ECB and the FOMC could give the SNB the breathing room to lift its policy rate off zero percent in order to rebuild its policy space – without significantly strengthening the franc. That said, I don’t recall the SNB ever hiking purely to create policy space – and I don’t think they’ll start now. There is also a risk that other central banks will cut rates again in 2027 once energy-price shocks fade, raising the pressure on the SNB to retreat back to zero;

• Moving on to the UK, where I promise I will keep the football banter to a minimum. The pound has risen to its highest level in over a year today when measured on a broad basis – with EURGBP falling below the 0.85 handle. That follows an FT report that the current – it isn’t coming – Home Secretary Shabana Mahmood will become Andy Burnham's Chancellor of the Exchequer when he takes charge next week. Gilts seemed at ease with the appointment and outperformed Bunds yesterday – though they continue to lag on a weekly basis;

• As a member of the Labour Party's right flank, Mahmood is widely regarded as a market-friendly appointment. While her specific economic views are not well known, she reportedly turned down a position in Jeremy Corbyn's shadow cabinet – with disagreements over his hard-left economic agenda playing an important role;

• Touching on broader market movements, US Treasury and Bund yields are up a basis point or two this morning, though they remain below yesterday’s highs. The broad dollar is down marginally over the past week but holds onto more than a percent in gains over the past month;

• Looking ahead, the afternoon brings the usual jobless claims, plus June's US retail sales data. We'll also be keeping an eye on our feeds for remarks from a couple of Fed-speakers and any Iran war headlines.

‍