AFS Markets Blog: Midday 24/07/2026

• Meanwhile in markets, while you were sleeping, President Trump TACOed. As smart open source X accounts had already speculated earlier in week, Iraq’s Prime Minister carried Trump’s truce proposal with him when he met Iran’s President in Tehran yesterday;

• While the Iranians obviously rejected the proposal according to the New York Times, the truce overtures are enough to trigger a small retreat in crude oil futures and natural gas futures prices. And thus put a lid on bond yields too. Punters are reminded of the familiar pattern with the US President. He makes increasingly excessive threats of air strikes against Iran while at the same time sending out feelers for a truce. It happened before. And it will happen again;

• Furthermore, a Wall Street Journal overnight story on Trump losing patience with the war reminds me of the chaos in his first term. About which the press often reported using insider sources. Seeing his political capital and power fade away because of the gridlocked war with Iran, Trump has started to lash out indiscriminately. Both in private and in public. This puts the situation regarding Iran on a knife edge. Trump might as well TACO again. And if the Iranians do accept a truce offer, energy prices will retreat sharply while bond yields will fall. But at the same time, the Journal article warns us that Trump, who clearly distrusts the Iranians, believes that he gave peace a chance with the Memorandum of Understanding. But, more importantly, he reportedly also believes that he can bomb Iran into submission. A view which I absolutely do not share, and which will lead only to higher energy prices. Which, at some point, could force Trump to TACO after all;

• Turning to some market commentary, Bund yields are down several bps this morning, limiting weekly increases to 4-6bps across the curve. Still, with the ECB priming the market for a hike in September, yields across the curve are at multi-year highs for tenors up to 10y, and close to the highest level in years in the case of the 30y. USTs are underperforming Bunds. While UST yields are down a couple of bps this morning, for the week yields are up 10-15bps across a bear-flattening curve. At the same time, next week’s FOMC meeting has become kind of live, with 8bps in hikes prices in. While I don’t expect a hike based on recent FOMC-speak suggesting no hike is imminent and when taking the soft June CPI/PPI, Chairman Warsh could decide to shock markets. And invoke Trump’s wrath. Which is why I believe he won’t move now. Even though he should, given his promises that he will return to price stability;

• Keep an eye on real bond yields, which in both the Eurozone and US have risen to multi-year highs. Rising real yields do not just reflect yawning fiscal deficits in the West. Equally important is supply being taken off the market. Shot to pieces I should say. Not just oil and natural gas, but also grains and all the other stuff that’s transported across oceans, and that has become a mark for warring nations;

• Equities are up this morning, with the Stoxx50 gaining nearly a percent, resulting in a weekly gain of half a percent despite all the Iran turmoil. S&P 500 futures are off the lows. In tech space, the picture is mixed. AI-hardware stocks, the likes of ASML, Intel, and Micron, have rallied this week with often solid single-digit gains. On the other hand, the hyperscalers (Alphabet, Microsoft, Oracle), who are investing in data center capacity massively and at a loss, are down for the week with single-digit losses;

• The broad dollar is up half a percent for the week, with the Swiss franc, yen and GBP suffering the stiffest losses among the majors. Brent crude futures prices are down four percent this morning, trading at $96.9 last. Dutch natural gas futures prices are flattish. Both crude and gas futures prices are up nearly ten percent for the week;

• Looking ahead, today’s calendar is empty. The focus will be on next week’s FOMC meeting, which is live. There’s a smattering of economic data too, chief of which are Eurozone CPI figures and the US employment cost index and Q2 GDP.

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