AFS Markets Blog: Midday11/08/2026

• Meanwhile in markets, a rather familiar picture of equities holding up reasonably well while bonds are still hurting;

• With Brent crude futures having tiptoed into the $90s handle this morning (albeit barely) on President Trump Iran reparations tantrum, Bund yields are up a couple of basis points across the curve. More importantly: 10y and 30y Bund yields – trading at 3.20 and 3.69, respectively – are ever so close to their multi-year slash multi-decade highs. At the same time, I clock the Stoxx 50 basically flat at 6,534.33. Which means the index is a smidgen below its ATH of 6,559.99 that we reached last Friday;

• Taking a broader perspective, YTD the Stoxx 50 is up 13% while the 10y Bund yield is up 34bps. When I tried my hand at strategist-like forecasting at the beginning of the year, I targeted a 10y Bund yield of 3.60 and a Stoxx 50 of 6,360 for year-end. Turns out I was too bearish on Bunds and not bullish enough on equities. The year isn’t over though;

• That Bund forecast was based on the notion that the 10y yield should be substantially higher than the January fair value estimate of 2.85 because of the structural nature of German fiscal deficits. And the expectation that German deficits will likely get worse and not better. And that the premium Bunds command over other Euro Area government bonds should lessen. Regardless, I haven’t changed my fundamental view on Bunds one iota. Unless the economy heads south in the next twelve months, or if the AI boom/bubble pops (the fate of the economy is likely highly intertwined with the investment spree in AI), stay clear of Bunds;

• Regarding the Stoxx 50 call, I simply assumed 3.5% nominal GDP growth, a low-balled dividend yield of 2.2%, and then added some multiple expansion. Fast forward eight months and the multiple expansion is quite stronger than expected while I low-balled the dividend yield. Thus giving rise to the index exceeding my forecast;

• If I mash up the Buffett indicator (market cap to GDP), price/earnings, price/book, and earnings yield for the Stoxx 50, the inevitable conclusion is that we’re at the most expensive level since the index’s inception. Perhaps multiples can increase further, but I am not so sure. I am pretty confident about the Euro Area economy for the next twelve months though. Barring events intruding, nominal growth should be about three and a half to four percent. Add the dividend yield of three percent and the index should rise more than seven percent in the next twelve months to 7,000 or thereabout. A nice round number. However, in the days of exploding (and imploding) AI stocks that gain is nothing to write home about. Still, a seven percent return is simply in line with the long-term historical average;

• Concluding with some midday market commentary, USDJPY has steadied in the 159 handle. For the record, the cross has erased close to half the intervention declines. Gold prices are sagging following the recent bull run, with the price of the barbarous relic piercing both the 50-DMA and the 100-DM;

• Looking ahead, as mentioned this morning, eyes will be on US CPI figures out tomorrow afternoon. The data should give Fed Chairman Warsh another ‘tailwind’ of softer core inflation on the back of a labor market that appears to have slowed this summer.

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