AFS Markets Blog: Morning 01/07/2026

• Meanwhile in markets, commodity prices are feeling the pull of gravity – be it from the Strait of Hormuz reopening or the hawkish shift at Kevin Warsh’s Fed. The Rogers International Commodity Index – a broad gauge of commodity futures – has now fallen over 15 percent from its peak in May;

• Starting with the black stuff, Brent crude has quickly come back to earth trading at $73 a barrel. While that still translates to a 20 percent YTD gain, it now sits far below the war high of $126. Backwardation in the futures market has essentially been erased – the January 2027 contract is currently trading just 50 cents below the active future. Closer to home, European natural gas also remains comfortably below its war peak. However, the decline has been less dramatic – dare I say lackluster – compared to oil. Dutch TTF pricing is still up over 60 percent in 2026. To round off on Iran I want to note that urea – an important component in fertilizers – prices have now fully round tripped and are back at the same level they started 2026;

• Does anyone still remember gold's meteoric rise at the start of 2026? That is now firmly in the rearview mirror, with gold trading below the $4,000 handle for the first time since November 2025. The slump comes amid a sharp rise in US real yields following the hawkish shift propelled by the new Fed Chair Kevin Warsh – even as inflation expectations fall. The shift has propelled the greenback – weighing further on dollar-denominated commodities – to its highest level since President Trump announced his signature country-specific tariff policy in April last year;

• It is not just gold and the dollar feeling the Fed’s influence. US Treasury yields are holding yesterday’s highs with the 2-year UST up 8bps since last week to 4.18 percent – within 5bps of its 2026 peak. Fed fund futures now price in 23bps of hikes for September – though the idea of a hike at the FOMC meeting later this month remains alive with 8bps still baked in. All eyes turn to Sintra this afternoon, where Kevin Warsh speaks at 15:00 and may provide hints. Meanwhile, ECB-speakers continue to push back on a July hike;

• Shifting to broader market commentary, S&P 500 futures are down a quarter percent today. In FX, EURUSD is trading at the 1.14 handle. Don’t lose sight of USDJPY, which scaled to new heights – hitting 162.81 earlier this session;

• Looking ahead, central bank speak will stream out of the ECB forum at Sintra throughout the day. On the data front, Eurozone CPI and the US ISM Manufacturing PMI are set to be released. Tomorrow brings the big one: the US labor market report – releasing on Thursday due to the long Fourth of July weekend.

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