AFS Markets Blog: Morning 03/09/2026

• Meanwhile in markets, all eyes are on Fed Governor Christopher Waller speaking engagement this afternoon. Ahead of the speech US Treasury yields are holding just below yesterday’s close;

• Waller was one of the leading voices behind the successful dovish push to hold rates steady at the July FOMC and having been absent from the speaking circuit for a while, so we’ll be watching closely to see if his position has changed. Should he signal a retreat from his dovish position, the writing will be on the wall for a rate hike at next week’s September FOMC meeting;

• Nevertheless, punters are not yet convinced that a rate hike is a shoo-in, with Fed funds futures having come off their peak pricing. The October fed funds future is now pricing in 15bps of hikes for the September meeting – down from a peak of 18bps yesterday – while year-end pricing has sagged to 37.5bps. The decline in pricing followed an interview with another FOMC dove, New York Fed President John Williams. While his overall message was still dovish – pointing to inflation remaining on a downward path – we noticed him hedging his position. Williams said he wanted to analyze more data before the meeting – hardly the conviction of someone fully convinced rates should be held steady;

• Crucial to the dovish case is whether the August CPI report – due September 11 – shows core inflation continuing its decline from May's 2.9 percent 2026 peak, touching 2.5 percent in July. Since Fed Chair Warsh dismissed the soft June and July prints as noise, next week’s release must demonstrate a concrete slowdown to keep the hope of a rate pause alive;

• In our neck of the woods, ECB rate hike pricing has been on the move over the past couple of days – following the continued rise of natural gas prices. While a September hike has been set in stone, year-end pricing has risen to 47bps – with a follow-up hike in December now nearly fully priced in. We expect this will come to fruition, and that the December hike will be the last this cycle for the ECB;

• Shifting to Asia, USDJPY is back to trading in the 157 handle – continuing to fall after yesterday’s sudden 120-pip drop sparked concerns about potential FX intervention. While I’m not convinced that what we’ve seen is a case of FX intervention yet, we’ll keep an eye out for further spikes in the yen. Under IMF guidelines – which Japanese authorities have previously adhered to – an FX intervention can span three consecutive business days and still be counted as a single episode, so we may see further spikes. But given Monday’s US dollar holiday, I don’t see why the Japanese would not have waited a day so that would fall under the intervention episode – with interventions previously making use of the thin liquidity accompanying holidays;

• Touching on broader market commentary, Brent crude is trading at $94 a barrel – down $2 from yesterday’s highs. European gas prices are trading two euros below their highs. US Treasury yields are down 1bp across the curve this morning, while S&P 500 futures are holding near yesterday’s close;

• Plenty of data releases to look forward to this afternoon that will complement the speaking engagement of Fed Governor Waller – including US ISM Services PMI.

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