AFS Markets Blog: Morning 04/09/2026

• Meanwhile in markets, dovish remarks by Fed Governor Waller have halted the bond market sell-off even though energy prices are up stiffly this week. Natural gas prices rising to an Iran war record-high is particularly nasty and painful for our dear central bank overlords at the ECB in Frankfurt;

• Brent futures at $95.49 a barrel are up seven percent for the week. Dutch natural gas futures prices show similar gains. And at 71.36 euros per MWh we’re basically at the highest level since the outbreak of the war in Iran;

• Regardless, Waller’s remarks have lowered pricing for the September FOMC to a coin toss without about 13bps of hikes prices in. In the wake of Chairman Warsh’s hawkish performance at Jackson Hole, we peaked at 18bps in hikes. In the battle of the Ws, the differences between Waller and Warsh could not be starker. Waller is confident that with the current fed funds rate, inflation will resume its decline to target. Furthermore, according to Waller underlying inflation isn’t as bad as the headline numbers would suggest (PCE core is tracking at 3.4% for August and 3.5% for September according to the Cleveland Fed nowcast). He hedged his bets by saying that he could change his view if the August CPI prints hot – which it likely won’t according to the Cleveland Fed nowcast;

• In contrast, when speaking at Jackson Hole last month, Warsh pointed out that the number of items in the consumer price basket tracking at a three percent annual rate or more remains elevated. The point being that the recent soft CPI readings were noise tied to items with unusually soft price changes;

• I expect Warsh & Co to deliver a quarter point hike this month. However, I must admit that coin toss pricing is pretty much spot on. Waller’s remarks give Warsh fig-cover to hold off on a rate hike and prevent a clash with an impatient White House that wants lower rates;

• Elsewhere, markets positioning for a hawkish Bank of Japan have done wonders for the long end of the Japanese Government Bond yield curve. For the week the JGB 2y is up a stiff 12bps while the 30y has plunged 15bps – very much to Treasury Secretary Bessent’s liking. Remember the Bessent trade of a stronger yen and lower 30y yields;

• BOJ-dated TONARs have fully priced in a hike this month and most likely another hike in December. Markets cooling on a Fed hike and upping the BOJ rates path has strongly boosted the yen, with USDJPY down a full phat five points for the week and trading at 156 as I write this commentary;

• Do I believe the bond market sell-off, which has been driven by higher real yields is over? I think not. Frankly speaking, the fiscal fundamentals, bad as they are, haven’t changed one iota. Furthermore, global growth is accelerating, which doesn’t seem like a good environment for bonds anyway;

• The broad dollar is down this week for obvious reasons, with the greenback shedding more than half a percent on a trade-weighted basis. Equities in Europe, the US, Japan, and China are mixed for the week. The Stoxx 50 is down 1.6% though at 6,382.59 still far removed from correction territory. The Nikkei is down two percent on the back of a stronger yen while the S&P 500 and Chinese equities are up roughly half a percent. The twenty AI stocks on our screener are a mixed bag, with losers and winners roughly in balance;

• Looking ahead, obviously all eyes will be on US labor market data. Which, it must be admitted, is clearly playing second fiddle to inflation as far as both the market and the Fed are concerned. Bloomberg consensus expects a 50k gain or thereabout. Which, depending on how you dice it, is either solid or neutral. The Waller contingent on the FOMC believes that breakeven payrolls growth is around zero. However, other estimates for payrolls changes that keeps the unemployment rate steady are higher at 50k or a tad more;

• Next week we have the ECB meeting on Thursday which will likely contain zero surprises as far as monetary policy is concerned. A 25bps hike has long been baked in and pre-announced. And the ECB still won’t give guidance for another hike even though the central bank will continue to lean hawkishly;

• Besides the ECB, we have the pivotal US CPI report on Friday that Fed bigwigs (Governor Waller and NY Fed President Williams) have cited as pivotal for the outcome of the September FOMC.

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