AFS Markets Blog: Morning 10/07/2026

• Meanwhile in markets, the war that wasn’t really a war is already on hold. Enjoy it while it lasts;

• Cooler heads are prevailing – for now – as Pakistani and Qatari mediators are trying their best to patch up the US-Iran ceasefire and get the ships moving again through the Strait of Hormuz. Furthermore, wire reports quote US officials as saying that technical talks with Iran are continuing. Which is in line with what President Trump said when he announced the strikes in one of his tirades, saying that the talking could continue even though he claimed he couldn’t care less;

• With the US and Iran not exchanging tit-for-tat strikes overnight (though Tehran claimed the US did attack, which the US has denied), crude and bond yields are lower while equities are rebounding further;

• I clock the 2y, 10y, and 30y UST yields at 4.16, 4.27, and 5.05. We’re off the highs for the week, with the aforementioned yields up only 3-7bps across a bear-steepening curve. Bund yields are up a more chunky 11-15bps across the curve, though at the time of writing the market hasn’t opened yet;

• Asian equities are all green, with the ever so volatile Kospi up nearly 5%. S&P 500 futures are up, and the cash market is actually looking at a weekly gain of nearly a percent. Not bad, given with what has transpired in the Gulf. With the markets back to pricing in a September quarter point ECB hike, European stocks are underperforming, with the Stoxx 50 down two percent for the week;

• Brent crude oil futures, which touched the $80 handle yesterday, have fallen to $76.5 or thereabout. For the week crude oil futures prices are up more than six percent for obvious reasons;

• With the benefit of hindsight, we can safely say that the greenback has benefited little from the geopolitical turmoil in the Gulf rearing its ugly head again. The broad dollar is flat for the week. Furthermore, the Japanese will breathe a sigh of relief that yen has weakened only modestly versus the greenback, and is a point and a half below the recent record-high;

• And speaking of Japan, government ministers are doing their utmost to calm the JGB market. For the record: JGB yields are mixed, with the short end up 5bps or so for the week while the 10y is flat and the 30y down 11bps. On the 1-year candle stick charts the picture isn’t very good though, with 10y and 30y yields clearly trending higher;

• According to wire reports, the Japanese government has been tweaking its annual economic guidelines incessantly by tweaking the paragraphs on the Bank of Japan independence more and more to the markets favor. In the early draft, there was a sentence saying that the BOJ’s appropriate monetary policy is “extremely important”. Which, according to the folks at Bloomberg news was seen by markets as a way to nudge the central bank towards (too) easy monetary policy. Then came the backpedaling;

• Still, when Japan’s growth Minister Kiuchi says that the BOJ’s remit relates to the “specifics” of monetary policy, claims of underscoring its independence ring hollow. Specifics suggests that the BOJ's remit is narrow, and that the central bank should follow the government's general guidance. Disclaimer: wire reports are translating from the original Japanese – Lost in Translation can happen. On the other hand, a Bloomberg report on remarks made by Finance Minister Katayama that the BOJ “can take decisive monetary policy action on its own, regardless of what the government says” is more to the market’s liking;

• For the record, market’s expectations for BOJ tightening are still lukewarm. For the next six meetings, just one quarter point hike and a half is pried in;

• In other news, the Bank of France upgrades its Q2 GDP forecast for the French economy to 0.2% growth from stagnation on the back of improving business surveys. We more or less see the same thing, though not necessarily in the Eurozone. The Swedbank PMI and Swiss KOF leading indicators have rebounded vigorously last month. Both economies are highly reliant on exporting to the Euro Area. Those readings aren’t confirmed (yet) by the PMI or the EU Commission’s survey, the Economic Sentiment Index;

• Looking ahead, today’s calendar is empty, which means we will have to do with the Iran headlines. Next week’s calendar has several important events, including Tuesday’s US CPI release and Fed Chairman Warsh’s first testimony before Congress on Tuesday and Wednesday.

‍