AFS Markets Blog: Morning 14/08/2026

• Meanwhile in markets, turns out we got a nice summer holiday equity market rally on the back of a recovery in AI stocks. Bonds aren’t that lucky. While yields are off the highs on the back of benign US data (soft CPI, soft payrolls), we’re still awfully close to the highs;

• Both the Stoxx 50 and the S&P 500 have eked out all-time highs this week. On our twenty-stock strong AI screener, thirteen stocks are up. Including the losers – losses are modest to begin with – the average weekly gain is almost five percent. The performance of Nvidia, the whipping boy for complaints about unsustainable vendor financing of AI labs, is particularly noteworthy. The stock 4.5% below its ATH;

• Furthermore, the Kospi is being the Kospi again, rising eleven percent this week on the back of equally solid gains for the index heavyweights Samsung and SK Hynix;

• Bund and UST yields are flattish for the week. And the best thing that can be said is that yields are off the highs. Real yields have sagged too as punters realize that the Fed is showing little appetite to tighten financial conditions further past the welcome surge in real yields that greeted Chairman Warsh when he took over from Powell;

• And speaking of the Fed, a quarter point hike for this year is no longer fully priced in. Having said that, fed funds futures still price in about 23bps of hikes for the December FOMC. Over at the ECB a September hike is basically fully priced in. Pricing of a third hike is shifted out to Q1 2027. As I mentioned in my latest ECB update, fade ECB rate hike pricing beyond the September Governing Council meeting as the Iran war induced inflation problem isn’t as bad as feared. Heck, ECB staff might even cut its inflation forecasts next month;

• The Japanese yen is on the backfoot this week with losses versus the greenback that exceed losses of the other major currencies. At 159.3, roughly half the intervention gains for the yen have been erased. Note that we had a wire story this week of the government greenlighting less sluggish Bank of Japan hikes. That story did little to help the yen except perhaps ease its losses a tad;

• Brent crude and Dutch natural gas futures are up more than four percent this week, with the former trading at $87.5 a barrel and the latter at 61 euros per MWh. From the perspective of equity and bond investors, the good news is that there has been no real news in the Iran war this week. No headlines on progress in deal talks, but also no reports on tit-for-tat air strikes. There are some background stories of commercial ships having been attacked, but that hasn’t prevented daily Strait of Hormuz transits of around a dozen ships a day according to wire reports. Furthermore, despite the IEA report on a massive crude supply shortfall, the Brent futures curve remains strongly in backwardation;

• Looking ahead, we can skip discussing today’s calendar as there’s nothing except monthly US retail sales. Next week’s calendar is also rather unexciting with the monthly PMIs being the most important event. For action, look forward to two weeks ahead, when the Fed holds its annual Jackson Hole conference. Let’s see how Chairman Warsh deals with the criticism that he should have hiked by now, given his tirades against inflation.

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