AFS Markets Blog: Morning 15/07/2026

• Meanwhile in markets, the surprisingly mild inflation data out of the US has provided some welcome relief to Treasury yields, which had climbed to or near their war highs following the breakdown of the memorandum of understanding. Still, UST yields have ticked up by about a basis point across the curve this morning – having now clawed back a little over half of the sharp decline sparked by yesterday’s soft CPI print;

• The release showed core inflation cooling to 2.6 percent YOY, undershooting the 2.8 percent consensus estimate on the back of a broad decline in prices. Notably, services inflation – the primary engine of recent inflation – softened even when excluding energy prices. This metric registered a mere 0.4 percent on an annualized basis – a print that sits a full percentage point below the lowest level observed since at least 2022;

• In the wake of the data release, the one-year inflation swap rate has plunged below the 2.0 percent threshold for the first time since 2024 – a swift repricing that strikes me as overly optimistic. It is not just that it hinges on a single month of data, but also that since June the conflict in Iran has flared up again with Brent crude prices back above the $85 handle;

• Furthermore, punters are refusing to price in a victory over inflation across other markets. Yes, FOMC rate hike expectations in Fed funds futures have retreated following the soft CPI print – with a July hike now essentially priced out at just 4bps – but year-end pricing still stands at 33 basis points of tightening. Though this is roughly 10 basis points lower than pre-CPI levels, punters remain convinced that the Fed will deliver at least one more rate hike before the year is out – with an additional 25bps hike still anticipated in 2027;

• Shifting to the Strait of Hormuz, it turned out to be TACO Tuesday yesterday. President Trump has backed away from his proposal to impose a 20 percent fee on cargo shipments transiting the Strait of Hormuz – opting instead to secure investment pledges from Gulf nations. According to Bloomberg, the proposed Trump tax would have been roughly ten times more expensive for supertankers than the fees previously sought by Iran;

• Overnight, tit-for-tat strikes between the US and Iran continued. However, it is worth noting that US operations remain focused on coastal targets aimed at neutralizing threats to shipping through the Strait of Hormuz – rather than the deep inland strikes seen during the full-scale war. Nevertheless, the ever-so-well-informed Axios reported that President Trump convened a meeting in the Situation Room to discuss the possibility of expanding the current offensive;

• Touching on broader markets, Asian equities are broadly in the green this morning as the technology sector stages a rebound. S&P 500 futures are up around a quarter of a percent, while the broad dollar is trading marginally weaker this morning;

• Looking ahead, central banks dominate today's calendar. The Federal Reserve will publish its Beige Book, while the Bank of Canada announces its interest rate decision – the consensus is that they will leave rates unchanged. We also have the second day of Fed Chair Warsh's testimony before the Senate, alongside some ECB-speak. Besides the central bank events, we will be keeping an eye on the release of US PPI inflation data and those all-important Iran war headlines.

‍

‍