AFS Markets Blog: Morning 16/10/2026

• Meanwhile in markets, bonds are taking a breather after a strong showing over the past week. Over in equities, the battered AI trade appears to be finding its footing again;

• US Treasury yields have edged up a basis point or two this morning, though that does little to unwind the sharp rally over the past week. The curve has experienced a pronounced bull-flattening over the period, with 30-year yields tumbling 17bps while the 2-year yield has shed 4bps. Over in Europe, Bund futures are trading sideways. Le spread – the French OAT–Bund spread – has also been moving sideways over the past week, hovering around the 140bps mark. In the periphery, spreads over Bunds have narrowed by a couple of basis points over the past week, though they remain within sight of their highs;

• Overnight, Fed Chair Kevin Warsh spoke at the IMF’s annual meeting in Bangkok. While his remarks steered clear of monetary policy, punters treated the absence of hawkish signals as a signal in itself, unwinding the remaining bets on an October rate hike. Fed funds futures are now pricing in just 3.5bps of tightening for the upcoming meeting – a far cry from the near coin-toss odds implied in the immediate aftermath of Wednesday’s hot CPI release. Looking ahead, year-end pricing stands at 26bps of tightening, with a 25bps hike in December the broad consensus;

• Shifting to broader market commentary, Asian equities are up this morning, with S&P 500 futures in the green as well. South Korea’s Kospi is up 3 percent this morning, offering some relief, though that does little to undo its nearly 15 percent decline over the past week. The Kospi rebound comes amid continued stress in the AI trade. Our own AI index – comprising hyperscalers and hardware producers – is down eight percent over the past week and now in correction territory;

• Across the roughly 20 names in the AI space tracked on our dashboard, hardware manufacturers and neocloud provider CoreWeave have borne the brunt of the sell-off. Scrutiny of CoreWeave’s debt-financed compute-leasing business model has been cited as a key driver. Still, sentiment showed early signs of stabilising yesterday: after plunging another 7 percent at the open, CoreWeave staged a reversal to finish the session up 5 percent;

• Moving to FX, the broad dollar is on track to close the week with marginal losses. EURCHF is trading just below the 0.93 handle at pixel time. In energy markets, Brent crude is hovering near $105 a barrel, putting it on track to close the week with a one percent gain. Still, the rise in crude prices over the past week has been more contained than the surge in gas prices. European natural gas prices remain up 5 percent week-to-date, despite pulling back €3 from their intraweek peak;

• Looking ahead, the calendar is barren today. I guess we’ll be relying on the headlines to keep us entertained ahead of the weekend.

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