AFS Markets Blog: Morning 19/10/2026

• Meanwhile in markets, the sell-off in AI stocks and credit has eased – for now at least. Elsewhere, US President Trump’s energy market jawboning has become mightily impotent, with prices for crude, natural gas, and diesel staying very much elevated;
• Brent crude oil futures, while intraday a couple of dollars lower at $107.8 a barrel, are still very much above the pain threshold level for consumers. Remember that the Trump administration touted normalization of Strait of Hormuz transits (about 75% of pre-war levels), announced a ‘dirty deal’ on importing Russian crude, and now President Trump is blocking Russian sanctions that are part of a Congressional bill. All to no avail;
• Furthermore, this morning Dutch natural gas futures opened at a new Iran war high of 89.32 euros per MWh before easing slightly. Diesel futures on both sides of the Atlantic trade at their highest level in years;
• If energy prices and stubbornly elevated inflation are any guide, the Republicans will likely lose both their House and Senate majorities at the midterm elections in two weeks. Normally, such a state of affairs, the President having to deal with an opposition majority in Congress, should be positive for US Treasuries. Congress is then able to block the natural tendency of the White House to run easy fiscal policy. But, with the Democratic Socialists making headway on the left flank of the Democratic party, I am not holding my breath for tighter fiscal policy. On the contrary: it might bring to the fore the worst fiscal profligacies on both sides;
• In any case, UST yields are flat this morning. With the 10y at 5.07 and the 30y at 5.41, we have fully erased the September and October bounce in yields. Mind you that long end yields are lower simply because major central bank speakers lost their nerve because of the bond market carnage. And started to guide rather overtly for a hold at their respective interest rate decisions this month. Regardless, the outlook for fiscal deficits remains terrible;
• The AI sell-off has petered out, with the Korean Kospi and its tech heavyweights Samsung and SK Hynix trading flat. The Nikkei is half a percent lower while S&P 500 futures have erased most of (late) last Friday’s plunge. The broad dollar is trading flat while in the major crosses only EURCHF stands out. EURCHF hit a three-month low of 0.932 earlier in the session before rebounding slightly. Surprisingly, OAT futures are up marginally – punters aren’t unnerved yet by the massive and destructive protests in France over the weekend;
• Regarding key over the weekend news, the Wall Street Journal reported that the Kremlin has floated a meeting of the ‘big three’ – President Trump, President Putin, and Chinese leader Xi Jinping – to decide on the fate of Ukraine. According to the Journal, Putin floated the idea during his phone call with Trump on the diesel deal on October 9. While Trump hasn’t agreed to anything, he’s reportedly open to Yalta 2.0 (the evil version);
• Keep an eye on Romanian sovereign bonds after the nation’s Finance Ministry reported a surprisingly low budget deficit of 3.8% of GDP over the first nine months. That’s a full 1.5ppt lower than last year. And now we’re busy discussing Eastern Europe, Romania also reported that it shot down two drones (likely Russian) over the Black Sea to prevent them from harassing shipping. Finally, Hungary will unveil its 2027 budget today, part of a multi-year effort to cut the deficit from a lofty 7% of GDP all the way down to the EU’s 3% limit by 2030 and fulfill the conditions for euro membership;
• Looking ahead, the calendar for today and the rest of the week is relatively uneventful. We have a fistful of ECB-speakers though no Fed-speakers because the FOMC blackout period started last Saturday. On the data front, keep an eye on Friday’s monthly PMIs. Moody’s will review France’s rating on Friday. While Moody’s still rates France Aa3 with a Negative outlook, yield-wise its debt trades like junk.